Reeves is on the run. Growth has collapsed on her watch. Taxes have soared. State spending is out of control.
Britain’s finances are now on a knife edge.
In last month’s Spring Statement, Reeves resisted the urge to raise taxes again, so soon after imposing £40billion in her Autumn Budget. That was a rare wise move.
She’s already driving Britain’s tax burden to a record high of 37.7% of GDP by 2027/28, according to the fiscal watchdog the Office for Budget Responsibility (OBR).
As the state consumes an ever-larger chunk of national wealth, the private sector is struggling to bear the load.
In February, Bank of England governor Andrew Bailey warned that Britain’s swelling public sector is dragging down the economy. He noted that 500,000 public sector workers have been hired since lockdown, but productivity hasn’t increased a jot.
As a result, the Bank slashed its UK growth forecast for 2024 from 1.5% to just 0.75%.
That’s even lower than the OBR’s revised forecast, which was also halved, from 2% to 1%.
With Donald Trump’s tariff war gathering pace, my bet is the Bank of England’s gloomier prediction will prove right.
Now, Reeves has suffered another major defeat. One that has largely gone unnoticed but spells disaster for her next Budget.
Spending on health-related benefits for working-age adults has ballooned since the pandemic.
Last year, the bill hit £48billion. By 2030, it’s forecast to reach a staggering £76billion, according to think tank Policy Exchange.
Ahead of her Spring Statement, Reeves talked tough about slashing disability and sickness benefits.
She claimed her planned reforms would save £5billion. That’s a fraction of the cost.
The reality? She won’t even hit that.
The OBR predicts her measures will save just £3.4billion, leaving a £1.4billion shortfall.
The limited cuts Reeves did announce sparked outrage on the Labour left and from poverty campaigners.
Oxfam branded them “morally repugnant.” Amnesty UK called them a “violation of human rights”.
Disability charity Scope warned they would have a “catastrophic impact” on disabled people, pushing 700,000 households into poverty.
Under that kind of pressure, Reeves has wilted.
Instead of cutting further to plug that £1.4billion shortfall, she’s now targeting just £500million in additional savings. I bet she’ll struggle to hit that.
As far as I can see it, any further cuts are now off the agenda. The outcry from natural Labour supporters will be too severe. So where will the money come from?
After last year’s Budget, Reeves gave herself just £9.9billion of “fiscal headroom” to balance the nation’s books. Within months, that was gone.
Through some creative accounting, she’s now restored it to £10billion. It won’t last either.
The OBR warned that Trump’s impending tariff war and the red tape tsunami from Angela Rayner’s Employment Rights Bill will quickly wipe it out.
Energy Secretary Ed Miliband could crush her fiscal headroom all on his own.
The fiscal watchdog puts the chance of Reeves having to raise taxes in October at 50-50. Personally, I’d say it’s closer to 100-0.
Given the backlash against disability cuts and the Winter Fuel Payment reforms, Reeves won’t have the stomach to cut spending further.
Her only option is to hike taxes. Your taxes.
With the Budget just six months away, speculation about which taxes she’ll target will fill the void. That will further destroy confidence and growth, just as it did last year.
Which will force Reeves to hike taxes harder.
We’ve now entered a vicious spiral. Reeves has lost control of events, and taxpayers will pay the price.
