It’s Spring Statement Day and Rachel Reeves has given her economic update.
And guess what? It’s not great. Growth for this year has been slashed in half.
The buffer that the Chancellor put in place in October to protect her against global instability, to keep the books balanced, has been wiped out.
It’s a £14 billion hit to the economy.
Now, the Chancellor tried to put a brave face on things, but frankly, the whole government bet of relying on growth to avoid having to slash the size of the state has crumbled. It’s in tatters.
The growth figures are in – the economy will grow by just one per cent this year.
That will go up to 1.9 per cent next year, and by 1.8 per cent by the end of the Parliament.
That is not enough for the government to avoid tough and harsh decisions.
Key announcements in the Spring Statement:
No new tax rises:The Chancellor ruled out further tax hikes and pledged to crack down on tax avoidance, aiming to raise an extra £1bn.
Growth downgraded for 2025:The OBR halved its GDP growth forecast for next year from 2% to just 1%.
Growth boost from planning reforms: New housing policies expected to raise GDP by 0.6 per cent over the next decade.
House building surge: 1.3 million homes expected over five years, with construction hitting a 40-year high.
£2.2bn extra for defence: Additional funding confirmed to help meet the 2.5 per cent of GDP defence target.
£400m Defence Innovation Fund: Backing new tech like drones and AI for the front line.
Welfare shake-up:Targeted employment support and welfare reform to reduce benefit spending.
Civil service cuts: New voluntary exit schemes and AI tools to shrink Government.
So how is she going to pay for it?
Well, £6 billion was slashed from government department budgets. That’s going to be quite painful for some of them.
And then a £5 billion slashing of the welfare bill.
Now, some people are saying that’s not even enough to touch the sides of Britain’s bloated benefits payments, but already, politically, the Chancellor is in a very, very tricky position because Labour MPs don’t want to touch it any more.
That’s going to make a collision course with her own party.
Everywhere you look in this update, there’s grim news. Inflation, which has been going down for the last couple of years after it soared after COVID, is forecast to go back up.
It will eventually, by the end of the parliament, they say, get back to that target of two per cent, meaning two per cent price rises each year.
But we’re looking at three per cent by the end of this year. That’s going to hurt as well.
Is Rachel Reeves essentially now just in a bit of a doom loop?
Her October budget, which put £40 billion of tax rises onto the British economy.
£25 billion of those tax rises were directly aimed at employers – people that keep the country growing, people that create jobs.
That hasn’t even kicked in yet – that kicks in next month. So the pain is already here before the actual money has been taken from people’s paychecks.
She increased borrowing by £30 billion in November and in the small print of this OBR document, it says she’s going to increase borrowing by an extra £17 billion.
The markets are not going to like that. So what’s she going to do? Because in October she’s going to have to have another Budget.
And lo and behold, we all expect the OBR to come back then and say, look, your headroom’s gone again.
So where is she going to find even more money?
Politically, she’s trapped between left-wing Labour MPs who don’t want to slash the benefits bill, markets who don’t want to increase borrowing, and so the only place there really is, is more tax rises or more spending cuts.
So she’s put a brave face on it today, but she’ll be back in six months having this exact same conversation.
What is the Office for Budget Responsibility?
By Ryan Sabey, Deputy Political Editor
THE Office for Budget Responsibility is an independent watchdog that analysis the government's spending plans.
Among other things, it makes projections on how much taxes will raise, how much policies will cost, and how much growth will go up or down.
These forecasts have become central to Budgets and Statements in recent years.
George Osborne set up the OBR when Chancellor to avoid accusations the Treasury was “marking its own homework” with its own forecast.
But critics say it has become too powerful by forcing ministers to perpetuate the “tax and spend” doom loop to satisfy the OBR.
Liz Truss famously did not commission an OBR forecast for her notorious mini-Budget, which spooked the markets into meltdown.
