Rachel Reeves wriggled on the stalling economy today as she admitted ‘hard’ decisions are coming in the Spring Statement.
Touring broadcast studios days before her crucial fiscal package, the Chancellor was forced to deny crushing activity by hiking taxes and talking down the country’s prospects.
She also rejected warnings from a think-tank that living standards are set to fall over this Parliament – potentially smashing another of Keir Starmer‘s pledges.
Ms Reeves confirmed that the Civil Service will be asked to find more than £2billion in cuts to admin budgets, saying that likely means 10,000 jobs going.
However, the Treasury is thought to need far bigger savings to offset tumbling growth forecasts.
The hole in the public finances could be as much as £15billion, even after proposals were unveiled to cut £5billion off benefits.
As a moment of truth looms for the government on Wednesday:
- Ms Reeves said ‘let’s see’ whether Donald Trump spares the UK from tariffs on April 1 stressing that there is ‘balanced’ trade between the countries;
- She batted away a Labour backlash over benefits cut saying the bill has been ‘going through the roof’;
- Senior Labour sources have been warning that if the economy has not sparked into life by the time of the Autumn Budget Ms Reeves will have ‘run out of road’;
- A Joseph Rowntree Foundation report has estimated the average family will be £1,400 worse off by 2030, representing a 3 per cent fall in their disposable incomes;
- A poll has found Ms Reeves is the least trusted top level politician when it comes to the economy.
Challenged on Sky News over the sluggish economic performance, Ms Reeves said: ‘We do need to do more. Growth is the number one mission of this government. We’re turning things around, but it takes hard work and there are no shortcuts to get there.’
Ms Reeves was asked about reports that the Office for Budget Responsibility could slash the growth forecast by as much as half and how seriously her fiscal headroom had been hit.
‘I’m not going to pre-empt the Office for Budget Responsibility’s forecast, but the world has changed,’ the Chancellor told Sky News’ Sunday Morning with Trevor Phillips
‘We can all see that before our eyes and governments are not inactive in that – we’ll respond to the change and continue to meet our fiscal rules.
‘But we’re also shaping the new world, whether that’s in the defence and security realm, or indeed on the economy.
‘I promised at the general election to bring stability back to the economy.’
Pressed on a report from the Joseph Rowntree Foundation predicting a huge drop in living standards by the end of this parliament, Ms Reeves said: ‘I reject that and the Office for Budget Responsibility will set out their forecast this week.
‘Living standards in the last parliament were the worst ever on record.
‘I’m confident that we will see living standards increase during the course of this Parliament, what we’ve already seen in these last few months of the Labour Government is a sustained increase in living standards.’
Ms Reeves pointed to cuts in interest rates, saying ‘wages are rising faster than inflation’.
‘That was not the case in the previous parliament, which was the worst on record for living standards, but are you saying ‘do we need to do more to grow the economy, to address the cost-of-living crisis?’ she said.
‘Absolutely we do. That is why we are reducing bureaucracy and regulation, it’s why we are reforming the pension system to bring more money into the economy and so much more.’
Ms Reeves’ Autumn Budget plans have been trashed by an alarming slowdown in economic growth and rising debt interest costs – with fears the national insurance raid and Donald Trump’s trade war are about to make things worse.
But Ms Reeves has flatly ruled out increasing taxes again in this package, meaning the money will need to be found from spending cuts.
That could fuel a burgeoning revolt among Labour MPs horrified at ‘austerity’.
Ms Reeves gave a heavy hint that public spending increases that were pencilled just a few months ago in will be scaled back. Unprotected departments could face deep reductions as a result.
‘There will be real-term spending increases in every year of this parliament. But as a government, we have to decide where that money is spent, and we want to spend it on our priorities,’ she said.
Ms Reeves said she was ‘not satisfied with the numbers that we see at the moment’, adding: ‘It’s not possible within just a few months to reverse more than a decade of economic stagnation, but we are making the changes that’s necessary to get Britain building again, to bring money into the economy.’
On the idea that she had ‘talked down’ the economy, Ms Reeves said: ‘Imagine if I’d have swept the problems under the carpet and said everything was fine, then today, when we face the aggression from Russia, we wouldn’t have the additional money to spend on defence.
‘We would be in a situation where NHS waiting lists would continue.’
She added: ‘If the public finances weren’t on a firm footing, we would have to be raiding budgets to prop up the public finances. Instead, we were able to redirect money from international development to defence spending and the Bank of England had the confidence to cut interest rates three times since the general election.
‘That would not have been possible unless I had delivered a budget that brought stability back to the economy.’
On benefits curbs, Ms Reeves said ‘we must protect those who need our support and we must give all the support possible to help people back to work’.
‘I want more people to have the support to get back into work. We have got a benefits bill that is going through the roof, where people are locked out of work,’ she said.
‘I want to change that and give more people the dignity and pride that comes from work through proper support to get there.’
Ms Reeves was challenged on whether the UK was going to be exempted from Mr Trump’s ‘Liberation Day’ reciprocal tariffs – intended to offset taxes such as VAT, even though it is a general sales tax rather than focused on imports.
Experts say the levies could inflict a big hit on the UK economy.
She stressed that Sir Keir had a very good discussion with the president when he visited Washington recently.
‘President Trump is rightly concerned about countries that run large and persistent trade services with the US. The UK is not one of those countries, we have balanced trade between our countries.’
The JRF report assumed the OBR will halve its forecast for economic growth, in line with the Bank of England and other bodies. That would mean a reduction from 2 per cent to 1 per cent this year.
Laying out a ‘dismal reality’, the JRF said that the past year could be as good as it gets for Brits in this Parliament.
The average family will suffer a 3 per cent fall in disposable incomes by 2030, making them the equivalent of £1,400 worse off.
The situation could be even worse for the lowest income families, who face a £900 drop – a 6 per cent fall in disposable income.
The JRF highlighted that as well as breaching Sir Keir’s key ‘milestone’ for a rise in living standards, it would be the first time since 1955 that living standards had fallen across a full Parliament.
The Cabinet Office will tell departments to cut their admin budgets – such as for HR, policy advice and office management – by £2.2billion a year by 2029-30.
They will first be asked to reduce budgets by 10 per cent by 2028-29 in a bid to save £1.5billion. The head of the FDA union said that equates to nearly 10 per cent of the salary bill for the civil service.
Departments will receive instructions in a letter from Chancellor of the Duchy of Lancaster Pat McFadden in the coming week.
A Cabinet Office source said: ‘To deliver our Plan for Change we will reshape the state so it is fit for the future. We cannot stick to business as usual.
‘By cutting administrative costs we can target resources at frontline services – with more teachers in classrooms, extra hospital appointments and police back on the beat.’
FDA general secretary Dave Penman said the union welcomed a move away from ‘crude headcount targets’ but that the distinction between the back office and front line is ‘artificial’.
‘Elected governments are free to decide the size of the civil service they want, but cuts of this scale and speed will inevitably have an impact on what the civil service will be able to deliver for ministers and the country.
‘Whilst we welcome the move away from crude headcount targets, the distinction between back office and front line is an artificial one.
‘The budgets being cut will, for many departments, involve the majority of their staff and the £1.5billion savings mentioned equates to nearly 10 per cent of the salary bill for the entire civil service.’
He urged ministers to set out what areas of work they are prepared to stop as part of spending plans.
‘The idea that cuts of this scale can be delivered by cutting HR and comms teams is for the birds.’
