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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 “headroom” 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 say that Reeves will send in “measures” to the Office for Budget Responsibility intended to rebuild the public finances, with some saying they are more than £10bn worse off than at her 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 insists 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.
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.
Aside from welfare cuts, Cabinet Office minister Pat McFadden is drawing up plans to cut central government spending to make the state more “agile”. Wes Streeting, health secretary, is also working on a plan to boost NHS productivity.
In October, the OBR’s forecasts showed that Reeves had £9.9bn of headroom against her rule for the current budget to be in balance by 2029-30 — leaving her “almost no wriggle room”, according to the Institute for Fiscal Studies, a think-tank.
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 Monday.
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 insiders have not ruled out any tax rises on March 26, they insist that Reeves wants to make big changes in her autumn Budget.
