Rachel Reeves to delay some ‘unfunded’ Tory roads and hospital projects | Economic Policy

Rachel Reeves will on Monday delay a number of “unfunded” roads and hospital projects as part of the Treasury’s early plans to plug an apparent £20bn spending hole left by the Conservatives, while pledging above-inflation public sector pay rises.

The Chancellor is expected to argue that she inherited “unfunded and untimely” capital projects as part of her Treasury audit report to the House of Commons. The audit will be seen as an indication of the government’s early commitments and priorities.

Reeves is also expected to accept recommendations from public sector pay bodies for above-inflation pay rises – a move economists say could cost up to £10bn.

The investment projects under threat include a £1.7bn tunnel under the Stonehenge monument on the A303; the Lower Thames Crossing, a 14-mile road and tunnel east of London that is expected to cost £9bn; and the Conservatives’ new hospitals programme, which was a promise to build or expand 40 NHS hospitals by 2030.

Key road projects, which have taken years to prepare, could be at risk as rising inflation has pushed up cost estimates, according to Labour figures. “A lot of these projects are not funded,” one source said.

A final decision on the Stonehenge tunnel may not be made until the Court of Appeal rules on the project in early autumn. The future of the Thames Tunnel is also uncertain, as a decision on its future has been delayed by six months due to the general election.

Health Secretary Wes Streeting told MPs this week it was “painfully clear” the new hospital programme would not be achievable by 2030.

“I want the new hospital programme to be completed, but I am not prepared to give people false hope about how quickly they will get the facilities they deserve,” he said.

Under Reeves’ plans, millions of public sector workers are set to receive above-inflation pay rises.

The NHS and teachers’ pay bodies have reportedly recommended a 5.5% increase, and similar advice is likely to have been given by other pay review bodies, covering staff such as doctors and dentists, the armed forces, prisons and police officers.

The pay increases would help reverse years of wage declines, address staff shortages and avert the threat of industrial action.

Reeves is expected to confirm the increases when she sets out her case on Monday that the Conservatives have left the government a disastrous economic legacy, including a £20bn black hole.

Despite the difficult economic circumstances, she is expected to argue that pay rises are necessary to avoid the costs to the economy seen during the waves of strikes under the Conservatives.

As part of this process, Reeves asked Treasury officials for an analysis of the cost to the economy of industrial action, with strikes in 2022 and 2023 having a negative impact on productivity.

It is believed that each day of teachers’ strikes cost the economy £300 million in lost working hours, while industrial action in the NHS cost the taxpayer a total of £1.7 billion.

The cost of civil servant pay increases has not been fully budgeted for in current spending plans, and the money will have to be found in existing fiscal space, changes to budget rules or tax increases planned in the budget.

Before the election, Ms Reeves declined to say whether civil servants would get a pay rise, saying she would have to look at the accounts before making a decision. But more recently she suggested the government might be prepared to accept the advice of pay bodies, saying there was “a cost to not concluding” negotiations.

Labour sources said responsibility for the £20bn deficit in public spending lay with the Conservative government, describing it as a “shocking legacy” and accusing the former chancellor of “presiding over a black hole and continuing to campaign for tax cuts”.

They highlighted concerns about spending on the asylum system, social care, defence and prisons. However, audit work is still ongoing and the final £20bn figure could change as officials review each department’s spending commitments.

In his statement to the Commons on Monday, Reeves will confirm the date of the budget, which is expected in the second half of October or November, as well as plans for a spending review.

It will also highlight some of the immediate pressures in areas such as the asylum system, prison places, welfare, defence and local councils – and how the government intends to address them in the short term.

Economists have predicted that Keanu Reeves will “wipe the slate clean” of the bad news about the economy. The study is expected to conclude that current spending plans are unsustainable and would require substantial cuts to public services, a position economists have repeatedly stressed before the election.