Fallout Continues Over ‘22 Billion Black Hole’ Claim

Conservative leader Rishi Sunak speaks during Prime Minister's Questions in the House of Commons, London on July 24, 2024. House of Commons/UK Parliament/PA Wire

The Budget watchdog has confirmed that the previous Conservative government “did not provide” them with all available information at the last budget but has not substantiated the Labour government’s claim of a £22 billion black hole in the nation’s finances.

The Office for Budget Responsibility (OBR) said on Wednesday it had uncovered £9.5 billion in “spending pressures” that it was not made aware of ahead of former Chancellor Jeremy Hunt’s fiscal statement in March, and has said that its judgment on spending would have been “materially different” had it had access to this information.

Chancellor Rachel Reeves’ Budget on Wednesday afternoon sought to address the claimed gaping hole in the public finances—which the Conservatives have labelled “fictitious.”

The report released by the OBR, which is intended to be independent of government, made no mention of the £22 billion figure, which Labour claims it uncovered in July after winning the general election.

OBR chairman Richard Hughes said the government’s additions to the spending plans this year represent a combination of Labour’s own policies as well as bridging the £9.5 billion shortfall.

The OBR report said that “by their own admission the Treasury did not provide the OBR with all information available to them.”

The document states that a “materially different judgment” about spending would have been reached if all of the information had been shared with them ahead of Hunt’s March budget.

‘Not an Astronomer’

Hughes told a press briefing on Wednesday that he is an “economist not an astronomer” and “we don’t deal in black holes in the OBR.”

Asked whether the £22 billion figure represented the £9.5 billion they had identified plus extrapolation by the present government, Hughes said, “What we do do is try and forecast government spending and when we were putting that forecast together back in March, the Treasury had information about £9.5 billion worth of pressures on public spending that we were not aware of.”

He added: “Because they didn’t disclose that information there’s no way of knowing how different our forecast public spending would have been back in March.

“It would have been materially higher, that’s all we can say.”

Hughes told the same briefing that “in this government’s Budget, they’ve added around £23 billion to departmental expenditure limits in this financial year, but this reflects a combination of the government’s decision to fund some of those pressures as well as new policies announced by this government since March.”

Speaking to Sky News on Wednesday afternoon, Hughes clarified that “nothing in our review was a legitimisation of that £22billion.”

Public Sector Pay

The OBR’s review document stated that “decisions on public sector pay” and how those costs can be met “may have a significant impact” on spending plans.

The government has awarded pay rises to workers across public sector professions including train drivers and teachers since it entered office in the summer.

Former prime minister and chancellor Rishi Sunak told the House of Commons that the OBR had declined to support the Government’s claims about the state of the public finances.

Sunak, in his last appearance as Tory leader, also accused the Chancellor of attempting to “politicise” the independent watchdog.

Responding to the Budget in the Commons on Wednesday afternoon, he said that “the OBR has in fact declined to back up her claims of a fictional £22 billion black hole.

“It actually appears nowhere in their report.

“It is deeply, deeply disappointing that she has sought to politicise the independent OBR that should be above party politics.”

‘Genuinely Bleak Legacy’

Sunak told MPs that Labour’s 2024 inheritance is a “world away” from the “genuinely bleak legacy” left to the Conservatives following the general election of 2010.

Labour maintained the global financial crash of 2008 was the cause of the ensuing economic woes, although the Tories repeatedly accused them of mismanaging the economy during Gordon Brown’s premiership.

Liam Byrne, a former Labour chief secretary to the Treasury, famously wrote a note to his successor, David Laws, on April 6, 2010, stating “I’m afraid there is no money. Kind regards - and good luck!”

Although Byrne said it was meant as a joke, he was roundly criticised by the Conservatives for making light of the situation.

Chancellor of the Exchequer Rachel Reeves poses outside 11 Downing Street with her ministerial red box, before delivering her Budget in the Houses of Parliament in London, England, on Oct. 30, 2024. Lucy North/PA Wire

Tory Austerity

The Tories went on to implement ten years of austerity measures with sweeping cuts to public spending by former Chancellor George Osborne.

Prime Minister Sir Keir Starmer said that Wednesday’s budget was designed to prevent a repeat of such “devastating” austerity and that it was intended to protect the interests of “working people” by not raising the general level of taxation and giving a sizeable cash injection to public services.

Following Reeves’ budget statement, Sunak accused her of having “fiddled the figures and raised tax to record levels.”

He added: “The chancellor and prime minister have tried to say that they had no choice, but let us be in no doubt: their misleading claims about the state of the economy are nothing but a cynical political device. Today’s situation is a world away from the genuinely bleak legacy that we Conservatives inherited from the last Labour government.

“The chancellor forgot to point out that (in 2010) borrowing was £1 in every £4 that they spent, with debt rising every year and unemployment at 8 percent.”

Sunak accused Reeves of “shameless political motivations,” claiming that it “suits her to cook up a false justification for her agenda.”

He added: “But today, the OBR has declined to back up her claims of a fictional £22 billion black hole. It appears nowhere in its report. It is deeply disappointing that she has sought to politicise the independent OBR, which should be above party politics.”

Hunt and Reeves clashed over the issue at Treasury questions in the Commons ahead of the Budget, with the shadow chancellor saying: “We all know why she’s inventing this fictitious black hole. Thirty times this year before the election she promised not to raise tax and ... she’s planning the biggest tax-raising budget in history.”

‘Wipe The Slate Clean’

Reeves hit back: “I think it is important we don’t deny the seriousness of the situation that we face with the black hole in the public finances. Combined with lashing out at independent economic institutions, (it) suggests that he’s got more in common with Liz Truss or Kwasi Kwarteng than perhaps we thought.

“I watched my party lurch towards an ideological extreme and deny reality, and, as a result, we spent years in opposition. The shadow chancellor risks taking his party down the same path.”

Former prime minister Truss and her chancellor Kwarteng sidelined the OBR when announcing the ill-fated mini-budget measures in September 2022 during Truss’s brief tenure in Downing Street.

Reeves has said she does not want to repeat the £40 billion tax rises she implemented in her first Budget “ever again.”

The fiscal announcement was a chance to “wipe the slate clean” following the Conservatives’ time in power, the Chancellor told broadcasters as she defended the Budget on Thursday morning.

Decisions announced by Reeves will see the overall tax burden reach a record 38.3 percent of gross domestic product (GDP) in 2027-2028, the highest since 1948 when the UK was still recovering from the impact of the Second World War.