Chancellor Rachel Reeves has ruled out “tax and spend” policies, signalling that she will neither raise taxes nor government budgets in her critical Spring Statement next week.
Speaking in a BBC documentary, The Making of a Chancellor, Reeves also warned that the government could not afford the kinds of spending increases seen under the last Labour government.
She is expected to make cuts to some government departments on Wednesday. More money has already been allocated to defence by reducing the aid budget.
“We can’t tax and spend our way to higher living standards and better public services. That’s not available in the world we live in today,” she said.
In her autumn Budget, Reeves increased the levels of tax and public spending significantly – paid for largely through extra taxes on businesses which proved highly controversial.
But she is now under pressure on several fronts. It emerged on Friday that government borrowing – the difference between its spending and its income from taxes – was even higher than expected in February.
The official prediction for that month from the Office for Budget Responsibility was £6.5 billion, but it hit £10.7bn, leaving the chancellor with less fiscal headroom.
Adding to the Treasury’s in-tray, official growth forecasts for the economy are also likely to be cut.
Last week, Work and Pensions Secretary Liz Kendall unveiled sweeping changes to the benefits system, aimed at saving £5bn a year by 2030 and creating a more “pro-work system”, though ministers have not set out the breakdown of forecast savings.
The changes will affect people claiming disability and health benefits, as well as those aged under 22 relying on top-up payments while on universal credit.
The chancellor will set out the impact of these changes in more detail in her Spring Statement, and is expected to announce further cuts – this time to some Whitehall departments – to meet her self-imposed rules for the economy.
The Treasury has reiterated that these rules – to not borrow for funding day-to-day public spending and to get debt falling as a share of the UK economy by 2029-30 – are “non-negotiable” .
“What I’ve done so far is put money into public services,” Reeves insisted in her BBC interview.
She said there was “real growth” in spending for each of the next few years “but not at the levels that we were able to deliver under the last Labour government when the economy was growing much more strongly”.
But Labour grandee Lord Blunkett wants Reeves to “loosen a little the self-imposed fiscal rules”, calling them “Treasury orthodoxy and monetarism at its worst”.
Speaking to BBC Radio 4’s The Week in Westminster on Saturday, the former work and pensions secretary under Tony Blair said he would “raise the self-imposed rule by at least £10-15bn” to help fund “a new deal for the unemployed, getting half a million of those young people who are out of work and training into a job or a training programme”.
Reeves spoke to me earlier this week amid unease among Labour MPs at the welfare changes.
In the interview, she opened up on how the job is going so far following a number of controversies not only over her decisions, but also over the accuracy of parts of her CV.
Asked whether she had been treated fairly, and in the same way as her male predecessors, Reeves told me: “I think that would be up to others to judge and people to judge over time.
“I recognise that with the privilege of doing a job like the one I’m doing today also comes a great deal of scrutiny. I absolutely believe that every policy that I announce, every pound of public money, of taxpayers’ money that I spend, and every pound that I take from people is properly scrutinised. That’s part of the job.
“One of the things I think that I find hard, even with the thicker skin I guess I must have developed over these last 14 or so years, is some of the personal criticism because that’s not the sort of politics that I do.”
Responding to Reeves’ comments on the economy, Shadow Chancellor Mel Stride said: “The Labour chancellor promised ‘growth, growth, growth’ but since the Budget, growth is down, inflation is up, and business confidence has collapsed.
“Labour are having to come forward with an emergency budget on Wednesday – a situation entirely of their own making.
“Rachel Reeves must urgently rethink her anti-business budget before it bites.”
The Making of a Chancellor is on BBC Sounds from 00:01 on Saturday and on BBC Radio 4 on Monday at 16:00 and Tuesday at 09:30.
