Mini-budgets may not be good for Rachel Reeves’ career

“Fixing the foundations” of the economy has been the constant mantra - and promise of ministers since long before the election. Yet the phrase, or anything like it, was curiously missing from the chancellor’s spring statement. That may be because it is perfectly apparent that the government has not yet fixed the foundations of the public finances, and without that, as Rachel Reeves rightly argues, no economy can be well-placed for sustained economic growth. The danger is that the chancellor will have to return to the Commons again in the summer, for the spending review, and then in the autumn Budget — and perhaps yet again, in next year’s spring statement — with new proposals for tax rises and cuts to public spending plans.

It is quite possible that this parliament becomes a constant flow of mini-Budgets. None of that is good for building confidence among consumers, business people or the markets — nor for Reeves’s career, or the prospects of a second term for this government. The spring statement, sadly, has an air of unreality about it. The problem is that in her October Budget, Reeves allowed herself far too little fiscal room for manoeuvre, and things haven’t gone as well as she’d hoped: quietly, behind the scenes, she has actually broken her own financial targets. Having created about £10bn in October as a sort of buffer against the unexpected, in a few short months she was, by her own admission, some £4.1bn “underwater”, and has thus had to find cuts and savings to make up for that shortfall. The chancellor says she has recovered the situation and now has a new buffer amounting to £9.9bn by 2029 — a number presumably chosen to convey a sense of accuracy that should never be attached to the public finances on that sort of horizon. This is not how Reeves should be fixing the foundations. Leaving so much to chance once again, in such an uncertain political and economic environment, was a gamble last year. It is just as unwise in 2025.

The growth forecast has been halved for this year; inflation, having fallen to 2.8 per cent last month, is expected to tick up; the vast cost of public sector borrowing — some £132bn so far this year - is extremely vulnerable to shifts in global interest rates; and no one knows the scale of the damage that Donald Trump will unleash on America and the world economy over the next four years. The increase in UK defence spending, for example, feels obviously inadequate given the sudden ending of the Atlantic Alliance. Reeves, in other words, is creating a cage of absurdly tight safety margins for herself: £10bn or so against an annual public spending total of around £1.5 trillion, something like 0.7 per cent. That is why, only a week after her colleague Liz Kendall made her major announcements on sickness and disability benefits, another £1.6bn had hurriedly to be found to make Reeves’s numbers add up. A more radical Budget last year and an accelerated spending review now would have been a more convincing way for Reeves to “fix the foundations”. In a parallel universe, creating a much more robust fiscal position would make it far less likely that she’d have to return to ask for more in future. It would also add to the government’s credibility as well as restore some credibility to Ms Reeves’s reputation. Frankly, she has not assuaged any concerns about yet more tax rises in the autumn - she was silent on that point in her speech — and the resulting uncertainty will itself harm the economy.

In a few days, businesses will be faced with the reality of higher wage bills because of the hike to employer national insurance contributions, as well as higher minimum wages and new laws on workers’ rights; but they must also fear that Reeves has not yet finished with them. It would have been far better if she had “kitchen-sinked” everything (as they say in the Treasury) that she might conceivably have had to do last year.

Reeves is right to point to the miserable legacy she was bequeathed by the Conservatives, though she neglects to add that the doubling of the national debt was because the economy had to be supported during the pandemic, the energy crisis and, long before those, the global financial crisis. The baleful effects of Brexit, unmentioned by Reeves, also continue to act as a brake on the progress of the British economy. She is also not to blame for President Trump’s literal love for tariffs, nor Vladimir Putin’s mission to rebuild the Soviet empire.

The constraints Reeves is working under would test any chancellor. But she has made bad calls of her own, notably an over-reliance on taxing business and overdoing the pessimistic, panicky rhetoric on entering office. Yet her real problem is that the foundational narrative that delivered Labour its general election victory has collapsed. Labour was elected on the slogan “Change”, and the promise that Tory instability had wrecked the economy. Reeves and her colleagues argued that they would create stability, rebuild trade relations with the European Union, and that this would all boost investment, productivity, economic growth, and improve living standards and fund public services. Indeed, the UK was to enjoy the highest sustained growth among the G7 nations.

The Independent