Good morning.
During the election campaign, Labour said economic growth would fund their pledges, despite warnings from economists that their sums did not add up. Many said that the next government would have to either cut spending, raise taxes, or abandon certain pledges. That prediction seems to be coming to bear.
After a comprehensive audit of public finances, Rachel Reeves has announced a series of spending cuts on infrastructure projects, transport and social care totalling £5.5bn.
The chancellor said she had no choice but to make these decisions because the previous Conservative government left Labour with a £22bn “black hole” in public finances, adding that the economic situation is much worse than they had anticipated. During the heated Commons exchange, Reeves accused the Tories of engaging in a cover-up to mislead the public, the country and Labour, leaving her party to clean up the mess. This would mean “incredibly tough choices”, said Reeves, in the form of cost-saving measures.
She also suggested in her speech that the budget – which will be on 30 October – will involve tax rises and further cuts to spending and benefits.
For today’s newsletter I spoke with the Guardian’s economics correspondent, Richard Partington, about the significance of Labour’s spending review. That’s right after the headlines.
Five big stories
UK news | Two children have died and nine have been injured, six critically, after a series of stabbings at a children’s dance class in Southport on Monday. Two adults are also in critical condition after what police described as a “ferocious attack”. The stabbings took place at a Taylor Swift-themed yoga and dance class at a studio in the north-west seaside town.
US news | Republican presidential candidate Donald Trump has defended Senator JD Vance’s past comments, in which he called Kamala Harris and other Democrats “childless cat ladies”, saying that Vance was simply trying to show how much he values family life.
Media | The former BBC presenter, Huw Edwards, has been charged with three counts of making indecent images of children. Edwards, who left the BBC in April, will appear at Westminster magistrates court on Wednesday on charges relating to images shared on a WhatsApp chat.
Middle East | A frantic diplomatic push to deter Israel from striking Beirut in response to a deadly rocket attack on the Golan Heights was under way on Monday, as the governments of the UK, Germany, France and America issued travel warnings to their citizens, calling on them to leave Lebanon or avoid travel there.
Transport | HS2 has revealed more than £2bn in costs linked to Rishi Sunak’s decision to downgrade the high-speed rail line. The UK’s largest infrastructure project revealed that it had written off £1.1bn in costs incurred during “phase two”, which was due to link Birmingham to Manchester.
In depth: ‘It’s exactly what Osborne did in 2010 – it’s a classic tactic’
The Conservative comeback to the accusations of cover-ups and deception is that the £22bn black hole is, in part at least, coming from discretionary choices that Labour are making. Part of the overspends that are identified in this black hole are from pay settlements that Labour is choosing to accept in full – that is, a political decision. It means millions of public sector workers are expected to receive above-inflation pay rises.
The chancellor also confirmed that the BMA and the government have agreed to a new pay deal for junior doctors which could lead to a 22.3% pay rise over two years – if the union members accept the deal it will end the long running industrial action that led to the cancellation of hundreds of thousands of appointments.
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How much of this is political theatre?
Though Reeves framed the announcement as purely based on the economic reality that the government finds itself in, Richard says Reeves’ speech was “hugely political”.
“It’s exactly what George Osborne did in 2010, when he came in and blamed Labour for the mess that the Conservatives had inherited. It’s a classic tactic at the start of a new parliamentary term”.
But back in 2010, Osborne had the infamous “there’s no money left” note from Liam Byrne which was repeatedly weaponised by the Conservatives over the years. “This is Reeves’ attempt to construct a ‘note left in the Treasury’ moment, that shows everyone that everything is far, far worse than anybody anticipated,” Richard adds. Reeves will likely use the political ammo from the audit to pave the way for certain tax rises in the autumn and further cuts.
Reeves’ speech could have in some ways “easily been delivered by a Conservative Chancellor,” Richard says (indeed, she repeated the mantra “if we cannot afford it, we cannot do it” throughout).
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The cuts
Reeves said the government’s overspend on the asylum system was £6.4bn, with another £1.6bn overspend on rail that the Office for Budget Responsibility (OBR) was not aware of.
In the name of “economic stability”, Reeves has cut funding for hospital and road projects and scrapped the social care cap. Winter fuel payments – which were previously given to all pensioners – will now only go to those on lower incomes who receive pension credit or other means-tested benefits.
All departments are expected to find £3.1bn in “efficiency savings”, with a particular focus on cutting all non-essential spending on consultants. Labour have also said that they will introduce an Office of Value for Money (OVM), as well as multi-year spending reviews which will give government departments stability to plan ahead.
Reeves has said that a number of projects will be put under review or cut altogether, like Rishi Sunak’s flagship new educational qualification, the Advanced British Standard, and the previous government’s transport commitments. The Sunak government’s New Hospital Programme and “40 hospitals by 2030” commitment are also under review, with Reeves adding that the Tories had got the public’s hopes up with these projects without accounting for the cost. The Rwanda scheme is officially gone and asylum claims will be processed again, which Reeves says will save £800m this year and £1.4bn next year. The chancellor said many of these projects were unfunded and “delivery was wildly off track”.
These measures bring the projected overspend down to £16.4bn, which Reeves has implied she intends to address come October.
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What’s to come
The chancellor is likely laying the ground for a tight budget in the autumn, which will include some tax increases, although she has continued to promise to not raise rates of income tax, national insurance and VAT.
Richard says that while Reeves appears to be adopting similar language to Tory predecessors, the country is not necessarily heading back to an age of austerity. The pay rises to public sector workers suggests that the situation is more nuanced than that, “but there are definitely elements that those on the left of politics will be hugely disappointed by and that will be criticised as being duplicitous,” he says.
Having decimated the Conservatives during the election, used their language of fiscal irresponsibility against them, Labour wants to be viewed as outdoing the Tories at their own game. But economists and other experts will probably also argue that infrastructure and welfare are the types of areas that are required to lay the groundwork for stronger economic growth for the future, “so, to a degree, cutting them undermines Labour’s own growth project,” Richard says.
What else we’ve been reading
“It changed my whole face”: Emma Beddington has written a sensitive but shocking piece, speaking to postal workers like Kirsteen Hobson, one of the 42 attacked by a dog in the UK each week. Hannah J Davies, deputy editor, newsletters
Elle Hunt writes of how she loved her experience of home schooling, but wonders whether methods like ‘free-schooling’ go too far. Nimo
If the aubergine equivalent is feeling a little familiar, can we interest you in courgette parmigiana, courtesy of Rachel Roddy? Hannah
Claims that Venezuela’s election was rigged triggered huge protests in Caracas on Monday – Tom Phillips and Patricia Torres spoke with locals about why they poured into the streets. Nimo
Shaad D’Souza sounds off on the murky world of music streaming, where payola seems to have made a return – but is more mysterious than ever. Hannah
Sport
Paris 2024 | Great Britain ended the equine triathlon – which includes dressage, cross-country and jumping – with a combined score of 91.3 penalty points to finish 12.3 clear of the host nation France, taking out Team GB’s first gold of the 33rd Olympiad. After six rounds of brutally focused 10m synchro diving, Tom Daley took to the podium with Noah Williams to take his fifth Olympic medal, a silver. Elsewhere, Tom Pidcock blew away his rivals with a virtuoso performance on the rough gravel of Elancourt Hill to take back-to-back gold medals in Olympic mountain biking.
Football | Napoli are open to including Romelu Lukaku in discussions with Chelsea over Victor Osimhen, with the Serie A side keen to wrap up a move for the Belgium striker.
Paris 2024 | The men’s Olympic triathlon was postponed just hours before it was due to start on Tuesday following a 3.30am inspection of the Seine, which found that pollution levels were still too high for athletes to safely swim in.
The front pages
Monday’s stabbing attack in Southport dominates the front pages on Tuesday. “Two children dead and nine injured in ‘ferocious attack’ at dance class” is the Guardian’s lead. The Telegraph says “Knifeman kills two children in holiday club horror”, while the Times has “Knife attack on children was ‘like a horror movie’”.
“Knife horror at holiday kids club” is the Mirror’s headline. The i has “Deadly knife attack at children’s dance class”. The Mail leads with “Two children dead in holiday club carnage”.
Finally, the Financial Times looks at announcement from the chancellor, with “Reeves unveils ‘incredibly tough choices’ to plug £22bn fiscal hole”.
Today in Focus
The sisters Saudi Arabia tried to silence
Three siblings dared to challenge the kingdom’s restrictive rules for women – and it changed their lives for ever. Tom Levitt reports.
Cartoon of the day | Ben Jennings
The Upside
A bit of good news to remind you that the world’s not all bad
It is mind-boggling that any athlete competing at the Games would have the energy to do more than ready themself for the competition. US rugby sevens player Ilona Maher, though, has made social media a sort of side hustle in Paris, posting videos on TikTok that include a Love Island-themed clip about looking for romance at the Games and stress testing the Olympic Village’s infamous cardboard beds.
Maher – who has millions of followers on Instagram and TikTok – hopes to bring a stronger profile to female rugby and to promote body positivity. “I want you all to take a look at all the different body types on display,” she said in a clip that’s been viewed more than 4m times. “All body types matter … From the smallest gymnast to the tallest volleyball player, from a rugby player to a shot-putter, a sprinter. All body types are beautiful, can do amazing things. Truly see yourself in these athletes and know that you can do it too.”
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Bored at work?
And finally, the Guardian’s puzzles are here to keep you entertained throughout the day. Until tomorrow.
