Spring Budget 2025: The Chancellor’s Gamble on Welfare Cuts and Fiscal Discipline
One story will dominate the Chancellor’s Spring Statement, and it’s fairly obviously going to be welfare cuts. Headline political analysis isn’t so hard sometimes… so I suppose I should get under the skin of the context a bit (to encourage you to continue to read).
The opposition have tried to paint Rachel Reeves’ update to the House of Commons as an ‘Emergency Budget’. One can understand the appeal of trying that, and the Tories know what an Emergency Budget is, as the Chancellor reminded everyone by beginning her Statement with reference to Liz Truss. It falls a bit flat here, though, since there’s no acute crisis to deal with, just a general ongoing economic malaise that Labour haven’t yet managed to solve. A better attack line would probably be to say that the Government are still lacking an ambitious vision for the country. Certainly, the Chancellor appears to be stuck solving problems created by setting her own parameters of success – the fiscal rules. We seem destined for a Parliamentary term obsessed with slavish devotion to the OBR’s forecasts.
Changed growth and revenue forecasts have eroded the Treasury’s headroom and spending plans must therefore be brought into balance. Pressing political priorities, like increasing defence spending, must be incorporated too. Manifesto commitments, like not raising personal taxation, cannot yet be breached.
Efficiencies can be found in Government, and fat can be trimmed here and there because AI tools might compensate without losing capacity (to be proven, of course). HMRC can further step-up enforcement of tax evasion, which is welcome. But something larger has to be found to balance the books, and the Chancellor has chosen welfare spending.
It’s an understandable political gamble – the anger in the Labour Party will not be matched across broader public opinion, at least not yet. And the narrative the Government offers – tying the moving to getting more people into work – helps to bind it into the pro-growth agenda. But it is a gamble all the same, principally on the strength of Labour’s internal party discipline. Personally, I suspect it will become a grievance stored up by backbench MPs that will burst out somewhere in the not-too-distant future (and bigger, in that sense, than the fairly benign response to Winter Fuel Payment cuts last year).
Overall, though, the Spring Statement indicates a Government intent on keeping to its current course, relying on structural reforms to the planning system and strategic infrastructure spending to kickstart the economic engine. At the same time, the party leadership will hope that its flagship legislation on workers’ rights and rental sector reform alongside its problem-solving approach to the NHS and public services crisis will keep its core electoral support happy for now… but they are really hoping that the benefits of economic growth are felt by the public at large by the end of the Parliament.
