Yesterday, the Chancellor, Rachel Reeves, announced that she had directed the Treasury to review public spending and that the findings of this audit show departmental spending exceeding the Resource Departmental Expenditure Limit (RDEL) set in the Spring Budget 2024 by £21.9 billion. In English, this means the new Government thinks the last government committed to spending nearly 22 billion more than was funded, and according to the fiscal rules agreed on by both Labour and the Conservatives, such overspending is unsustainable. It is worth noting that the Opposition rejects the Chancellor’s analysis.
In response to the audit, the Chancellor has said the government needs to fix the “hole in the public finances” and will: (i) identify immediate savings to manage the budget pressure, (ii) establish a process leading up to the autumn and the Spending Review to reduce this pressure further and (iii) reform spending and fiscal frameworks to prevent future occurrences.
Impact on rail
The headlines have been somewhat startling, with reports that the Chancellor was poised to axe transport and infrastructure projects, but this is not the case—at least for now. Granted, yesterday’s statement did include the news that the Restoring Your Railway fund, intended to re-open lines closed in the Beeching cuts, will no longer go ahead. However, this idea has been government policy since 2019 but has only resulted in 11 miles of track. In truth, there was little chance that re-opening many of these lines would happen, and I don’t think anyone thought it would. It’s also the case that new powers to open these lines may be given to local authorities in the forthcoming English Devolution Bill. Yesterday’s announcement, therefore, doesn’t completely close the book on some of these projects.
What is concerning, however, is what the Chancellor has described as a £2.9 billion overspend in the Transport Budget—£1.6 billion of which, she claims, the OBR was not notified of. As a result, it was additionally announced yesterday that Louise Haigh, Secretary of State for Transport, will review all current DfT projects and funding commitments. Therefore, belt-tightening for the DfT could be on the horizon. The results of this review are likely to be outlined in the Autumn Budget, which will take place on October 30th. In my view, what the Chancellor outlined today is very unlikely to be the worst of the cuts; the motivation of today’s Commons speech was to drive the point that the previous government had let the economy run out of control and, accordingly, they will have to make tough decisions. These decisions are still to come.
In other rail news
Yesterday was the second reading of the Passenger Railway Services (Public Ownership) Bill, the legislation needed to nationalise franchised passenger railway services when existing contracts with private sector operators end. The Bill will have its third reading on 3 September. Shadow Transport Secretary, Helen Whately MP, criticised the Bill as “a rushed piece of left-wing ideology”. At the same time, the Liberal Democrats’ transport spokeswoman, Wera Hobhouse MP, welcomed aspects of the Bill but urged the Government to be “pragmatic” and “instead of fixating on the issue of ownership, our railways need a rapid and significant change to put passengers first with a focus on the quality of service.”
Skills
Rachel Reeves also stated in yesterday’s statement that the Government would abandon the proposal to implement the Advanced British Standard (ABS). The ABS would have required students to study at least five subjects, including maths and English until they were 18, which proponents hoped would have made the UK system more like the broader curriculum seen in the rest of Europe and the United States. The ABS has received significant criticism, across political lines, since its proposal.
Elsewhere, the Government is moving ahead with its apprenticeship reform, outlined in its manifesto. These reforms will broaden the Apprenticeship Levy into a “Growth and Skills” Levy, allowing businesses to use 50% of their levy contributions to fund non-apprenticeship training.
While these reforms may be beneficial, there is a concern that broadening the levy will reduce the funds available specifically for apprenticeship programs. Without extra funding, this will likely be the case.
However, the exact funding for the levy is currently unclear and the Government has stated they will increase the apprenticeship budget to £2.663 billion for 2024/25. There is also the matter of the current Apprenticeship Levy underspend and surplus money collected, which the Treasury estimates to be over £700 million more than budgeted. The recent audit has made clear the underspent money will be kept by the Treasury for now, but it could be used for apprenticeships in the future. We expect to gain more clarity on this in the Autumn Budget.