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Rachel Reeves is expected to reveal a near-£20bn hole in the public finances as the government accuses the Tories of what it says is a “failure” to properly run the government finances.
On Monday the chancellor will outline the results of an audit of shortfalls in funding plans that is expected to pave the way for tax increases later this year.
The figure of about £20bn, which could change as work continues, represents an annual gulf between revenues and funding commitments in areas such as asylum and public sector pay.
“This is beginning to lift the lid on exactly what they did,” said a Labour source.
“On Monday, the British public are finally going to see the true scale of the damage the Conservatives have done to the public finances,” the source said. “They spent taxpayers’ money like no tomorrow because they knew someone else would have to pick up the bill. It now falls to Labour to fix the foundations of our economy and that work has already begun.”
Reeves is set to lay out the timing of the Budget and a spending review when she speaks on Monday after returning from a meeting of G20 finance ministers in Brazil. She has accused the Conservatives of failing to make the “tough decisions”, arguing that “it’s now up to us to fix it”.
Insiders point to pressures on the NHS, particularly in hospital building but also in defence, prisons and in compensation for scandals over infected blood and the Post Office.
However, when it comes to ongoing spending, the biggest problem looming is public sector pay, after independent reviewers recommended rises of 5.5 per cent for NHS and school staff — well above the 3 per cent expected by the Treasury.
Extending an increase of that magnitude to the entire public sector would add an extra £10bn a year to the pay bill if set against a 2 per cent baseline, according to the Institute for Fiscal Studies.
That would wipe out the £8.9bn of “headroom” against borrowing rules announced by former Conservative chancellor Jeremy Hunt in March when he laid out his final Budget.
Speaking on the sidelines of the G20 meetings, Reeves said: “We’ve inherited a mess. I am going to fix the mess.
“I will never make unfunded commitments. I will never make promises without saying where money is going to come from.”
Speaking soon after taking office, Reeves said she had instructed Treasury officials to provide an “assessment of the state of our spending inheritance” so she could understand the full scale of the challenge facing the new government.
Earlier this week, Prime Minister Sir Keir Starmer hinted at painful fiscal announcements, when he said his government was facing “a more severe crisis than we thought as we go through the books” with “failure absolutely everywhere”.
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