Rachel Reeves announced spending cuts worth £5.5bn as the new government seeks to address a £22bn black hole in the public finances.
In a statement to the House of Commons, the Chancellor said the “inheritance from the previous government is unforgivable”.
“They spent like there’s no tomorrow because they knew someone else would pick up the bill,” she said.
The statement detailed the results of an internal Treasury audit on the state of the public finances commissioned by the Chancellor upon entering office.
The review found that there is expected to be an overspend on departmental spending worth around £22bn above the departmental budgets laid out in the Spring Budget.
The £22bn figure includes both commitments that the previous government did not fund adequately, such as for asylum seekers and support for railways during the pandemic, as well as funds for a 5.5 per cent pay rise for workers across the public sector.
To help plug the gap in the public finances, Reeves set out immediate plans to make £5.5bn in savings, rising to £8.2bn next year.
To fund the public sector pay awards, the Chancellor said she has asked departments to find savings worth around £3.2bn, as part of which all “non-essential” spending on communications and consultancies will be cut.
The Chancellor also announced plans to introduce means testing on winter fuel payments, which will save £1.4bn this year.
The measure, which Labour says will target support at the most vulnerable households, will see the number of households eligible to receive the winter fuel payments falling from 8.4m households to 1.5m households.
“These are not the decisions I wanted to make. But they are the right decisions in difficult circumstances,” she told the House.
Over the months ahead, the Chancellor will look to reduce funding pressures further before the Budget, which is scheduled for 30 October.
More to follow