Say what you like about Kwasi Kwarteng, and most people have, but at least he believed in something. Wrongly, as it turned out, and with such fervour that he took a rather exciting punt with millions of people’s retirement savings, but he tried. And then along came Jeremy Hunt, the smug prefect, and he did what people like Jeremy Hunt do: he smoothed things over.
Yesterday Rachel Reeves explained just how much greasepaint and duct tape Hunt had used to make the public finances look presentable at the tail end of Tory government. As soon as Reeves became Chancellor, she asked the Treasury to draw up an audit of the real state of public finances. This audit shows the government’s finances for this year are £22bn worse than Hunt had made them appear.
This £22bn “black hole” is distinct from the other, similarly sized hole that was left in the public finances by Jeremy Hunt’s last budget, in which “unprotected” public services faced spending cuts of £19.1bn by 2027-28. The £22bn figure is just for this year – it is the additional cost pressure on what the government is spending now, on policies that are already in progress and for which the previous government failed to account.
This has happened because under Hunt, the government continued to use budgets that were set out in the 2021 Spending Review. These budgets were set when the Bank of England’s base rate was still 0.1 per cent, before the arrival of double-digit inflation and the £67.1bn cost (in 2022-23) of protecting households and business from a huge spike in the cost of energy.
This was the subterfuge: the Tories spent years pretending the pressures on government spending hadn’t been radically reshaped. They stuck to the terms of the 2021 Review, demanding government departments act as if huge changes to the global economy had never happened. This, on paper, allowed the government to make apparent savings. In reality, however, the demands on government don’t just go away if you pretend they’re not there, and those greatly increased costs will now have to be paid.
The largest component of the increased costs that the previous government refused to acknowledge were the wages of public sector workers: in the 2021 Spending Review used for the Conservatives’ estimates, it was expected to rise by about 2.3 per cent per year, on average, over three years. After a surge in inflation and industrial action, it has risen at more than twice that rate. The added cost pressure (along with “overhang” from previous pay awards) comes to around £11.6bn. The government is supposed to provide evidence to the independent bodies that recommend public sector pay, but Reeves said her predecessor “provided no guidance on what could or could not be afforded”, compounding the lack of clarity.
Before the Treasury’s report was released, some economists had suggested that Labour was hamming up its claim to be shocked at the true state of the public finances. The billions spent on the asylum system or on aid to Ukraine were common knowledge, and the highest inflation for more than 40 years could not have escaped their notice. But the true scale of the number-fudging surprised even Paul Johnson, director of the Institute for Fiscal Studies, who commented that “some of the specifics are indeed shocking”, and that Hunt’s £10bn cut to National Insurance, in light of huge overspends that he almost certainly knew about, “looks ever less defensible”. Rachel Reeves, he concluded, “is right to be cross”; the wafer-thin fiscal headroom left for her by Hunt has evaporated as the problems he failed to acknowledge, such as the billions that must be spent on processing and housing asylum claimants, must now be accounted for properly.
The one person to whom none of this would be in the least bit surprising is Hunt himself. From his side of the Commons, this looks like a game well played, a successful attempt to shunt as much cost and difficulty into this parliament as possible – a plan for chaos, if you will.
This is of course an unbelievably glib and self-serving way to run a country, as if it were a game in which the fiscal policies that dictate whether millions of people can live well are just strategies for keeping one’s job and maybe becoming leader of the Conservative Party. Such is the danger of allowing men like Jeremy Hunt – smart, decent, but lacking any of their own convictions – into positions of power. They can smooth things over, but they can do this because they don’t actually care about solving problems, only about appearing to solve them, and only for as long as takes until they belong to someone else.
This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here.
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