Rachel Reeves will keep her remarks short when she delivers the spring statement on Wednesday.
But the enormity of what she is saying will be lost on no one as the chancellor sets out the grim reality of the country’s finances.
Her economic update to the House of Commons will reveal a deteriorating economic outlook and rising borrowing costs, which has forced her to find spending cuts, which she’s left others to carry the can for (more on that in a bit).
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The independent Office of Budget Responsibility (OBR) is expected to forecast that growth for 2025 has halved from 2% to 1%.
That, combined with rising debt repayment costs on government borrowing, has left the chancellor with a black hole in the public finances against the forecasts published at the budget in October.
Back then, Reeves had a £9.9bn cushion against her “iron-clad” fiscal rule that day-to-day spending must be funded through tax receipts not debt by 2029-30.
UK’s fiscal position as tight as ever but expect a different focus from Rachel Reeves at the spring statement
Voluntary exit schemes under way across government departments ahead of Rachel Reeves’ spending cuts
When is the spring statement – and what do you need to know about it?
But that surplus has been wiped out in the ensuing six months – now she finds herself about £4bn in the red, according to those familiar with the forecasts.
That’s really uncomfortable for a chancellor who just months ago executed the biggest tax and spend budget in a generation with the promise that she would get the economy growing again.
At the first progress check, she looks to be failing and has been forced into finding spending cuts to make up the shortfall after ruling out her other two options – further tax rises or more borrowing via a loosening of her self-imposed fiscal rules.
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‘World has changed’
When Reeves gets up on Wednesday, she will put it differently, saying the “world has changed” and all that means is the government must move “further and faster” to deliver the reforms that will drive growth.
But her opponents will be quick to lay economic woes at her door, arguing that the unexpected £25bn tax hike on employers’ national insurance contributions last October have choked off growth.
But it’s not just opposition from the Conservative benches that the chancellor is facing – it is opposition from within as she sets about cutting government spending to the tune of £15bn to fill that black hole.
Politically, her allies know how awkward it would have been for the chancellor to announce £5bn in welfare cuts to avoid breaking her own fiscal rules, with one acknowledging that those cuts had to be kept separate from the spring statement.
There’s also expected to be more than £5bn of extra cuts from public spending in the forecast period, which could see departments that don’t have protected budgets – education, justice, home – face real-term spending cuts by the end of the decade.
Not an emergency budget
We won’t see the detail of that until the Spending Review in June.
This is not an emergency budget because the chancellor isn’t embarking on a round of tax raising to fix the public finances.
But these are, however they are framed, emergency spending cuts designed to plug her black hole and that is politically difficult for a government that has promised no return to austerity if some parts of the public sector face deep cuts to stick with fiscal rules.
If that’s the macro picture, what about the “everyday economics” of peoples’ lives?
I’d point out two things here. On Wednesday, we will get to see where those £5bn of welfare cuts will fall as the government publishes the impact assessment that it held back last week.
Read more:
Corbyn brands benefit cuts a ‘disgrace’
Expect different focus from Reeves at spring statement
Up to a million people could be affected by cuts, and the reality of who will be hit will pile on the pressure for Labour MPs already uncomfortable with cuts to health and disability benefits.
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The second point is whether the government remains on course to deliver its key pledge to “put more money in the pockets of working people” during this parliament after the Joseph Rowntree Foundation think-tank produced analysis over the weekend saying living standards for all UK families are set to fall by 2030.
The chancellor told my colleague Trevor Phillips on Sunday that she “rejects” the analysis that the average family could be £1,400 worse off by 2030.
But that doesn’t mean that the forecasts published on Wednesday calculating real household disposable income per head won’t make for grim reading as the economic outlook deteriorates.
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Nervousness in Labour
Ask around the party, and there is obvious nervousness about how this might land, with a degree of anxiety about the economic outlook and what that has in store for departmental budgets.
But there is recognition too from many MPs that the government has political space afforded by that whopping majority, to make these decisions on spending cuts without too much fallout – for now.
Because while Wednesday will be bad, worse could be yet to come.
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Staring down the barrel
The chancellor is staring down the barrel of a possible global trade war that will only serve to create more economic uncertainty, even if the UK is spared from the worst tariffs by President Donald Trump.
The national insurance hike is also set to kick in next month, with employers across the piece sounding the warnings around investment, jobs and growth.
Six months ago, Reeves said she wouldn’t be coming back for more after she announced £40bn in tax rises in that massive first budget.
Six months on she is coming back for more, this time in the form of spending cuts. And in six months’ time, she may well have to come back for more in the form of tax rises or deeper cuts.
The spring statement was meant to be a run-of-the-mill economic update, but it has morphed into much more.
The chancellor now has the hard sell to make from a very hard place, that could soon become even tougher still.
