Spring Statement 2025 should be Reeves’ last
If there’s one lesson Keir Starmer should learn from Liz Truss, it’s that he should sack his Chancellor Rachel Reeves, says Alys Denby
With living standards clobbered by an emergency Budget hastily cobbled together as market forces react against government policy, the spectre of Liz Truss haunted the Spring Statement in more ways than one.
First, this was a swerving change of economic course from a government that had promised stability. And given that current forecasts don’t account for the impact of Trump’s tariffs or Labour’s workers’ rights package, the Chancellor will almost certainly have to raise taxes again in the Autumn.
Second, in trying so hard to be the anti-Truss, Reeves has forced herself into £14bn of public sector cuts and accusations of a “return to austerity”. One aspect of universal credit is being reduced by a massive 50 per cent and the costs of running government are set to fall by 15 per cent (though it’s difficult to see how investing £2.5bn in measures like more funding for foster care, however commendable in themselves, will achieve this). There is a cruel irony here. Even while accepting Truss’ central analysis that growth is the only possible cure for Britain’s diseased economy, her policies will result in growth remaining below two per cent for the entire parliament.
A reminder of how she got into such an abject position. Labour won the election by promising stability as an antidote to the chaos of Liz Truss’ 45 days as Prime Minister. Positing herself as the ‘Iron Chancellor’, Reeves tightened her fiscal rules so that costs must be met by revenues by 2029/30 and debt must fall as a share of GDP over a three-year horizon instead of five. She also introduced a new Fiscal Lock Law, meaning that any major announcements on tax or spending must be accompanied by analysis from the Office for Budget Responsibility (OBR). Today, the OBR has halved its growth forecast to one per cent, wiping out the Chancellor’s fiscal headroom, while also saying that her calculations on welfare savings were out by some £1.6bn. Without the ability to borrow, she finds herself a Chancellor of a very different kind – clapped in irons of her own making.
Reeves posited herself as the Iron Chancellor but has found herself clapped in irons of her own making
But Tories should not be tempted to schadenfreude – indeed they should support well-targeted efforts to shrink the state. Spending on benefits for working age adults is set to rise by £30bn over the course of this parliament and the number of young people who are not in work or education has gone up by 110,000 in a single year. That’s not just unsustainable; enabling such a waste of human potential is immoral.
But spending cuts alone are not the answer – just as some overspending will always be down to bad actors fiddling the system, some cuts will always fall on people in genuine need. A Whitehall in panic because all the graphs are pointing in the wrong direction is not an environment conducive to serious policy reform. Nor is there much evidence that Labour have done much advance thinking about this problem. Their manifesto only mentioned the word “welfare” twice, both in relation to animal rights. By contrast, the Conservatives laid out detailed plans to save £12bn a year, including by changing the way mental health conditions are assessed – plans which are now sounding eerily familiar.
Reeves is out of ideas
It will come as no surprise to CityAM readers that this is a government with no ideas of its own, but it will disappoint those who voted so decisively for ‘change’.
The paradox of a Labour Chancellor sounding quite so Tory is not lost on Reeves’ colleagues. Mayor of Manchester Andy Burnham has said “there is no case in any scenario for cutting the support available to disabled people who are unable to work” while the home secretary’s husband Ed Balls has said squeezing benefits is “not a Labour thing to do”.
But they are less quick to offer alternatives that take account of the bond markets’ hostility to further borrowing and the clear need to increase defence spending. So allow CityAM to point out that there was one other option available to her: Reversing the damaging National Insurance rise and workers’ rights legislation along with the vindictive school fee levy that have tanked confidence and driven so many wealth creators abroad.
One lesson that Starmer could take from Liz Truss: It took her just 21 days to replace her Chancellor and reverse their most harmful tax changes. Reeves delivered her first Budget 147 days ago.
Alys Denby is opinion and features editor of CityAM