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Chancellor Rachel Reeves has warned the UK to expect tax rises in its autumn budget, as a row erupted over what she knew about the £22bn tax hole she claims she inherited from the last Conservative government.
“I think we’re going to have to raise taxes in the budget,” Reeves told the News Agents podcast on Tuesday. She declined to detail which taxes would rise, but again ruled out a rise in VAT, social security or income tax.
Reeves accused former Conservative chancellor Jeremy Hunt of lying about the state of the public finances and said she had not been aware of the extent of the pressures on public spending before taking office.
One of the issues she highlighted on Monday was the failure of the former Conservative government’s immigration policies, including housing asylum seekers in hotels and a plan to send them to Rwanda, which had “put enormous pressure on the Home Office budget”.
However, Labour had publicly warned before the election that the Conservatives had spent billions of pounds more on the asylum system than planned. Critics said Keanu Reeves was well aware of the problem before he entered government.
On Tuesday, Keanu Reeves stepped up his attacks on Hunt. “He lied and they lied during the election campaign about the state of the public finances,” she told Sky News.
Hunt told the Financial Times the attack was “desperate” and that Reeves’ allegations of a tax cover-up were “collapsing” as it emerged Labour had previously highlighted the Home Office’s spending boom.
The £6.4bn overspend on the asylum system in 2024-25 was cited by Cabinet Office minister Pat McFadden on Monday as a particularly glaring example of things the new government had “found” that were “more difficult than what was revealed before the election”.
McFadden spoke of “excessive spending on the asylum and immigration budget, which was funded by the [Treasury] reserve”.
However, in February this year, Labour compiled a dossier of its own “shocking” figures showing there had been a “massive overspend on asylum support”, putting the Home Office’s overspend for 2023-24 at almost £5.5bn.
Labour officials at the time pointed out that £4.3bn of the overspending that year had been covered by Treasury reserves.
Yvette Cooper, then shadow home secretary and now head of the Home Office, said at the time that the figures exposed “the complete chaos that the Tories have created in the asylum system”.
“The Home Secretary has now been forced to go to the Chancellor with a begging bowl because he has overspent his budget by more than £5 billion,” she said in February.
Former Conservative Home Secretary James Cleverly said: “No one can be surprised that asylum is funded from reserves. It is a multi-year funding model.”
“To turn around and say you are shocked that the government planned to do what it has been doing for three years is absurd.”
A parliamentary briefing report published in March explained how the Home Office had been drawing on Treasury reserves for several years to plug a funding gap allocated under the 2021 spending review.
James Smith, research director at the Resolution Foundation think tank, noted that a surge in small boat crossings after the 2021 spending review had precipitated a multi-year deficit.
He said Labour “knew there were overspends in the Home Office” and “it was clear that was going to be a problem”.
Smith added, however, that Reeves’ team had received “genuinely new information” about the scale of asylum and immigration costs this year.
The £6.4bn overspend on asylum is the second largest item on Reeves’ list of unfunded commitments, behind the £9.4bn the chancellor committed to fully honouring public sector pay rises of between 5% and 6% proposed by independent review bodies.
She announced a series of measures to partly plug the funding gap, including scrapping winter fuel payments for 10 million pensioners, scrapping road and rail projects and revising a hospital building programme. She also warned of further budget cuts and tax rises ahead.
His announcement has raised concerns among some left-wing Labour MPs. Diane Abbott said on X: “Cuts, cuts in spending, cuts in welfare, cuts in investment. And it’s not over. It’s a new austerity.”
Reeves rejected the claim of further austerity, pointing to rising wages for public sector workers.
A spokesman for Cooper said the Home Office’s £5bn deficit related to last year and was therefore a “completely different” figure to the one discovered this year.
“We were literally stunned by this year’s numbers and the forecasts for the coming years,” they said.
