Reeves’ £22bn ‘black hole’ claim cannot now be confirmed, says OBR

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Chancellor Rachel Reeves’ claim that she inherited a £22bn “black hole” in the public finances from the previous Conservative government cannot be confirmed, the UK’s fiscal watchdog said on Wednesday.

The Office for Budget Responsibility said its previous forecasts for public spending would have been “materially” higher if the Treasury had come clean about large pressures on Whitehall departments before the last Budget delivered by Tory chancellor Jeremy Hunt.

The watchdog said it would have dropped its assumption of a £2.9bn underspend in departments’ budgets for 2024-25 if it had known the full extent of pressures on ministries’ finances and the Treasury’s reserve fund and of plans to manage these pressures.

But a review published by the OBR alongside the Budget did not endorse Reeves’ claim that she was left a £22bn “black hole” in the public finances by her Conservative predecessor.

Instead, OBR chair Richard Hughes told a press conference that it was not possible now to reach a judgment on how far the watchdog’s forecast would have differed.

In her Budget statement, Reeves said a recurring £22bn shortfall in the money needed to keep public services running was a key reason forcing her into the biggest tax-raising Budget for a generation.

The previous government’s behaviour in making unfunded spending promises had been “the height of irresponsibility”, she said.

But Hughes said the Treasury had known about net pressures of £9.5bn it did not share when it met OBR officials before the Budget in March this year, the last delivered by the previous Tory government.

The Treasury has told the OBR it did not disclose these pressures because it was assuming departments would find savings elsewhere to offset them. A spokesperson for the finance ministry said this was “the position taken at the time”, and could not say whether this was an official or ministerial decision.

“We cannot recreate the further conversations we would have had . . . about what they would have done,” Hughes said. “There’s no way of knowing how different our forecast of public spending would have been.”

Other measures Reeves had included in her estimate of the £22bn “black hole” — including her own £9.4bn uplift to public sector pay — were the result of later policy decisions, he noted. “It’s impossible to say what a different government or chancellor would have done,” Hughes added.

The OBR published its review in the teeth of fierce criticism from Hunt, who argued that the report would be used as a “political weapon”.

Releasing it alongside the Budget was “deeply problematic for perceptions of the impartiality of the civil service”, he said in a letter to cabinet secretary Simon Case this week.

A series of changes agreed as part of the review include requirements for the Treasury to provide a clearer breakdown of departmental spending, highlighting risks of overspends, and an explanation of how new policy announcements will be funded.

Reeves has accused Hunt of hiding spending pressures from the public and the fiscal watchdog, so that Labour found the public finances in a far worse state than expected when it arrived in government.

In July, she published a Treasury audit showing that spending by government departments was expected to be £22bn higher in 2024-25 than the OBR had forecast at the March Budget.

But the Treasury has failed to fully explain how it arrived at the £22bn number, declining to answer a Financial Times freedom of information request on the subject.

Tory leader Rishi Sunak said “shameless political motivations” lay behind Reeves’ claims on the public finances, as he accused her of concocting a “false justification” for her fiscal agenda. 

Responding to the Budget in the Commons, Sunak told MPs: “Today the OBR has in fact declined to back up her claims of a fictional £22bn black hole. It actually appears nowhere in that report.”

The former Conservative prime minister said it was “deeply, deeply disappointing” that Reeves had “sought to politicise the independent OBR that should be above party politics”. 

He added that “playing politics has done real damage to our economy”, as he quoted a Bank of England former chief economist who said Labour’s approach had generated fear, foreboding and uncertainty among consumers, businesses and investors.