Billions of pounds in spending cuts – including welfare – expected in spring statement
Several billion pounds in spending cuts – including from the welfare budget – are expected in the spring statement later this month.
The Treasury will put forward the proposed cuts to the Office of Budget Responsibility (OBR) on Wednesday, ahead of it providing a financial forecast on 26 March, alongside Chancellor Rachel Reeves announcing her spring statement.
Sky’s deputy political editor Sam Coates revealed on the Politics at Jack and Sam’s podcast that welfare cuts are set to be part of the spring statement package to help the chancellor come within her borrowing limit.
Politics latest: Ministers to make ‘blizzard of announcements’
Coates said there would be a “four-point plan” involving planning reform, Whitehall cuts, regulation cuts and welfare cuts.
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The Treasury believes Ms Reeves must maintain a £10bn headroom after months of economic downturn and geopolitical events since last October’s budget.
Her self-imposed fiscal rules mean she cannot borrow for day-to-day spending, leaving spending cuts as one of her only options.
Poor economic climate forcing her hand
Sir Keir Starmer said last week the government was in the “early stages” of looking at whether tax rises or spending cuts were needed to meet Labour’s self-imposed fiscal rules.
The prime minister refused to say whether further tax rises or spending cuts would be imposed.
The OBR is required to produce two economic forecasts a year, but the chancellor said she would only give one budget a year to provide stability and certainty on upcoming tax changes.
However, the poor economic climate since October is forcing her hand, with inflation hitting a 10-month high of 3% in January, a sharp rise in government bond yields and growth has not been as high as expected.
Reeves has ‘no billion pounds’ before having to find public spending cuts
If you remember in October in the budget, Rachel Reeves set herself very tough limits on borrowing.
She can’t borrow for day-to-day spending from 2029. She’s got to reduce the amount this government borrows.
But she also spent right up to the limit and borrowed right up to the limit, leaving herself historically low – what’s known as headroom – just under £10bn.
And since then, growth has been worse. Borrowing costs have been higher. All of which means that she’s going to have to do more borrowing than she predicted in October.
But she’s got almost no room before she breaches her fiscal rules.
The Treasury believes that the minimum headroom that they’ve got to have at the end of this process will still have to be £10 billion or so.
That’s historically low as it is. You can not just allow that headroom to be eroded away by higher borrowing because of lower growth and high borrowing costs.
So in other words, for every billion of additional borrowing that the OBR thinks she’s going to have to do, taking it closer or over her limit, she’s going to have to find spending cuts, possibly welfare cuts.
It is not the case that she’s got £10bn before there’s a problem. She’s got no billion pounds before she starts having to find public spending cuts.
Because they don’t want the headroom to get any smaller than it is at the moment.
I have also noticed this over the last few weeks that Downing Street is fully invested in making Reeves look good at all points, whether it’s on defence spending or if it’s on the general government narrative.
Number 10 is absolutely doing everything it can to improve Reeves’ standing because she’s had a much rockier time than anyone expected.
The numbers are the numbers. She’s good in the Commons chamber, but the fundamentals aren’t great.
Number 10 is very invested in her because there cannot be any division between Starmer and Reeves.
If something hurts Reeves, it just hurts Starmer as well because he’s subcontracted so much to her.
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British economy will be affected by US tariffs
Donald Trump imposed tariffs on Canada, Mexico and China – the US’s biggest trading partners – this week, prompting retaliation as stock markets fell sharply around the world.
The UK has not been hit by tariffs yet, but the chancellor said the British economy will still be affected by the US president’s trade war even if the UK strikes a deal with the White House.
“It’s absolutely the case that even if tariffs aren’t applied to the UK we will be affected by slowing global trade, by slower GDP growth and by higher inflation than otherwise would be the case,” she told hundreds of top British manufacturers at a key industry conference on Tuesday.
