Reeves needs to tell the public that they’re wrong

Writing about Britain’s spending plans has started to feel a bit like swimming through treacle. It’s not that there aren’t lots of interesting observations to make about Wednesday’s £300 billion spending announcement. Such as the fact that the NHS sucks up the bulk of the resource spending with a 3 per cent rise in real terms, while every other department combined only grows by 0.2 per cent. Or that the health service will soon take up nearly half of all day-to-day government spending on services. Or that only 13 per cent of Rachel Reeves’s capital spending increase is classed as ‘growth-focused’.

It’s hard to pay attention to this because of the sense that the looming fiscal crisis is being largely ignored. Nearly 45 per cent of the UK’s GDP is spent by the state, while the maximum level of tax our economy has tolerated so far is 38 per cent. As the economist Andrew Lilico has pointed out, there’s no escaping the fact this means a deficit of around 6 per cent every year.

For years, fiscal events have revolved around marginal tweaks that are aimed at preserving the Chancellor’s rapidly vanishing headroom. Targets roll forward, ambitions for a balanced budget are quietly shelved, and meaningful debt reduction is delayed in perpetuity.

The forecasts put out by various government departments, meanwhile, point to staggering long-term liabilities that future generations will be expected to shoulder. These aren’t abstract numbers – they are very real, and are rooted in political promises that the public is largely unwilling to see as unsustainable.

It’s worth occasionally reminding ourselves of these unaffordable commitments that the government hasn’t yet worked out how to contend with:

• Sickness benefits. Forecast to rise to nearly £100 billion a year, with almost 1,000 Brits being signed off to collect this welfare payment every single day. An increasing number of young people never even enter the workforce, meaning tax potential is lost too.
• State pension. A 25 per cent increase in pensioners by 2050 will mean, according to the Office for Budget Responsibility, increased costs of around 1.2 per cent of national income annually. Or in today’s money: around £32 billion extra to be found every single year by the middle of the century. That’s more than three times the Chancellor’s current fiscal headroom.
• The triple lock. It might be politically untouchable, but it could cost an extra £40 billion a year by 2050.
• Debt interest. The cost of servicing the national debt is forecast to hit £131 billion a year by the end of the decade, with borrowing costs continuing to go in the wrong direction.
• Health spending. The OBR also reckons the amount spent on health will grow at double the growth rate of the economy between now and the mid 2070s, when it will hit nearly 15 per cent of GDP. Future demands on social care will require at least an extra £9 billion a year by the 2030s, too.
• Defence. Meeting the government’s target to spend 3 per cent of GDP on defence by 2030 would require an extra £17 billion a year (probably why we heard no talk of this particular ambition in the review).
• Housing asylum seekers. Despite Reeves’s commitment to stop accommodating them in hotels, she’s still expecting to spend £2.5 billion a year housing them elsewhere.
• Student loans. The government will soon be handing out £25 billion a year in student loans, almost a third of which will never be repaid – while graduates see less salary benefit when they enter the world of work. Government forecasts show outstanding liabilities hitting half a trillion by the late 2040s. 
• Public sector pensions. Many of these pots – for the NHS, the police and civil servants – are empty, and including them within public debt metrics properly would already drastically change how the nation’s finances are viewed.

And yet, here’s the real political bind: much of this is exactly what the public demands. A generous state pension. Ever-growing NHS budgets. More funding for social care. A stronger military. These are not fringe views – they are the mainstream political consensus.

Brits have become accustomed to a large state. Covid, Ukraine and the energy crisis have brought back an expectation that taxpayers will always bail each other out.

But reconciling these expectations with a tax base that isn’t growing fast enough, and a debt mountain that is already staggering, is a problem that no party seems prepared to confront. Until someone does, every fiscal event will remain a short-term fix for a long-term crisis – and Britain’s books will only drift further into the red.