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Chancellor Rachel Reeves will this week submit plans to Britain’s official forecaster for billions of pounds of spending cuts, with a focus on slashing the welfare bill to shore up the country’s weak public finances.
The £9.9bn of fiscal space Reeves left herself against her own fiscal rules has been wiped out by higher borrowing costs, while sluggish growth has contributed to her problems ahead of a Spring Statement on March 26.
People briefed on the process said Reeves would submit “measures” to the Office for Budget Responsibility to rebuild the public finances. Some added the fiscal position was more than £10bn worse than at Reeves’ October Budget.
“You don’t need the OBR to tell you that the world has changed, that borrowing costs have risen across the world and that we need to take action,” said one.
Reeves has insisted that the Spring Statement will not be a “full fiscal event” — she still intends to have one major Budget a year in the autumn — but the chancellor is being forced to take action on the public finances.
“We have to go further and faster on reform and spending,” said one official briefed on Reeves’ thinking. The chancellor will also warn the country that it will have to spend more on defence in the future.
Ahead of the Spring Statement ministers will roll out a flurry of announcements intended to show that the Labour government is serious about cutting spending.
Prime Minister Sir Keir Starmer and Reeves have told ministers to draw up plans for further cuts to regulation in Britain, including scrapping or merging some watchdogs, according to officials.
Cabinet office minister Pat McFadden is drawing up plans for efficiency savings in central government spending to make the state more “agile”, while Wes Streeting, health secretary, is due to set out proposals to boost NHS productivity, they added.
Reeves received the latest OBR provisional forecasts on Tuesday and will this week send policy measures to the forecaster as it prepares its final outlook for the public finances on March 26.
The chancellor’s central task is to persuade the OBR that the cuts she intends to make, especially to welfare programmes, will actually deliver the savings she claims.
In October, the OBR’s forecasts showed that Reeves had £9.9bn of headroom against her rule for day-to-day spending — excluding investment — to be funded by tax receipts by 2029-30.
The size of the figure left her “almost no wriggle room”, according to the Institute for Fiscal Studies, a think-tank. Allies of Reeves said the chancellor wanted to maintain significant headroom.
Liz Kendall, work and pensions secretary, is seeking to persuade the OBR that programmes to get people off sickness benefits and into work will boost the public purse, as she tries to cut billions of pounds from the country’s welfare bill by the end of the decade.
The work and pensions secretary is laying the groundwork for an overhaul of the benefits system she will outline later this month, as Labour tries to avoid being forced into swingeing spending cuts across government, or tax rises.
The Department for Work and Pensions in recent weeks has published five “ad hoc” impact assessments that set out the financial benefits of new programmes to get the sick and disabled into work, the Financial Times reported on Wednesday.
Louise Murphy, a senior economist at the Resolution Foundation think-tank, said the assessments were clearly part of an effort to get the OBR to evaluate new government policies to introduce employment programmes more generously than it has in the past.
“Making big savings from the benefit system is really difficult,” she said. “The things that you can score highly tend to be really crude, essentially saying that certain cohorts of people will no longer benefit.”
Reeves is also expected to outline further savings ahead of a full public spending review in June as she attempts to make her budgetary sums add up. Treasury officials insist she will not bend her fiscal rules, amid fears it would upset markets.
Although Treasury officials have not ruled out any tax rises on March 26, they insist that Reeves would reserve any significant changes to her autumn Budget.
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