Britain's new finance minister, Rachel Reeves, has announced spending cuts worth £13.5 billion over the next two years to help plug what she said was a £22 billion overspend caused by the previous government.
Reeves also said she had accepted independent recommendations for public sector pay increases.
In a statement seen by critics as an attempt to pave the way for future tax rises, Reeves accused the former Conservative government of covering up the true state of government spending and said she needed to make difficult decisions to prevent the budget deficit ballooning by 25% this year.
"The scale of this overspend is not sustainable. Not to act is simply not an option," Reeves told parliament.
Elected to run the world's sixth-largest economy in a landslide victory on July 4, Labour has spent much of its first three weeks in power telling voters that things are worse than expected in almost every area of public policy.
Reeves commissioned the review of the public finances upon taking office and the headline finding of a funding shortfall had been widely reported in the days preceding her speech.
The Conservatives dismissed her accusations as a pretext for Labour to raise taxes.
Some economists have also expressed scepticism, saying Labour could have foreseen most big pressures on spending before taking office.
Labour has stressed that it intends to stick to its election campaign commitments not to raise the rates of income tax, value-added tax and other main taxes.
Any tax changes would come in the formal budget statement later this year.
October budget
Ms Reeves told parliament that she would hold her first annual budget on October 30.
The budget will set out new tax and spending plans and a fresh set of fiscal and economic forecasts from the independent Office for Budget Responsibility, as well as revised bond issuance targets from the UK Debt Management Office.
Britain's last budget was on March 6 under Conservative finance minister Jeremy Hunt.
Reeves says the Conservatives had handed over the worst economic legacy since World War Two.
British public sector net debt in June totalled 99.5% of annual economic output, the highest since the early 1960s, or 91.6% on the government's preferred measure which excludes debt related to Bank of England operations.
This debt level leaves Britain mid-table in the Group of Seven large, advanced economies.
The budget deficit in the 2023/24 financial year amounted to 4.5% of GDP, the lowest since the start of the pandemic and well below the 10.3% in Labour's last full fiscal year in government in 2009/10 during the global financial crisis.
Taxation as a share of GDP is the highest since the late1940s.
