Inflation and stagnation are not the only problems grappling the UK at the moment. The new Labour government needs to handle a £20 billion "black hole" in public finances.
The United Kingdom could have a hole in public finances as deep as £20 billion, speculations coming from 10 Downing Street said. Finance Minister Rachel Reeves will confirm or deny the figure on Monday, and she will also set a date in October to vote on the 2025 budget.
“On Monday, the British public are finally going to see the true scale of the damage the Conservatives have done to the public finances,” a Labour member told BBC. “They spent taxpayers’ money like no tomorrow because they knew someone else would have to pick up the bill. It now falls to Labour to fix the foundations of our economy and that work has already begun.”
The Conservative Party lost the election on July 4th after 14 years of consecutive rule. The opposition Labour Party won with a landslide, obtaining almost two-thirds of the seats in Parliament.
Conservatives enacted historic austerity measures, indiscriminately slashing public funding of most services, from healthcare to prison. The Labour’s audit found that many of these services are on the brink of collapse.
And yet, former Prime Minister Rishi Sunak ran on a campaign of tax cuts, which would have put further strain on the British public sectors. Former Finance Minister Jeremy Hunt admitted the Conservative cabinet would not have been able to fund these tax cuts had they won the election.
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Economic challenges
The £20 billion hole is just one of the many challenges facing the United Kingdom and the new Labour government.
Though headline inflation reached the 2% target ahead of economic peers, the British services inflation remains exceedingly high at 5.7%. Service prices are the biggest inflation driver in the UK, leading analysts to fear a future rise in headline inflation too.
High inflation is forcing the Bank of England to keep interest rates fixed at 5.25%, a 20-year record. The European Central Bank, the BoE’s closest equivalent, slashed interest rates in June as core inflation plummeted across the bloc.
Economic growth is nearly stagnant despite a better-than-expected GDP increase in June, which however was still below 1%.
The Labour government pledged to make the United Kingdom attractive for foreign businesses again. The number of new foreign companies opening an office in the UK decreased significantly following the 2016 Brexit referendum.
Prime Minister Keir Starmer approved a £7.3 billion investment fund hoping to attract three times as much in private funding.
Meanwhile, to solve the multi-billion hole in public finances, the Labour government will likely be forced to raise taxes in the upcoming budget. The opposition said the blame on conservatives was a justification for the upcoming tax raise.
