Fiscal challenges set up tough Budget

Public borrowing is £4.7 billion higher than expected this year underlining the difficult choices facing Chancellor Rachel Reeves at the Autumn Budget.

Treasury spending audit had already revealed £22 billion of unfunded pledges inherited from the previous government before the Office for Budget Responsibility's (OBR's) latest grim forecast.

The Chancellor has said there will be significant changes to tax and spending plans at the Budget on 30 October. Here, we take a look at what Ms Reeves has said so far and what it means for taxpayers.

Fix the foundations

The Chancellor said that she has inherited a '£22 billion hole' in the public finances and outlined the 'urgent work' required to reduce the pressure on finances by £5.5 billion this year and over £8 billion next year.

Ms Reeves announced that the government will cut winter fuel payments to those not in receipt of pension credits and axe funding for certain infrastructure projects.

Ms Reeves said the government will 'treat taxpayers' money with respect by ensuring that every pound is well spent and use the Budget to 'fix the foundations of our economy'.

Ms Reeves added: 'This is not the statement I wanted to give today, and these are not the decisions I wanted to make. But they are the right decisions in difficult circumstances.'

Immediate savings

The Chancellor announced a number of immediate savings, including:

• £800 million this year and £1.4 billion next year from scrapping the Rwanda migration partnership and scrapping retrospection of the Illegal Migration Act.
• £70 million this year by cancelling the Investment Opportunity Fund and other small projects.
• £185 million next year from cancelling the Advanced British Standard.
• £785 million next year from stopping unaffordable road and railway schemes.

The Chancellor also announced a review of the New Hospital Programme.  

Manifesto commitments

Ms Reeves also outlined the next steps in delivering tax commitments from Labour's election manifesto.

This includes ending the VAT tax breaks for private schools from 1 January 2025 to help recruit 6,500 new teachers, as well as replacing the non-domicile regime with a new internationally competitive residence-based regime.

The Chancellor confirmed plans for the Energy Profits Levy to be extended one year to 31 March 2030, have its investment allowances tightened and to increase the rate of the levy by three percentage points to 38% from 1 November 2024.

Tax and spending

The Chancellor will be making a number of further tax and spending announcements at the Autumn Budget.

Ms Reeves said: 'I can repeat – from the despatch box – our manifesto commitment that we will not increase National Insurance, the basic, higher or additional rates of income tax or VAT.

'My Right Honourable Friend the Exchequer Secretary is publishing further detail on our manifesto commitments to close tax loopholes and clamp down on tax avoidance to ensure we bring that money in as quickly as possible.'