The Chancellor Rachel Reeves rolled the dice yesterday in her first Spring Statement since the election.
Against a gloomy set of economic figures including growth being slashed from two to one per cent this year, meant the Labour politician was a risk of breaking her self imposed fiscal rules, refused to give ground to some of those in her own party who championed raising tax, opting for additional welfare cuts.
The benefit cuts totalling £6.4 billion by 2029/30 could see a quarter of a million people being pushed into poverty and three million families losing an average of £1,720 a year, according to the government’s own figures.
Some 50,000 children will fall into absolute poverty as a result of changes that will take more than £6 billion away of claimants of incapacity and disability benefits.
Striking a defiant tone she told Parliament: “People should have no doubt about my commitment and how seriously I take the fiscal rules”, she said. “Markets impose discipline and it is important to provide an anchor for people to know that this government will ensure that we are not living beyond our means.”
Adding: “There’s nothing progressive and there’s nothing Labour about losing control of the public finances.”
Blaming a combination of factors for the spending cuts despite the huge tax rises announced in last year’s budget, Reeves blames a changing global picture, saying that the world “has become more uncertain”, widely seen a less than vailed dig at President Trump’s and his imposition of trade tariffs, which was pushing up borrowing cost “for many major economies”.
However, even after these, the chances of the Chancellor hitting her spending and debt rules only rose from 51 per cent to 54 per cent, meaning further economic shocks such as the US trade tariffs on cars imported into the US, could wipe out any economic breathing the space she had and mean further tax increases later this year.
Indeed, Richard Hughes, the chair of the OBR, admitted its current forecasts did not include any US tariffs and imposing them would have “quite big fiscal effects”. He said: “Our forecast is very sensitive to what US tariff policy turns out to be, which we will find out more about in the coming days.”
In additional to the benefit cuts, the Chancellor also confirmed plans to slim down the Civil Service by 10,000 or around 15 per cent of the total size, saving £3.5 billion per year by 2029/30.
And as previously announced there was additional money for defence, over £2 billion this year, with a specific plan to invest in new and emerging technology. While the OBR confirmed that the Government’s planning reforms will permanently boost GDP with housebuilding expected to reach a 40-high thanks to the changes.
She told Parliament: “The OBR have today concluded that these reforms will permanently increase the level of real GDP by 0.2 per cent by 2029-30, an additional £6.8 billion in our economy and by 0.4 per cent of GDP within the next ten years an additional £15.1 billion in our economy”.
While the extra spending on defence was welcomed, many of the measures announced by the Chancellor drew criticism. Furious charities and campaigners savaged the changes to benefits describing them as “immoral and devastating”.
Responding to the chancellor’s speech, Charles Gillies, Senior Policy Officer at the MS Society and Policy Co-Chair at the Disability Benefits Consortium, said: “Since the cuts were announced last week, we’ve seen an outpouring of fear and dread from disabled people,” adding, the extra cuts announced “will heighten alarm even further, largely hitting those who are unable to work and rely on these benefits to survive”.
A sentiment echoed by several Labour MPs including Jon Trickett, who took to social media saying: “I will not be voting for cuts to poorest people on welfare benefits. The chancellor has other options. Picking on disabled people is not the right thing to do.”
While a number of think tanks attacked the spring statement. Ruth Curtice, chief executive of the Resolution Foundation described the measures as “…a far cry from the austerity of the 2010s. But it is not pain-free either.” She went on to say that “crucial public services like courts, prisons and local government will feel the strain of reduced funding in the second half of this parliament”.
The Institute for Economic Affairs’ executive director Tom Clougherty went further calling for more fundamental reform: “When you look at the sluggish growth forecasts, and the enormous liabilities the state will encounter as the population ages, Britain’s cycle of fiscal events feels a lot like rearranging the deck chairs on the Titanic.”
The Jobs Foundation’s Matthew Elliott took aim at the Employment Rights Bill and NIC saying they would kill jobs, “the increase to employer NICs and the upcoming Employment Rights Bill are a major barrier on businesses expanding their operations and hiring more people, and in turn, growing the economy and providing more funds for public services.”
While a spokesperson for the Tony Blair Institute struck a more conciliatory tone warning of the opposition the government faces over the cuts, saying: “These decisions won’t have been made lightly, and some MPs on the Labour benches are clearly concerned. Following the Autumn Budget’s big boost to spending, the government has been compelled to deliver on its promises largely through redistribution – taking from one area to fund priorities elsewhere. Incumbents across the globe are struggling to maintain public support – and the government will be aware of the fate of its counterparts across Europe and beyond.”
Chancellor rolls the dice that welfare cuts will stave off tax rises in the autumn
