What’s the state of government finances and Reeves’ inheritable legacy?

TLDR:

• Jeremy Hunt took office with poor public finances after his predecessor, Kwasi Kwarteng, implemented reckless tax cuts.
• Hunt has stabilized the economy but faces pressure to implement tax cuts.
• The government is projected to spend £1.222tn in the year to April 2024, leaving a £124bn shortfall.
• Hunt has pledged to reduce the overall level of debt as a proportion of national income.
• Improvements in economic outlook have given Hunt £20bn in fiscal headroom.
• The head of the Office for Budget Responsibility (OBR) has called the government’s spending plans a “fiscal fiction.”
• Rachel Reeves, the potential Chancellor, has said she will adopt Hunt’s fiscal rule.
• Labour will focus on reorganizing and efficiency drives to release funds for investment.
• There will be pressure on Labour to increase spending, but the Tories have committed to tax cuts.

Jeremy Hunt took office in a challenging financial situation, with poor public finances due to previous tax cuts. Despite this, he has managed to stabilize the economy. However, there are calls for tax cuts, particularly from the Prime Minister, to boost the party’s standing ahead of an expected general election. The government is projected to spend £1.222tn in the coming year, resulting in a £124bn shortfall. Hunt has pledged to reduce the overall level of debt as a proportion of national income and has been given £20bn in fiscal headroom due to improvements in the economic outlook.

However, the head of the Office for Budget Responsibility (OBR) has criticized the government’s spending plans, calling them a “fiscal fiction.” The lack of details provided by Hunt regarding Whitehall spending has led to concerns about the impact on unprotected departments’ budgets. Rachel Reeves, the potential Chancellor if Labour comes to power, has said she will adopt Hunt’s fiscal rule. Labour’s focus will be on reorganizing and efficiency drives to release funds for investment in key areas such as welfare and the NHS. However, they will face pressure to increase spending, and the Tories have committed to tax cuts which could limit fiscal flexibility.