New UK finance minister eyes spending cuts, accuses predecessor of budget black hole

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By David Milliken and Kylie MacLellan

LONDON (Reuters) -Britain’s new finance minister, Rachel Reeves, will accuse the former Conservative government on Monday of covering up the true state of the public finances as she sets out ‘tough decisions’ on spending cuts.

Elected to run the world’s sixth-largest economy in a landslide victory on July 4, Labour has spent much of its first three weeks in power telling the public things are worse than expected in almost every area of public policy.

On taking office, Reeves ordered officials to conduct a fresh assessment of public funding needs which she will present to parliament on Monday ahead of her first formal budget statement later this year.

Labour Party sources said on Friday this assessment had found a shortfall of around 20 billion pounds ($26 billion) and on Saturday, Prime Minister Keir Starmer’s office said Britain was “broke and broken”.

Late on Sunday, the finance ministry said the audit would show “the previous government overspent this year’s budgets by billions of pounds after making a series of unfunded promises”.

“Today is about setting out candidly the situation that we’ve discovered and responding with some very necessary and tough decisions on spending,” Labour minister Pat McFadden told the BBC.

British media have reported cuts to a range of projects are on the table, such as plans to rebuild hospitals, roads and rail lines, including the final stage of a flagship high-speed rail link from London to Birmingham.

Asked about the prospect the HS2 rail line would terminate in a London suburb, rather than the city centre, McFadden said the government had inherited “a very difficult situation”.

“The previous government chopped it bit by bit … We’ll have to examine that like all the other projects,” he told Times Radio.

Reeves will also announce a new Office of Value for Money, a crackdown on government waste, reduced use of external consultants and a sell-off of unused government property, the finance ministry said.

She will tell parliament: “The previous government refused to take the difficult decisions. They covered up the true state of the public finances. And then they ran away.”

The Conservatives dismissed these accusations as a pretext from Labour to raise taxes.

McFadden said Labour intended to stick to its election campaign commitments not to raise the rates of income tax, value-added tax and other main taxes.

Budget forecasts in March were signed off by the independent Office for Budget Responsibility, although there was widespread reporting of funding challenges in areas such as prisons and healthcare.

“Rachel Reeves is trying to con the British public into accepting Labour’s tax rises. She wants to pretend that the OBR … whose forecasting was used in all of the last Conservative government’s budgets, doesn’t exist,” said Gareth Davies, a Conservative lawmaker who speaks for the party on budget policy.

Tax decisions will come in a formal budget later this year, which Reeves will set the date of in her statement on Monday.

($1 = 0.7769 pounds)

(Reporting by David Milliken; editing by David Evans and Christina Fincher)