‘Rachel Reeves’ Unimaginative Spring Statement Missed Its Moment’

“Never let a good crisis go to waste”, is a political cliche because it captures an obvious truth. Moments of great upheaval create opportunities to do things that might have been politically impossible before. Rachel Reeves appeared to acknowledge that we are at such a moment now with her repeated observation in her Spring Statement that “the world has changed”.

Yet this most unimaginative and orthodox of chancellors shows little sign of being prepared to seize the opportunities that the chaos unleashed by Donald Trump’s return to the White House presents. Instead we have a government that seems content to react to events rather than shape them. 

To be fair to the Government, circumstances have already forced them to take some tough but necessary decisions that it might otherwise have avoided.  It has had to bring forward the date by which defence spending will rise to 2.5% of GDP to 2027. To pay for that, they are making some modest reforms to the welfare system that should save £4.8 billion a year and has announced plans to cut civil service numbers. The soaring welfare bill was clearly unsustainable and the huge rise in civil service numbers was hard to justify. Some effort to trim both is the least one should expect in a crisis. 

The False Economies of Rachel Reeves’ Spring Statement

There is nothing “responsible” about forcing hundreds of thousands of people into poverty, while putting even more strain on those public servants who will have to pick up the pieces, argues Adam Bienkov

Adam Bienkov

Certainly these measures were enough to deliver on Reeves’s immediate objective which was to restore the Government’s headroom under Reeves’s own self-imposed fiscal rules that has since been wiped out by slower growth and higher borrowing costs. That will earn the Government some credit with the financial markets, which should buy them some insurance against further global market volatility. Indeed, Deutsche Bank’s fixed income analysts earlier this month reported a growing appetite for UK assets in part in response to the willingness of the Starmer Government’s willingness to make cuts. 

Nonetheless, it is unlikely to be enough to spare Reeves further difficult choices come the Autumn when she delivers her next budget. The Government is already having to issue more than £300 billion of gilts in the next financial year and the swelling interest bill is swallowing an ever rising share of government income. Meanwhile, as the OBR noted, it would only take a small rise in interest rates, or continued weak productivity growth, to wipe out her headroom again. The central OBR forecast also doesn’t account for the impact of a Trump a trade war, which would crush growth. At the same time, defence spending will surely need to hit 3% before the end of this parliament. No wonder most City economists expect taxes to have to rise. 

Given the magnitude of events, what was most striking about Reeves’s statement was its timidity. She, and indeed much of the UK political and media class, continue to be trapped by pre-crisis thinking, not least the way in which the fiscal rules continue to set the political terms of trade. The result is that the Government should find itself in the days before the chancellor’s statement locked in an absurd debate with the OBR over whether an extra £500 billion of welfare savings were needed to meet a fiscal rule based on a forecast of what might happen in three years time. This is dancing on a pinhead stuff. 

What was missing from the chancellor’s statement was any sign of the Government rising to the level of events, recognising the shifting of the Overton window and seizing the opportunity to escape the straitjacket of its manifesto. If taxes must rise, then why not grasp the opportunity for long overdue far-reaching reform of a tax system filled with enterprise-crushing cliff edges at every level of the income scale? When better than now to slash electricity prices by shifting green levies onto general taxation, paid in part by finally raising fuel duties, frozen for over a decade? 

Rather than footling around with a small-scale National Wealth Fund tasked with picking industrial winners, now is the time to create a vast Public Wealth Fund to manage all public assets on a commercial basis and improve their returns – as the US Government is considering doing. 

Above all, why squander energy and political capital in desperate pursuit of a US trade deal, even at the possible price of altering the UK tax code to suit American corporate interests and sowing division with European allies, when far greater gains could be achieved by rejoining the EU customs union and single market? Indeed, there is no single policy that the Government could pursue that could at a stroke boost the economy, reassure the bond market and revive the desperately sagging stock market. 

Yes, this is widely considered politically unthinkable. But many things that were unthinkable a few weeks ago are now thinkable. As Reeves says, the world has changed. Time to smash the emergency glass. These opportunities don’t come around very often – thanks goodness.