The Chancellor is grappling with the prospect of deeper public spending cuts due to a worsening economic climate. This could lead to tension with ministers who feel manifesto promises are being sacrificed.
Rachel Reeves is likely to reduce Whitehall public service budgets more than initially anticipated in the spending review due to the deteriorating economic situation, according to Sky News. This could lead to conflict with some ministers who already argue that she is compromising on manifesto pledges they are expected to fulfill, as these promises become increasingly difficult to achieve on tight budgets. They believe she prioritizes her own commitments over theirs.
The chancellor pledged in the budget to fund day-to-day government spending through taxation rather than borrowing, a feat not accomplished for decades. In the October budget, she allocated a limited £9.9 billion buffer out of a total public spending bill exceeding £1 trillion. However, worsening economic conditions, including borrowing costs reaching their highest levels since 1998, may significantly reduce this buffer to as little as £1 billion, potentially eroding it entirely. Sky News understands that the Treasury anticipates the possibility that, during the Spring Statement on March 26th, the Office for Budget Responsibility may declare her in violation of her fiscal rule. The Treasury is prepared to take immediate action to prevent this. It is anticipated that she will adhere to her borrowing commitments outlined in the October budget's fiscal rules. The Treasury has also confirmed that there will be no tax changes during the Spring Statement on March 26th. In this event, Ms. Reeves would be compelled to further reduce public spending budgets and explore additional, potentially unpopular, welfare budget cuts. In the budget, Ms. Reeves allocated a more generous 4.3% spending increase for 2024/25 and a more modest 2.6% for 2025/26. However, from 2026 to 2029, she allocated only 1.3%, lower than any point during the Tony Blair and Gordon Brown governments or any period under Boris Johnson. Worsening economic conditions would necessitate further budget constraints, potentially delivering even less than 1%
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