UK Warns Of Extra GBP22bn Hole In Public Finances

Britain's Labour finance minister Rachel Reeves declared Monday that the public finances face an extra GBP22-billion hole inherited from the previous Conservative administration and warned of "difficult decisions" ahead to cut spending or hike taxes.

Reeves, who is the first woman chancellor of the exchequer, also cancelled or postponed road and hospital building projects and restricted winter fuel payments to only the poorest pensioners.

"We have inherited a projected overspend of GBP22 billion ($28 billion)... this year that was covered up by the party opposite," said Reeves, appointed after centre-left Labour won a landslide election victory to end 14 years of Conservative rule on July 4.

"If left unaddressed, it would mean a 25-percent increase in the budget deficit this year," she told lawmakers, citing a detailed audit of the public purse. She said that she would unveil her first budget in October.

"So I will today set out the necessary and urgent work that I have already done to reduce that pressure on the public finances by GBP5.5 billion this year and over GBP8.0 billion next year."

Reeves said the scale of the overspend was "not sustainable" and not to act was "simply not an option" for her newly elected government headed by Prime Minister Keir Starmer.

The previous Conservative administration, led by Rishi Sunak, had "ducked the difficult decisions (and) put party before country", the finance chief said.

"They continued to make unfunded commitment after unfunded commitment, knowing that the money was not there, resulting in the position that we have now inherited."

Reeves said the Labour government would unveil its first spending and taxation statement on October 30.

"It will be a budget to fix the foundations of our economy," she told lawmakers, adding she was also launching a multi-year spending review to set departmental budgets for three years.

The main opposition Conservatives, however, rejected Labour's claims, alleging the new government was using the fiscal assessment to lay the ground for tax hikes.

"She will fool absolutely no one with a shameless attempt to lay the ground for tax rises she didn't have the courage to tell us about," said Conservative finance spokesman Jeremy Hunt, who was UK finance minister prior to the general election.

The audit is widely seen as preceding infrastructure spending cuts and potential rises to some taxes -- although Labour vowed during the election campaign that it would not raise the main rates levied on workers.

Before the election, Reeves vowed to exercise "iron discipline" over the public finances -- and slammed the disastrous 2022 mini-budget during the short-lived premiership of Liz Truss.

Britain's economy is now on a more stable footing after exiting a mild recession, as inflation returns to normal and with Bank of England interest-rate cuts on the horizon -- possibly as soon as Thursday.

Ahead of Monday's statement, The Sunday Times newspaper and other media had already reported that Reeves' team had identified an additional public finances black hole of around GBP20 billion.

The UK deficit -- the difference between what the government receives in tax and what it spends -- stood at around GBP120 billion in the 12 months to the end of March, the country's last fiscal year.