Overview

• Pre‑Budget forecasts delivered to the Treasury point to a £20bn–£40bn shortfall, with weaker productivity, higher debt interest and recent welfare decisions narrowing headroom.
• Treasury sources say asylum spending is the top savings target, with options including accelerating hotel closures and tightening access to services and benefits for asylum seekers.
• Officials cite prior progress, with hotel costs reduced to about £2.1bn between April 2024 and March 2025 and nearly £1bn saved, alongside a pledge to end hotel use by 2029 that could be brought forward.
• Home Secretary Shabana Mahmood is working with the Ministry of Defence on alternative accommodation, with military sites and some disused student blocks reported to be under review.
• Tax choices remain constrained by Labour’s pledge not to raise income tax, VAT or employee NICs, as business groups warn further tax hikes would curb investment, hiring and wage growth.