Rachel Reeves warns UK public finances in worst state since second world war

Rachel Reeves has warned that Britain’s new Labour government has inherited “the worst set of circumstances since the second world war”, as she instructed the Treasury to examine previous spending under the Conservatives.

In her first major speech in the role, the UK chancellor prepared the ground for tough choices on the public finances this year as she vowed to prioritise growth and unblock housing developments and onshore wind farms.

“We face a legacy of 14 years of chaos and economic irresponsibility,” Reeves said on Monday. “That is why over the weekend I instructed Treasury officials to provide an assessment of the state of our spending inheritance so that I can understand the full scale of the challenge.”

The Treasury analysis of the fiscal inheritance from Rishi Sunak’s government will be published before parliament’s summer recess this month.

In an apparent reference to spending controls or tax rises, Reeves said the review would pave the way for “difficult choices” in an autumn Budget, the date of which will also be announced before MPs head off for their summer break.

Reeves said that what she had “seen in the past 72 hours” had “only confirmed” her previous warnings “that whoever won the general election would inherit the worst set of circumstances since the second world war”.

The Conservatives, who argued during the election campaign that Labour in government would spring surprise tax rises on the public, claimed the review would help Reeves justify tax rises in her autumn Budget.

One former Tory minister said all details of public spending were in the public domain already, either in Office for Budget Responsibility forecasts or in published spending estimates that are approved by parliament.

“It’s a pretext,” the ex-minister said. “This is exactly what we said they would do when we said they would up taxes.”

A person close to Reeves said the exercise would allow the chancellor to update parliament “on the state of play” in the economy, adding that it was “not a Budget or comprehensive spending review or anything like that”.

Reeves, who was appointed by Sir Keir Starmer following Labour’s landslide election win last week, declared that the UK now had a “stable government” that would work with business. She pledged to make the country a “safe haven” for investment.

Reeves said her bid to boost growth would involve reforming the UK’s sclerotic planning system, adding that her party had been “elected on a mandate to get things done and to get Britain building again”.

She reiterated Labour’s target to build 1.5mn new homes over the next five years, teeing up measures including reform of the National Planning Policy Framework by the end of the month.

She also said mandatory housing targets would be restored and the de facto ban on onshore wind farms in England had been ended.

Reeves added that she would attempt to unblock “stalled sites” of large housing schemes stuck in mid-development, saying the government had already decided to intervene on two planning appeals for data centres.

The government will also review the boundaries of the green belts that encircle big cities, as it seeks to permit more building on areas that are protected despite being of poor quality.

Reeves pledged to be decisive on planning, saying: “We will not succumb to a status quo that responds to the existence of trade-offs by always saying no.”

Neil Jefferson, chief executive of the Home Builders’ Federation, welcomed the return of housing targets for local government. “We can only build if we plan effectively and if councils take responsibility for the housing needs of their communities,” he said.

But Jefferson said the government also needed to unblock 160,000 homes held up by environmental regulations and support buyers of new homes to encourage more building.

Reeves added that she had received a report from former Bank of England governor Mark Carney on how to implement Labour’s plans for a new £7.3bn national wealth fund to pump money into growing industries.

She said the next steps would be announced in short order.

Asked how burdens on the public finances could be reduced, Reeves said she had “no intention” of changing the way the BoE pays interest on commercial banks’ reserves.

There had been suggestions that interest rates could be cut on tiers of the reserves to release more cash for public spending.