Rachel Reeves leads the way in budget cuts and tax hikes to close deficit left by Tories | Public Finance

Rachel Reeves will lay the foundations for spending cuts, tax increases and delays to major infrastructure projects on Monday, while exposing the toxic legacy the Labour government inherited from the Conservatives.

It is expected to suspend work on a series of infrastructure projects, including Boris Johnson’s flagship plan to build 40 new hospitals and the proposed two-mile road tunnel bypassing Stonehenge.

Reeves will inaugurate a “Value for Money Office,” an independent body that will use public service resources to immediately begin identifying and recommending savings for the current fiscal year.

She will say that surplus public goods will be sold and immediate steps will be taken to end “non-essential” spending on consultants.

A Treasury source said Monday’s announcement was not about “a return to austerity” but about repairing the damage of “14 years of unfunded promises” which have left a £20bn hole in government spending on essential public services.

The Guardian reported on Friday that Reeves would approve above-inflation pay rises for millions of public sector workers, with teachers and NHS staff set to receive a 5.5% pay rise, around £3.5bn more than previously planned. The pay rises are seen as necessary to avoid the costs to the economy seen during the last government’s waves of strikes.

“Before the election, I said we were facing the worst legacy since World War II,” Keanu Reeves will say Monday. “Taxes at their highest level in 70 years. Skyrocketing debt. An economy barely emerging from recession. I knew all that. I was honest about it on the campaign trail. And I understood the tough choices that came with it.”

“But as soon as I arrived at the Treasury three weeks ago, it became clear that there were things I didn’t know. Things that the party opposite was hiding from the country.”

The Labour Party’s manifesto pledges not to raise taxes on working people, but to focus on economic growth to improve public finances. Labour has ruled out increases in income tax, VAT, social security and corporation tax, leaving changes to capital gains tax, inheritance tax and pension cuts on the table.

Environment Secretary Steve Reed declined on Sunday to say whether Labour would consider using the taxes to plug the funding gap, but said: “We are not going to shy away from tough decisions.”

Paul Johnson, director of the Institute for Fiscal Studies, said it seemed “quite likely” that Labour would raise taxes in some form, saying the £20bn hole could be plugged “by reversing the cuts to social security that Jeremy Hunt has made in his last two budget statements”. “If it wasn’t for politics, it would be the easiest thing to do,” he told Times Radio.

Other leading economists have suggested the government could “raise a few billion pounds through reforms to capital gains tax and inheritance tax”.

Reeves will announce that a forecast from the Office for Budget Responsibility would coincide with a budget and spending review later this year, the date of which will be announced on Monday.

She will commit the government to holding a major budget event every year to end “surprise budgets”, which have already caused uncertainty in markets and family finances across the country.

It is expected to scrap or scale back a number of major infrastructure projects, including the £500m Railway Restoration Fund, the £1.7bn A303 Stonehenge dual carriageway and the A27 Arundel bypass in West Sussex.

Reeves will say: “It’s time to be honest with the public and tell them the truth.

“The previous government refused to make tough decisions. It covered up the true state of public finances. And then it ran away. I will never do that.”

“The British people voted for change and we will deliver that change. I will restore economic stability. I will never again stand by and let this happen again.”

“We will repair the foundations of our economy so that we can rebuild Britain and make every part of our country better off.”

Liberal Democrat Treasury spokeswoman Sarah Olney said it was clear the UK economy was in “desperate need of repair” after years of Conservative Party incompetence.

Gareth Davies MP, Secretary of State to the Treasury, said Reeves was “trying to dupe the British public into accepting Labour’s tax rises”.

“She wants to pretend that the OBR, set up by the Conservatives and whose forecasts have been used in every recent Conservative government budget, does not exist in order to make everything she says credible and, just like her books, this announcement is a carbon copy of what happened decades before.

“But her words and actions aimed at supposedly saving taxpayers’ money are an insult when she secretly plans to raise taxes at the same time.”