Shadow Chancellor Rachel Reeves’ pledge is big news. She made clear in her spring statement that there will be deep cuts to welfare and public services. This is a welcome recognition that the announcement should help meet fiscal targets and needs to focus on providing long-term, sustainable economic growth. Not only does Reeves’ plan save £3.4 billion, it moves nature forward. This mainly consists of slicing down health-related entitlements linked to universal credit by half and then fixing them in place.
Reeves was quick to point out that these cuts will be offset by several billions of pounds in long-term infrastructure investments. These investments are meant to create economic opportunity. She said that the basic universal credit allowance will be raised from £92 per week to £106 per week. This would change implementation by no later than the 2029-30 fiscal year. Moreover, she’s promised £1bn to fund initiatives to get jobready claimants into work.
The Treasury watchdog conducted a late-stage review. They found a black hole on the other side of the books – a projected £4.1 billion gap in public finances over the next five years. Reeves promised that her measures would turn this £23 billion black hole into a £9.9 billion windfall.
“The responsible choice is to reduce our levels of debt and borrowing in the years ahead so we can spend more on the priorities of working people and that is exactly what this government will do,” said Rachel Reeves.
Beyond welfare cuts, Reeves announced significant funding shifts. She assured us that more funding for the defense is coming soon. She promised to boost spending on capital, or hard infrastructure, projects by an average of £2 billion a year, against last autumn’s budget.
Reeves used to illustrate the effect of Labour’s radical planning reforms, introduced last year. The Office for Budget Responsibility (OBR) has welcomed these reforms as a happy overall improving effect on growth forecasts. The OBR has provided an extremely rosy longer-term forecast. It estimates that these reforms will increase the economy by 0.2% at the end of the decade and by 0.4% in ten years’ time, adding a stunning £15.1 billion.
“That is the biggest positive growth impact that the OBR have ever reflected in their forecast for a policy with no fiscal cost,” Rachel Reeves stated.
In spite of these assurances, Reeves simultaneously announced a new wave of benefit cuts, calling them a “final adjustment.” The announcement comes on the heels of the OBR’s dismissal of government estimates about savings from shortly announced reforms.