Labour has described its inheritance as the worst economic situation since the end of the Second World War.
This declaration follows the release of official figures revealing that the government borrowed more than anticipated in June 2024.
Highlighting the formidable challenges for Chancellor Rachel Reeves, the Office for National Statistics (ONS) reported that UK borrowing, which measures the gap between public sector spending and income, stood at £14.5 billion last month.
Despite borrowing in the first quarter of 2024-25 being £1.1 billion lower than the same period the previous year, totaling £49.8 billion, the Office for Budget Responsibility (OBR) noted that this figure was £3.2 billion above its forecast published in the March budget.
Labour has warned, in the wake of its recent electoral victory, that after 14 years of Conservative rule, it has inherited a perilous financial situation.
The national debt has reached its highest levels since the 1960s.
Darren Jones, Chief Secretary to the Treasury, remarked on Friday: “Today’s figures are a clear reminder that this government has inherited the worst economic circumstances since the Second World War, but we’re wasting no time to fix it.”
“Fixing the economy’s foundations and restoring stability is the only way we can create growth and put more money back into people’s pockets across the country. That’s why we’ve introduced our budget responsibility bill, which will ensure that no future government can play fast and loose with the public finances.”
Darren Jones
Reeves To Address Public On Spending
Chancellor Reeves is expected to address the state of public spending in an upcoming update to the Commons before the end of the month.
Insiders suggest that this update will underscore the challenge the new government faces in repairing public services and fostering economic growth.
It is anticipated that Reeves may delay her update until just before parliament’s summer recess on 30 July, as she is slated to attend G20 meetings in Brazil on Thursday and Friday next week.
Reeves has not yet announced the date for the first budget, which is expected this autumn.
She has indicated that the OBR requires a 10-week notice period to provide independent forecasts, implying that no budget will be presented until after Labour’s annual party conference in Liverpool. The conference is scheduled for the final week of September.
The government is also under increasing pressure to find room in the public finances to abolish the two-child limit on benefits.
This Tory policy, introduced in 2017, has been identified by campaigners as the UK’s largest contributor to child poverty.
The Resolution Foundation’s analysis indicates that abolishing the two-child limit would cost approximately £2.5 billion today, rising to £3 billion if combined with the abolition of the benefit cap.
The benefit cap is a separate restriction limiting the total amount of support a household can receive.
During the general election campaign, Labour did not commit to abolishing the two-child limit, citing tight constraints on government finances and emphasizing that economic growth was its primary objective.
Cara Pacitti, a senior economist at the Resolution Foundation, commented: “Weaker-than-expected borrowing so far this year will serve as a reminder to the new chancellor of the huge fiscal challenge she faces ahead of her first budget this autumn.”
“The fiscal inheritance facing Rachel Reeves is one of rising taxes, falling spending for many public services, and very little wriggle if bad economic news materializes. And data this week on inflation, jobs, and government borrowing have not been encouraging.”
Cara Pacitti
As Labour navigates these turbulent economic waters, the new government must swiftly address these challenges to stabilize the economy and lay the groundwork for future growth.
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