Chancellor Rachel Reeves has warned ministers that access to the Treasury’s emergency funding pot will be sharply curtailed in the run-up to the government’s first Budget this autumn.
In a letter to cabinet colleagues, Reeves said departments would only be able to draw on the Treasury Reserve once they had maximised internal savings. She added that any borrowing from the reserve – which amounted to £9 billion last year but is being halved in 2025 – would have to be repaid.
The Reserve is intended for “genuinely unforeseen, unaffordable and unavoidable pressures” but has in recent years been used to fund public sector pay deals and compensation settlements. Reeves’ move signals a desire to tighten discipline across Whitehall as she seeks to balance the books while boosting growth.
The clampdown comes less than 11 weeks before Reeves delivers her first Budget on 26 November, where she will set out tax and spending plans covering the NHS, schools, defence and infrastructure.
Economists warn she faces a fiscal challenge of between £25 billion and £50 billion to meet her self-imposed borrowing rules, which require day-to-day government costs to be met through tax income rather than borrowing by 2029–30.
The Institute for Fiscal Studies has already cautioned that the Spending Review’s reduction of the Reserve from a typical £14 billion a year leaves “little space to deal with unforeseen pressures.”
At Tuesday’s cabinet meeting, Reeves referenced recent bond market instability across advanced economies, stressing that “stability is more important than ever to underpin growth in a volatile global environment.”
She told ministers: “I do not think there is anything progressive about spending £100 billion a year on paying off debts accrued by previous governments. I would rather spend that money on cutting hospital waiting lists, tackling illegal migration and keeping our country safe.”
The Chancellor also sought to reassure markets and backbench MPs that she will resist “the temptation to duck tough choices on spending.”
Business leaders have raised concerns over the impact of further tax rises. Rain Newton-Smith, director-general of the CBI, wrote in the Guardian that the Chancellor “must commit to tax reform, not just tax rises.”
She warned that companies already face higher costs following the April increase in employer National Insurance contributions, the rise in the National Living Wage, and ongoing price pressures. “The Chancellor cannot raid corporate coffers again,” she argued, urging instead for “long-term strategic tax reforms rather than adherence to outdated manifesto commitments.”
