The Treasury has informed cabinet ministers that they cannot rely on the government's reserve fund to cover cost pressures, including public sector pay rises, unless there are exceptional circumstances. Chief Secretary to the Treasury James Murray wrote to ministers outlining a clampdown on access to the reserve, which has been used extensively in recent years to fund various commitments.
In his letter, Murray emphasised that departments must take responsibility for managing their own pressures by making offsetting savings and prioritising spending. Any request to draw from the reserve will require a demonstration that all cost-cutting options have been exhausted. The Treasury aims to curb overuse of the fund, which is intended only for genuinely unforeseen, unaffordable, and unavoidable pressures.
The Home Office has been a frequent user of the reserve, claiming £4.3bn in 2023-24 to cover asylum system costs, representing over a quarter of its total spending that year. Other large claims included £18.5bn from the Department for Education for student loan valuation changes and £2.8bn from the Department of Health and Social Care for NHS pay and winter pressures. The reserve has also funded military support for Ukraine and Post Office Horizon scandal compensation.
Chancellor Rachel Reeves has accused the previous Conservative government of regularly relying on the reserve for unfunded commitments, contributing to a £22bn shortfall in public finances. She noted that the reserve had been “spent three times over” by the time she took office. To control borrowing, departments will now be required to repay any successful claims from the reserve in future. The reserve's value, which was £9bn last year, is expected to halve this year.
Reeves is expected to announce tax rises in the upcoming budget on 26 November to address a spending gap estimated at between £20bn and £40bn, amid a productivity downgrade by the Office for Budget Responsibility and policy reversals including scrapped welfare cuts.
