It was never the plan for tomorrow’s Spring Statement to be such a major parliamentary occasion.
Rachel Reeves has previously insisted that the autumn Budget, which takes place in October, would be the only fiscal event of the year.
The Spring Statement, by contrast, was only meant to be an opportunity for the chancellor to give a relatively brief “update” on the state of the economy.
But given how much the public finances have worsened in the past six months, the statement has taken on far greater significance than was originally intended.
HuffPost UK looks at the chancellor’s options and what she is expected to announce.
‘The World Has Changed’
We can expect Reeves to blame international uncertainty for the fact that the state of the UK economy has worsened since the Budget.
The Office for Budget Responsibility (OBR) is set to downgrade its forecast for economic growth this year from 2% to just 1%.
This is a major blow for a chancellor who has pledged to make the UK economy the fastest growing in the G7.
In addition, the OBR will also confirm that the £10 billion of “fiscal headroom” the chancellor thought she would have at the Budget has also been wiped out.
Barret Kupelian, chief economist at PwC UK, said: “Weaker growth, worsening public finances, and higher debt costs have reduced the chancellor’s post autumn Budget room for manoeuvre.
“We expect the OBR to say the economy is growing slower than expected, leading to worse public finance outcomes and higher than expected debt-servicing costs. ”
There is no doubt that the ongoing situation in Ukraine and the Middle East, coupled with the threat of a global trade war sparked by tariffs imposed by Donald Trump, have not helped.
Reeves told the BBC last week: “We can see that the world is changing, and part of that change is increases globally in the cost of government borrowing – and Britain has not been immune from those challenges.”
But critics say some of the chancellor’s own decisions have also contributed to the economic gloom.
These include her decision at the Budget to hike the employers’ rate of National Insurance – a move which has been blamed for falling business confidence.
What Are The Chancellor’s Options?
Labour promised in the election not to increase income tax, VAT and the rate of National Insurance paid by employees.
In addition, Reeves has vowed to stick to her fiscal rules, which prevent the government from borrowing to pay for day-to-day spending.
“Economic stability is non-negotiable – I will never play fast and loose with the public finances like the previous government did,” Reeves has said.
This effectively means that the chancellor is only left with the option of cutting spending if she is to balance the books.
Work and pensions secretary Liz Kendall announced last week that she wants to slash the welfare bill by £5 billion.
The chancellor has also confirmed that she wants to cut the size of the civil service by 15% in a move which would lead to tens of thousands of job losses in Whitehall.
Other measures include cutting the number of quangos – a process kicked off two weeks ago with the abolition of NHS England.
Major planning reforms designed to make it easier to get construction projects off the ground could also be announced as the government desperately tries to boost economic growth.
Another thing to look out for is whether or not Reeves extends the freeze on income tax thresholds beyond 2028, which could drag millions of workers into higher tax bands, potentially boosting Treasury coffers by £7 billion a year.
Labour Backlash Looms
Dozens of Labour MPs – including some ministers – are known to be furious at the welfare cuts, which are expected to see up to a million people lose their right to Personal Independence Payments.
Many of them could even defy the government whips to vote against the reforms when they come to parliament later in the year.
Charities, campaign groups and trade unions are also angry at what they see as a return to the austerity agenda of the Tories.
But Paul Johnson, director of the Institute for Fiscal Studies, said that is “way overblown”, given the huge increase in public spending Reeves announced in the Budget.
#Rachel #Reeves #Announce #Spring #Statement #Plans
Leave a Reply