Rachel Reeves has spent the morning touring the broadcast studios as she attempts to pitch roll for Wednesday’s Spring Statement. While this was never meant to be a big fiscal event, it has taken on a new significance as a result of the worsening public finances. The Chancellor is looking for billions in savings with the OBR expected to slash its growth forecast and for rising borrowing costs to have wiped out Reeves’s £10 billion of fiscal headroom. Speaking this morning, Reeves tried to put the unappetising options she faces down to a changing world as a result of global instability part related to Donald Trump and tariffs as well as the war in Ukraine. She told the BBC’s Laura Kuenssberg: ‘The world has changed’ – arguing this was having a negative impact on growth.
With Reeves disinclined to raise taxes even further or change her fiscal rules, spending cuts are coming to make up the shortfall. Along with the £5 billion of welfare cuts announced last week, Reeves confirmed to Sky News that the £2 billion of cuts of the civil service could see 10,000 jobs axed. Reeves defended the difficult decisions she is taking on the grounds that ‘never again will a government play fast and loose with public finances’. The other area where Reeves is looking for savings is NHS reform and efficiencies. ‘She has a choice – either she does nothing and says it doesn’t matter or she can say there is more we can do to reform the state – headroom or no headroom,’ explained an ally earlier this week.
So, how difficult will Wednesday be for the Chancellor politically? It’s clearly more than a little awkward that after claiming growth was the government’s number one priority, the headline news from the Spring Statement is likely to be that the growth forecast has halved. While ministers are keen to talk up the changing world as the main factor behind the government’s troubles, few even in the Labour party see this as the only cause. Instead, there is a growing unhappiness with the management of the economy. While the Tories are quick to accuse Reeves of talking down the economy early on, many Labour MPs feel Reeves has made the wrong calls on who should carry the burden. The decision to cut the winter fuel allowance is seen as an early error. On the welfare reforms announced last week, Labour aides are still working to quell backbench discontent – with parliamentary reach out and briefings continuing. ‘A lot of goodwill has been lost,’ says a party source.
Yet without economic growth only more difficult decisions will follow. There is mounting concern over the spending review in June. It’s here that ministers are already warning of a return to austerity for certain departments – as we detail in this week’s Spectator cover. It means MPs are already talking about the autumn budget – wondering whether Reeves will have to resort to more tax rises if she cannot conjure up growth. As difficult as Wednesday may be for Reeves, by the end of the year it could be seen as the easy bit.
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