Reeves expected to reveal shortfall of billions

Chancellor Rachel Reeves has confirmed she will reveal a Treasury audit of public spending pressures inherited by the new government, which could see claims of a "black hole" worth tens of billions of pounds.

Attending the G20 finance ministers summit in Rio de Janeiro, the chancellor said the statement to Parliament on Monday would show “honesty” about the scale of the challenge faced by Labour.

She vowed to "fix the mess we inherited" but would not confirm speculation that the "black hole" stood at more than £20bn per year.

BBC News has approached the Conservative Party for a response on the comments.

Treasury officials have been collating a long list of decisions on public services that require urgent attention, but it is not yet finalised.

The new government will suggest its predecessor left various crucial public services unfunded in areas from public pay to prisons.

A Labour source said: "On Monday, the British public are finally going to see the true scale of the damage the Conservatives have done to the public finances.

"They spent taxpayers’ money like no tomorrow because they knew someone else would have to pick up the bill. It now falls to Labour to fix the foundations of our economy and that work has already begun."

The chancellor is likely to accept some above-inflation pay settlements for public sector workers after being warned by independent pay bodies about recruitment and retention challenges, and calculating that the public is keen to draw a line under months of rolling strikes.

Cabinet ministers have spent the week saying that a thorough look at their departmental books has revealed more "severe" problems than previously anticipated.

The Opposition say that this is an elaborate effort to butter up the public for some tax rises at the Budget in the Autumn.

The "black hole" arises because the government says it must spend extra money to keep public services functioning.

However, governments draw up their own rules to meet on how much they should borrow to fund public services like the NHS and how the country’s debt that is accrued is managed.

The extra money that the government needs to find to meet self-imposed targets around debt in the future has been labelled as the "black hole".

The former Chancellor Jeremy Hunt may have instead suggested not spending these sums.

Mr Hunt acknowledged to the BBC this week that he would not have been able to fund immediate tax cuts, had the Conservatives won the election.

Some economists suggested during the election that many of these spending pressures, and the possibility taxes would need to be raised to fund them were obvious, and should have been made clear to the voting public.

While BBC News understands that there will not be any tax policy announcements on Monday, the implication of the audit is that the Treasury will spend summer trying to find extra savings, or extra taxation revenue, to fill this “black hole”.

A more optimistic forecast from the independent forecaster the Office for Budget Responsibility would also help improve some tricky trade-offs.