Rachel Reeves faces calls to step back from becoming ‘Labour’s austerity Chancellor’ as she prepares to slash billions of pounds from welfare and other Government budgets
Rachel Reeves is expected to slash billions of pounds from the welfare bill and other government budgets as she battles to balance the books.
The Chancellor’s room for manoeuvre is believed to have been wiped out by global turmoil and sluggish economic growth. But she faced calls not to become “Labour’s Austerity Chancellor” as speculation mounting over major spending cuts in the Spring Statement.
The Treasury was due to present plans for big-ticket items like tax and public spending to the Office for Budget Responsibility (OBR) on Wednesday for its Spring forecast. A Government source said the “world has changed a lot” since the Budget in October, when the OBR indicated she had £9.9billion of wiggle room within her self-imposed borrowing rules.
The watchdog is now expected to downgrade its forecast due to global factors like Donald Trump’s threats of trade tariffs, as well as higher than expected inflation and borrowing in the UK. This significantly raises the stakes for the Chancellor’s Spring Statement on March 26.
Last week, Keir Starmer failed to rule out spending cuts or tax hikes but said the “big decisions on tax” had been taken in the Budget. A Government source said: “Clearly the world has changed a lot since the autumn Budget.
“People are watching that change happen before their eyes. The Office for Budget Responsibility will reflect that changing world in its forecasts later this month and a changing world will be a core feature of the Chancellor’s response later this month.”
The plans are believed to involve cuts to welfare, Whitehall budgets and wider government efficiencies. Work and Pensions Secretary Liz Kendall has been drawing up reforms to reduce the number of people on health-related benefits and get them back into work.
She told a Cabinet meeting this week there are 2.8 million people out of work due to ill-health and one in eight young people not in education, training or employment.
Last year, the Government spent £65billion on sickness benefits – a 25% increase since the year before the pandemic. It is forecast to hit £100billion before the next general election.
Insiders insisted that attempts to reduce the welfare bill would come with support to get more people back into work. “We’re not the Tories,” another Government source said.
“When it comes down to it, the system isn’t working. It’s not helping people. It’s not giving proper support to people who are not fit to work. So that’s what we need to change.”
Justice Secretary Shabana Mahmood argued that there was a “moral case” for cutting the size of the sickness and disability benefits bill. She told BBC Radio 4’s Today: “There is a moral case here for making sure that people who can work are able to work and there’s a practical point here as well, because our current situation is unsustainable.”
Asked if Mr Starmer agreed, the Prime Minister’s official spokesman said economic growth was the Government’s top priority, arguing it would fund public services and drive up living standards. The spokesman added: “However, one of the huge blockages to growth is the broken welfare system, which we inherited, which is draining our workforce by pushing people out of work and consigning them to a life dependent on welfare instead.”
But critics said cuts would leave the poorest bearing the brunt. Fire Brigades Union general secretary Steve Wright said: “Hard pressed families must not be made to pay the price of nearly a decade-and-a-half of Tory mismanagement of the economy.
“The Chancellor must use her Spring statement to tax the rich to properly fund public services and increase pay. Rachel Reeves must not become Labour’s ‘Austerity Chancellor’.”
PCS general secretary Fran Heathcote said: “Cutting civil service jobs will damage public service and cutting disability benefits will condemn people to poverty. We’d have hoped we wouldn’t have to explain the damage wreaked by austerity to a Labour government.”
Ruth Curtice, chief executive of the Resolution Foundation, said the Chancellor should consider tax rises instead of welfare cuts, which will hit the poorest Brits. She said: “I wouldn’t borrow more but I do think there’s an argument not to cut welfare spending but to look at taxes instead.
“Welfare spending obviously hurts the lowest income family, we have child poverty rates forecast to rise through the Parliament leaving 4.6million children in the UK in poverty and we have inflation rising at about 3% and benefits already only going up this April at about 1,7% so this is a group that’s already under strain.”
