‘Keir Starmer’s Government Should Stop the Austerity Denial About These Cuts’

One of the Government’s talking points as it went into this Spring Statement is that it is not really presiding over austerity, or an abandonment of a Labour approach to the economy, because of its extra investment and cash announced in Rachel Reeves’ autumn budget last year.

Labour is relying on this argument quite heavily: it can be found in most longer analyses of Labour’s economic options, is repeated by supporters during broadcast interviews, and by reporters providing balance. Indeed, the autumn budget is referred to in some quarters as a ‘tax and spend’ moment.

The purpose of Labour’s talking point is to encourage commentators to give it a somewhat softer ride over its programme of cuts, and to give Labour politicians a defensive line.

But the truth is that the Labour government is imposing cuts. It has already announced between £5bn and £6bn cuts to welfare, in particular PIP for disabled people. Overnight it has come back with even more welfare cuts, after the OBR failed to accept its figures for the first tranche – with the Times reporting that Reeves will announce that Universal Credit incapacity benefits for new claimants, which were halved in Liz Kendall’s original proposals, will now be frozen until 2030 rather than rising in line with inflation, along with a cut in the basic rate of UC in 2029. As it turns out, the first cut is not the deepest.

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The Government aims to slash jobs in the civil service. It has taken an axe to the international development budget. Its public sector pay policy is unfunded. Unprotected departments are reported to face further cuts.

It is to be in denial to argue that because of what was announced in October, the Government is not imposing an extremely serious and deep cuts programme.

However, the basis of the Government’s defence does also have to be challenged. Of course if one compares what Rachel Reeves announced in October to what the previous Conservative administration had said it was going to do then Labour’s position inevitably appears more benign.

However if it is judged on its own terms, what Reeves announced in October, and what we are now therefore working from, was extremely tight. Far from an investment bonanza, the Government’s own documents for the autumn budget showed central government investment projected to be falling at the end of this Parliament: up 2.0% in 2024; then -0.7% in 2025; +6.1% in 2026; +1.1% in 2027; -1.3% in 2028; -1.4% in 2029.

As I previously argued on these pages, Reeves’s ‘stability’ rules for bringing current spending into balance, set out in the autumn budget, were extremely tight and would inevitably lead to cuts, a process we are now seeing with welfare and which will continue through to the spending review. Labour MP Diane Abbott noted in November that the OBR’s figures showed managed expenditure for all government departments going from 44.9% of GDP in 2023/24 to 44.5% in 2029-30. 

On living standards, in the Government’s own budget documents, the forecast was for an increase in real household disposable income (RHDI) per capita of just 1.4% in 2024-25 and 1.1% in 2025-26. It was forecast to rise by only 2.1% over the forecast period as a whole. And alternative analysis from the Joseph Rowntree Foundation based on the OBR’s forecasts showed average disposable incomes actually set to fall across the parliament. Updated analysis from the JRF this weekend concluded that the average family will be £1,400 worse off by 2030, representing a 3% fall in their disposable incomes. The lowest income families would be £900 a year worse off, amounting to a 6% fall in the amount they have to spend.

The undeniable reality is that under its present leadership Labour is unleashing a massive cuts programme, along with inadequate investment in the economy, and tightening living standards, whilst finding extra resources for military expenditure. As Reeves’s statement today is revealed, it is necessary to be clear about what is really happening. The Starmer-Reeves economic project is grim for living standards, economic prospects, public services and recipients of welfare, and should be opposed. It certainly should not be given the benefit of the doubt.

This article is an edited version of a piece that first appeared on Simon Fletcher’s Modern Left Substack.