No 10 warns of ‘tough decisions’ on spending, as Reeves submits Budget plans to watchdog

Cabinet ministers will have to take “tough decisions” on spending, Downing Street has warned, as the Chancellor and Prime Minister have sent off their finalised Budget plans to the fiscal watchdog.

The overall total Whitehall budgets – known collectively as the “spending envelope” – have now been submitted to the Office for Budget Responsibility (OBR), No 10 said.

The watchdog will now begin its scrutiny of the plans, even as Cabinet ministers reportedly remain unhappy with the limits likely to be placed on their individual departments.

Rachel Reeves is looking to raise up to £40 billion in tax hikes and spending cuts in the Budget as the Government seeks to avoid a return to austerity.

Concerns about cuts have been raised across different Government departments, with some ministers having written to Sir Keir Starmer about proposals to reduce their spending by as much as 20%.

Asked about reports ministers were writing to Sir Keir, the Prime Minister’s official spokesman said: “I am obviously not going to get drawn into specifics of spending review discussions but clearly engagement between departments and the Treasury and No 10 ahead of the Budget and a spending review are clearly a standard part of the process where departments will set out their priorities and the challenges that they are facing.”

He added: “Not every department will be able to do everything they want to. There will be tough decisions taken, there will be tough conversations, but ultimately this Government has been very clear that it will fix the foundations, it will fix the position in relation to the public finances.”

The spokesman also said the Prime Minister and Chancellor have now agreed the “major measures” of the Budget, including the “spending envelope” that sets out individual Whitehall departments’ limits.

Negotiations with different departments are “now being concluded”, he added, but could not put a date on when these might be wrapped up.

As their final spending limits have now been submitted for scrutiny by the OBR, any extra cash ministers manage to win for their departments will come at the cost of other areas of Government spending, it is understood.

While departments continue to push back against cuts, further reports of Ms Reeves other option to raise cash for the Treasury – tax rises – are coming to light.

Capital gains tax (CGT) could be hiked by “several percentage points” beyond its current rate at 20%, the Times newspaper has reported.

This could raise revenue in the “low billions” according to the newspaper, though the Chancellor will likely avoid raising the levy on second homes or buy-to-let properties for fear increasing it would cost money.

The Institute for Public Policy Research (IPPR) think tank has said that an increase in CGT in the fiscal statement will not stop entrepreneurs from investing in the UK, after fears about what its impact could be.

Interviews the IPPR conducted with millionaires suggested most would not be put off investing by a rise in CGT.

These include investor Julia Davies, who said she had “never let tax rates dictate my decisions to fund innovation or pursue opportunities”, and Photobox founder Graham Hobson, who said the suggestion it would discourage investment was “simply a myth”.

Since entering office, the Government has pointed to a “£22 billion black hole” in the UK’s finances, and the Treasury is now said to have identified a far larger £40 billion funding gap which Ms Reeves will seek to plug to protect key departments from real-terms cuts and put the economy on a firmer footing.

Earlier this week, the Prime Minister declined to rule out increasing employer’s national insurance contributions, and told the BBC that the party was “very clear in the manifesto that we wouldn’t be increasing tax on working people”.

Labour’s general election manifesto pledged that the taxes on working people will be kept “as low as possible”.

The party promised to not increase “National Insurance, the basic, higher, or additional rates of Income Tax, or VAT”.