The real ‘black hole’ in the public finances is the debt

The Chancellor is right, the public deserve to know just how bad the economy is – so she should be honest about the millions of pounds a day that are added to the national debt, says John O’Connell

Reeves’ tone was one of righteous fury on Monday as she bellowed at the opposite benches for the inheritance she was left. After almost four weeks of what have felt like continuous spending demands from the various interest groups and campaigners that have been waiting for Labour to turn on the spending taps it’s not a surprise that she’s struggling to come to terms with the fact that she’s going to have to say no quite a lot.

She was right to sound the alarm about the precarious state of the public finances. Except it’s not just in the current year that a shortfall exists. This is just the tip of a £2.5 trillion plus iceberg that is our national debt. It’s about time a chancellor confronts the harsh reality of our fiscal situation, which even at £2.5 trillion doesn’t include vast pension liabilities kept off the balance books. That’s why we at the Taxpayers’ Alliance have launched our debt clock, which tracks the thousands of pounds that are added to our national debt every second; the hundreds of millions of pounds every day. Because we agree with the chancellor – the British public deserve to know just how bad it is.

For years, we operated under the illusion that our burgeoning debt was manageable due to astonishingly low interest rates following the financial crash. While Labour may moan about Tory austerity, in fact over the last 14 years the story has been that public spending has continued to rise at a rate far higher than GDP. Spending by most major departmental groups increased substantially from 2010-11 to 2022-23. The largest percentage increase in spending was by the department of education, which saw a 115.43 per cent increase, followed by the department for health and social care with an 82 per cent increase. But this era of cheap money has ended, the spending binge is over, and we must all live with the hangover. 

So will Labour really deliver change from this high-spend, high-debt approach? The Conservative attack has been that Reeves’ statement is little more than a chance to prepare the public for tax rises. They may have a point, and those tax rises may be worse than have been briefed. Raising capital gains tax does not bring in revenue according to the Treasury’s own figures; scrapping inheritance tax reliefs and cutting pension relief won’t bring in enough. The £19bn black hole is suspiciously similar to the amount raised by raising national insurance by four percentage points, or “cancelling an irresponsible tax cut”, as they may put it.  

But to reach for tax rises is the easy way out – the one that requires difficult decisions by businesses, individuals and families, but no difficult decisions for ministers. The reality is that addressing the fiscal crisis requires a willingness to tackle the entrenched financial commitments that continue to drain the public purse. There is some evidence from Reeves’ statement that she may be taking that seriously. Means testing the winter fuel allowance, which we have long called for, is a genuinely brave decision that previous governments have been unwilling or unable to touch. As uncomfortable as it might be for Labour to admit, spending is spiralling out of control.

Unfortunately there has been much in Labour’s approach which looks like cutting spending in one area in order to pay for more spending in another. That money being withheld from pensioners looks set to be handed straight to public sector workers in the form of inflation busting, even double digit pay increases. That is not “making the tough decisions.” Public sector workers have better pay, pensions and perks than their private sector workers counterparts, despite miserable levels of productivity growth in the public sector in recent years. It looks like something for nothing.

The reality is that for all Reeves’ fury about her inheritance, and despite some sensible decisions, she has managed to find billions for public sector pay, a new wealth fund, climate aid, GB Energy and a host of other pledges. The triple lock is unchanged, and public sector pensions remain gold-plated. All the while the debt clock ticks up.

John O’Connell is chief executive of the Taxpayers’ Alliance