Although not officially called a budget, the spring statement had all the markings of one.
Chancellor Rachel Reeves made significant cuts to repair the deteriorating public finances, impacting the poorest in society.
Faced with a worsening economic forecast and increasing debt repayment costs, the chancellor found herself in a difficult position after implementing a £70bn budget in October aimed at enhancing public services and boosting economic growth.
Five months later, the budget was falling short of expectations.
Reeves confirmed that the projected £9.9bn surplus for 2029/30 had disappeared, putting the public finances in deficit.
To restore her fiscal cushion, Reeves announced a £14bn repair job, emphasizing the importance of funding day-to-day government spending from tax revenue rather than borrowing by the end of the decade.
To achieve this, she introduced billions in spending cuts, which were met with criticism from the Labour movement, as a Labour chancellor was cutting the welfare bill by £4.8bn.
Government assessments indicated that millions of families on universal credit would be significantly worse off by 2029/30, with many pushed into relative poverty.
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Many Labour MPs found the cuts uncomfortable, with protests both in the Commons and outside Downing Street against what they deemed as “cruel cuts.”
While concerns over the impact of the cuts remain, MPs generally acknowledge the challenging circumstances and Reeves’ commitment to restoring public finances.
Government officials believe the fallout from the cuts may not be as severe as anticipated, citing initiatives like the rise in national living wage and employment support changes to aid vulnerable families.
Despite some political breathing room gained from the repair job, Reeves still faces challenges, with uncertainties like trade wars and market volatility posing risks to her fiscal rules.
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The chancellor’s announcement on planning reforms boosting the economy provided a glimmer of positive news amidst the challenges.
While the growth plan is touted to work, it’s clear that the current situation is a temporary fix rather than a permanent solution.
Rachel Reeves. Pic: PA
The Office of Budget Responsibility highlighted the fragility of the fiscal cushion Reeves has built, warning of potential risks like trade wars and market volatility.
Speculations arise whether further measures will be needed in the future, as sticking to fiscal rules without borrowing could require additional tax hikes or spending cuts.
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Pressure for further spending cuts within her party appears to have reached a limit, with calls for taxing the rich rather than cutting benefits for the poor gaining traction.
While navigating through current challenges, the chancellor may face even tougher times ahead, with difficult decisions looming on the horizon.