Reeves: Tories left £22 billion hole in the public finances

She said the Government reserve had been “spent more than three times over” by her predecessors, including £6.4bn on the “failed” Rwanda plan.

Ms Reeves also said there was other spending on transport which she said the Office for Budget Responsibility (OBR) did not know about.

She also said the Tories had not taken account of higher-than-target inflation in their spending plans or that public sector pay awards might be above 2%.

Ms Reeves said her government would accept the recommendations of public sector pay review bodies for a 5.5% wage rise in line with the private sector.

However, the decision to seek savings by asking government departments to tighten their belts and stop non-essential spending on services such as consultancy and communications will have an impact on the consequentials flowing to the Scottish Government.

If the pay deal had been paid for by new money, or borrowing then the Shona Robison would have had additional consequentials for all £9.4bn. However, it now looks as if she will only receive two-thirds of this.

First Minister John Swinney - who is facing increasing pay demands and the prospect of a summer of strikes north of the border - said the decision was "particularly worrying."

In her speech to the Commons, the Chancellor promised MPs there would be no “return to austerity” despite the scale of the Tory overspend.

She said that "would be no way to run our economy."

Ms Reeves also rejected Tory and SNP claims that she knew about the size of the black hole before entering No 11.

"This is new information that is being published today, above and beyond what anyone knew when we were campaigning in the election," she told MPs.

The Chancellor was backed up on this by the OBR, who announced a review into how the former government prepared its forecasting for the spring budget.

In a letter, Richard Hughes, chairman of the watchdog, confirmed that they were only made aware of the extent of pressures on departmental budgets after meeting with the Treasury last week.

He said he was concerned about the “transparency and credibility” of existing forecasting and spending plans.

Ms Reeves told MPs she would hold her first budget on October 30, which she warned would involve “difficult decisions” on spending, welfare and tax.

She told MPs: “Before the election, I said that we would face the worst inheritance since the Second World War.

“Taxes at a 70-year high, debt through the roof, an economy only just coming out of recession.

“I knew all of these things. I was honest about them during the campaign.”

But, she added, there were things the Tories had “covered up from the country”.

One of the big changes announced by the Chancellor was the “difficult decision” to change the rules around the Winter Fuel Payment for pensions.

It has previously been paid to everyone above the state pension age, now only those in receipt of pension credit or other means-tested benefits will be eligible for the payment.

However, the benefit is devolved. The payment is due to be replaced by the Scottish Government's Pension Age Winter Heating Payment (PAWHP) from winter 2024-25 and the eligibility north of the border is in the hands of Scottish ministers.

Documents from the Treasury also confirmed plans for changes to the Energy Profits Levy (EPL), the windfall tax on energy firms. In the lead up to the election, Labour promised they would make this a “proper” windfall tax.

It will now be extended one year to 31 March 2030, and increase by three percentage points to 38% from 1 November 2024.

There will also be changes to investment allowances which have previously allowed firms to get 91p in tax relief for every £1 they invest.

Meanwhile, VAT on private school fees will apply from 1 January 2025. The change will also also apply to pre-payments of fees.

In her speech in the Commons, Ms Reeves said: “I have to tell the House that the Budget will involve taking difficult decisions to meet our fiscal rules across spending, welfare and tax.”

She said it will be “a budget to fix the foundations of our economy and it will be a budget built on the principles that this new Government was elected on”.

Ms Reeves’ predecessor, Jeremy Hunt said she had created a “fictitious black hole” caused by her public sector pay hikes.

He said: “She’s caved into the unions on pay, left welfare reform out of the King’s Speech, soft-pedalled on our productivity programme, and that is a choice, not a necessity.

“That choice means that taxes will have to go up and she chose not to tell us before the election. Instead, in 24 days – just 24 days – she’s announced £7.3 billion for GB Energy, £8.3 billion for the National Wealth Fund, and around £10 billion for public sector pay awards.

“That’s £24 billion in 24 days – around £1 billion for every day she’s been in office, leaving taxpayers to pick up the tab for her profligacy.”

Responding to the Chancellor’s statement, John Swinney said Ms Reeves had “painted an appalling picture of the financial future facing the UK.”

He added: “By echoing the previous government’s fiscal rules, they are trapped into delivering massive spending cuts.

“We warned this was the reality and today has seen that truth validated. Now, if they do not change course, the reality of the UK’s finances will inevitably affect the funding available to us here in Scotland. Their decisions today mean tough decisions ahead for Scotland.

“What is particularly worrying is that the Chancellor announced she is not fully funding the public sector pay deals she has accepted. Instead, cuts are being demanded across most of Whitehall. That means that we will not receive full Barnett consequentials from these pay deals.”