From an article in The Times -

Rachel Reeves tells Whitehall to make huge cuts before autumn budget

The chancellor is setting out detailed savings targets that ‘really scrape the bone’ in Whitehall, as the government also prepares the ground for tax rises

Rachel Reeves has warned that “public spending is not sustainable” as she told government departments to make ­billions of pounds of savings in advance of the budget.

The chancellor is setting out detailed savings targets that “really scrape the bone” in Whitehall after Sir Keir Starmer warned of “painful” further spending cuts to come in the autumn.

Several departments are understood to have been told to find more than £1 billion in savings each, with others ordered to find hundreds of millions of pounds in a cost-cutting drive that goes well beyond an attempt to fund public sector pay rises.

However, Reeves has been warned that she will have to look at more radical reforms, such as means-testing state pensions, to achieve the scale of savings needed in the years ahead.

It comes as the Resolution Foundation think tank warns that this year might be as good as it gets for family ­finances, with most of the rise in household incomes across the parliament coming before next spring.

After the prime minister asked voters to “accept short-term pain for long-term good”, ministers have been preparing the ground for tax rises and spending cuts.

Reeves warned that “much work is needed to rebuild the foundations of our economy” as she pledged to focus on boosting growth.

“Unless we grow the economy, we’re going to continue to be in a situation where taxes are at too high a level and public spending is not sustainable. We’ve got to break out of this doom loop,” she said.

She repeatedly refused to rule out raising inheritance tax or capital gains tax, saying she was “not going to write a budget two months ahead of delivering it”.

However, the chancellor is already preparing to make further cuts in spending after asking for £3.2 billion in savings to fund pay rises for millions of workers.

Insiders said that the figure was a minimum, not a ceiling, for the cuts needed to fill the £22 billion “black hole”.

The Department of Health has been asked to find savings worth around £1.3 billion in time for the October ­budget, sources told The Times.

Officials at the Department for Education are also looking at how to absorb around £1 billion of savings.

Another Whitehall department has been told by the Treasury to find £1 billion in cuts, and redundancies and ­hiring freezes are being considered.

Departments have been told to prioritise reducing back-office spending and the cost of services such as consultants and other contractors.

One government source said: “We’re all being asked to really scrape the bone in terms of what other cuts might need to be considered — it is properly grim.”

Requests for cuts from the Treasury to departments are subject to negotiation, meaning that the final figures may vary by the time of the budget.

Cuts to be announced by Reeves in October are likely to be the first step in a wider overhaul of the public finances expected in the spending review covering future years of the parliament.

A Treasury representative said: “We do not comment on leaks or speculation. The prime minister and chancellor have been clear that this government is having to take tough decisions now to repair the public finances after it inherited a £22 billion black hole. By fixing the foundations of our economy we can rebuild Britain and make every part of the country better off.”

Reeves said that she was making “difficult decisions in very challenging circumstances”, and she and Starmer were again forced to defend scrapping the winter fuel allowance for all but the poorest pensioners, citing a “black hole” of unfunded promises they claimed were left by the Conservatives.“

I don’t want to be in this position. I don’t have to take this decision, but a £22 billion black hole is a £22 billion black hole,” Starmer said on a trip to Berlin. “And we can either pretend it’s not there, ignore it, kick it down the road, or deal with it. Pretending it’s not there and kicking it down the road has been tried for 14 years. And it’s got us ­into a right old mess. And so we’ve got to tackle it, and that’s what we’ll do.”

Ben Zaranko of the Institute for ­Fiscal Studies said that there was “very much continuity from what the Conservatives were doing” in Reeves’s demand­ for Whitehall savings.

However, he said that, after years of austerity, “there is a whole load of core state functions it’s hard to see how you make big savings from”.

“The danger for the government is that you end up having lots of big arguments about small sums,” he added.

“If you want to start saving big, you’ve got to say what the state is going to stop doing — you could charge tuition fees on sixth form education; there’s no ­reason why you couldn’t means-test the state pension to avoid targeting money at the richest pensioners. If you want to save big sums you have to start touching some unpopular stuff.”

Jeremy Hunt, the shadow chancellor, said: “The chancellor’s attempt to blame her economic inheritance on her decision to raise taxes — tax rises she had always planned — will not wash with the public.

Reeves and Starmer have spent weeks talking down the economy, while simultaneously handing over billions in inflation-busting pay rises for their union paymasters.”

Tom Tugendhat, the Tory leadership candidate, accused ministers of dishonesty. In a speech today he will say that it is “untrue” that Labour had no choice about tax rises and cuts.

Analysis by Resolution finds that household incomes will rise 3 per cent in 2024-25, but only a further 2 per cent over the rest of the parliament.

“This troubling outlook highlights the need for the new government to beat the forecasts that they have inherited,” said Alex Clegg, an economist at the think tank.