Rachel Reeves tells Cabinet Britain still faces 100 billion black holes in the next five years | Fall 2024 Budget

Rachel Reeves has told the cabinet that Britain still faces a $100 billion black hole in public finances over the next five years, amid concerns ministers are not yet aware of the full scale of the budget deficit.

The Prime Minister told a political cabinet meeting that the $22 billion gap this year would be a recurring cost every year this Parliament because of the government's poor economic legacy from the Conservatives.

Cabinet ministers have opposed some of the cuts that have been asked of them, particularly cuts to annual capital spending, and Reeves' words will likely be interpreted as a signal that she will not back down.

A Labor spokesman said the Prime Minister highlighted the $22 billion black hole inherited from the previous government that had to be filled to maintain public services.

She said the scale of the inheritance meant there would have to be difficult decisions about spending, welfare and taxes, and that the long-term priority should be stimulating private sector investment to boost economic growth.

The Prime Minister told his cabinet that the budget would focus on putting public finances on a solid footing and giving the British people a frank account of the scale of the challenge.

Treasury sources said internal calculations showed the huge annual figure Reeves announced in July was a conservative estimate of the amount needed to cover costs including public sector salaries, support for Ukraine and the asylum system.

Ministers are somewhat aware that they need to fix the black hole every year, but because they see these things through the lens of their own departments, they feel they have not really grasped the scale of the budget problem that is much worse than that. “We expected it,” the source said.

The optimistic assessment came with the caveat that this is not a budget for rabbits. Government aides are trying to manage expectations about what the Prime Minister can deliver in his long-awaited first financial report.

Instead, the budget will be presented as a long-term down payment to fix the country's foundations as the government pulls out all the stops to grow the economy.

Ministers have signaled the government is pushing ahead with plans to borrow tens of billions of pounds more to invest in infrastructure by changing how fiscal rules are calculated.

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Capital expenditure areas were expected to include funds to be invested with businesses such as rail and roads, gigafactories and renewable energy projects, as well as further investment in improvements to schools and hospitals.

At the same time, Reeves is expected to strengthen confidence in markets by reaffirming Labour's fiscal rule that there will be no borrowing for everyday spending, turning it into a golden rule.

This reflects Gordon Browns' guidance that during business cycles, governments only borrow for investment purposes and not to finance current spending.

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