Don't be in denial about the cuts
One of the government’s talking points as it goes into the spring statement is that it is not presiding over austerity or an abandonment of a Labour approach to the economy because of extra investment and cash announced in Rachel Reeves’ autumn budget. 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 given space 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 to take. But 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 new 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.
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 Tory 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. (Figures here). As argued here, 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. Diane Abbott noted in November that the OBR’s figures showed managed expenditure for all government departments going from 44.9 per cent of GDP in 2023/24 to 44.5 per cent 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 per cent in 2024-25 and 1.1 per cent in 2025-26. It was forecast to rise by only 2.1 per cent 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. More here.
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 we await Reeves’s statement today, 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.