Labour’s vow to set out only one major “fiscal event” a year, detailed in its election manifesto, was designed to serve as a definite signal of a new era: in the place of political chaos and fiscal unpredictability — symbolised by the rise and rapid fall of Liz Truss — stability would reign. No longer would Britain reel from one economic programme to the next.
But as Rachel Reeves declared today, the “world has changed”. The circumstances that saw Labour catapulted to Downing Street as the harbingers of stability have reorganised themselves. The spring statement had initially been pencilled into ministerial diaries as a mere update. But the surrounding context has reimagined it as a defining moment in the story of this government, as Keir Starmer and Reeves adapt to the brutal realities that have befallen them.
That said, for all the emphasis Labour has placed on the shifting geopolitical tides, the spring statement today was given meaning by those factors that remain constant. Labour’s strictures — its fiscal rules, tax pledges and political commitments — still limit the chancellor’s agency.
Reeves’ self-imposed rules, which she stresses are “non-negotiable”, restrict her borrowing to fund day-to-day public spending. Labour’s manifesto pledge — to leave income tax, VAT and national insurance untouched — deprives Reeves of the Treasury’s most effective revenue-raisers. Meanwhile, the chancellor has committed to reviving Britain’s ailing public services and, crucially, rejecting any return to austerity.
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This is the same political-fiscal framework that dictated Labour’s travails in the long lead-in to the autumn budget. In October, the chancellor left herself around £9.9 billion of fiscal headroom (the buffer between the government’s fiscal rules and spending/tax plans; or money available for additional spending). That was after the government announced tax rises worth £40 billion, and £76 billion of new public spending. Ministers just about stuck to their tax commitments (a manifesto loophole allowed for an employer NI hike). Their spending plans neutralised accusations of “austerity 2.0”.
In the end, with just the £9.9 billion to spare, Reeves stuck to her fiscal rules.
But the economic conditions have worsened drastically since October, and Reeves’ leeway has vanished. The chancellor revealed today that the Office of Budget Responsibility (OBR) has revised down the UK’s growth forecast for 2025 from 2 per cent in the autumn to 1 per cent.
Reeves admitted her headroom had been wiped out, leaving the chancellor £4.1 billion in the red. She went on to outline £14 billion worth of cuts, designed to restore the government’s fiscal position to its status in the autumn.
Most of the policy announcements, on welfare, aid and defence spending, had been aggressively publicised beforehand. That includes the reporting yesterday which revealed the OBR had rejected the government’s estimate its welfare reforms will return £5 billion to the exchequer — concluding instead that the changes to disability and incapacity benefits will only save £3.4 billion.
This £1.6 billion shortfall has impelled Reeves to drive deeper with her cuts, confirming a few “final adjustments”. On top of already announced changes to disability and sickness benefits then, Reeves said the universal credit standard allowance will increase from £92 per week in 2025/26 to £106 pounds a week by 2029/30, while the universal credit health elements will be cut to the new claimants by around 50 per cent and then frozen.
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As expected, there were no more tax rises. But the chancellor did claim she will raise an extra billion pounds by cracking down harder on tax evasion. Meanwhile, savings — courtesy of “Whitehall efficiencies” — were promised. Reeves said a “leaner” government would spend £6.1 billion less on day-to-day operations by 2029-30.
Reeves told the commons: “Overall, day-to-day spending will be reduced by £6.1 billion by 2029-30 and it will now grow by an average of 1.2 per cent a year above inflation compared to 1.3 per cent in the Autumn.”
These measures will ensure the government’s books are balanced. Citing OBR figures, Reeves said the government’s budget will move from a deficit of £36.1 billion in 2025/26 and £13.4 billion in 2026/27, to a surplus of £6 billion in 2027/28, £7.1 billion in 2028/29 and £9.9 billion in 2029/30.
Confronting internal criticism, Reeves implicitly insisted that today’s statement will not deliver “austerity 2.0”. In fact, Reeves sought to reassure MPs “that day-to-day spending will increase in real terms, above inflation, in every single year of the forecast.”
She added: “And in the spending review, apart from the reduction in overseas aid, day-to-day spending across government has been fully protected.”
But a Labour rebellion is brewing nonetheless. While Reeves’ path may prove economically sustainable, backbench MPs stand ready to voice political and moral objections. The welfare cuts, of course, have gone deeper than would-be-rebels had anticipated.
At prime minister’s questions prior to the spring statement, SNP Westminster leader Stephen Flynn shared his own experience of disability and asked Keir Starmer to explain to children “how the Labour party making mum and dad poor will lift them out of poverty”.
In the end, the political ramifications will only become clear once Labour backbenchers have descended on the details of the spring statement (and associated impact assessments) with their red highlighters.
These measures however, even if they are swallowed by the Parliamentary Labour Party, will do nothing to reorder the political-fiscal logic that landed Reeves in this situation in the first instance. Her fiscal rules remain intact; her tax pledges unbusted; and Labour still insists austerity is not and will never be on the agenda. Donald Trump’s second non-consecutive term is just beginning.
And so the build-up to the autumn budget begins. Paul Johnson, director of the Institute for Fiscal Studies, has already described Reeves’ statement as a “holding exercise ahead of the really significant decisions later in the year.”
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He adds: “What the chancellor has all but guaranteed is another six months of damaging speculation and uncertainty over tax policy. That didn’t go well between last July’s election and October’s budget.
“I fear a longer rerun this year.”
Reeves did unveil some good news about growth this afternoon. She revealed the OBR has upgraded the UK’s growth forecasts from next year, and for “every single year thereafter”. (Growth of 1 per cent in 2025, 1.9 per cent in 2026, 1.8 per cent in 2027, 1.7 per cent in 2028 and finally 1.8 per cent in 2029 still falls short of pre-election expectations, it should be said).
Concluding her speech, the chancellor said the OBR had scored the government’s housebuilding plans and found they will add £15.1 billion to the UK economy within a decade.
Staring down the opposition benches, Reeves maintained: “I say to the party opposite — the British people will be watching, because if the party opposite do not support these reforms they are opposing economic growth.
“We are clear on this side whose side we are on, the opposition parties must decide too.”
The chancellor will hope that this news on growth, which she delivered rousingly at the despatch box this afternoon, eases Labour worries and holds back the opposition charge.
But she will recognise that the government’s economic battles are far from over. Reeves’ fiscal tightrope, navigated today by a careful balancing act, stretches far into the future — with geopolitical headwinds still swirling.
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Lunchtime briefing
Reeves to unveil more welfare cuts in spring statement, defence secretary signals
Lunchtime soundbite
‘She is the chancellor who said she would not increase borrowing, but she did. She said she wouldn’t change her fiscal rules, but she did.
‘She said she wouldn’t put up national insurance, but she did. She said she wouldn’t cut winter fuel payment, but she did.
‘She said she wouldn’t tax farmers, but she did.’
— Responding to the spring statement in the House of Commons today, shadow chancellor Mel Stride says “this chancellor has made all the wrong choices.”
Now try this…
‘UK spring statement: Rachel Reeves’ Project Growth still isn’t paying off’
British chancellor unveils latest fiscal update Wednesday as Labour MPs press for a Plan B, writes Politico’s Dan Bloom and Annabelle Dickson.
‘Wes Streeting: Israel’s attacks on Gaza are “unjustifiable” and “intolerable”’
Via the Guardian.
‘Why No 10 isn’t worried about a full-blown Labour rebellion’
Quite how many MPs would rebel against the Government is unclear – but the Spring Statement gives them the chance to compare notes, writes the i’s Kitty Donaldson. (Paywall)
On this day in 2023:
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