At the same time, the Government needs to ramp up defence spending, adding another burden to the books, not to mention the inflation figures, which are stuck at three per cent – well above the declining Eurozone average.
All of this without mentioning the T-word. The Government was shaken by the reaction to last autumn’s Budget, where hefty business tax rises, which have given employers pause before hiring more workers, led to downsizing in retail and hospitality; it was a Budget that cost Reeves the trust of the City.
Reeves knows that her longevity as Chancellor, and indeed the Government’s wider wellbeing, is connected to showing that she can balance out these concerns in the Spring Statement. Hence her remark in an interview with Sky News that her last Budget was a “once in a generation sort of thing”.
At the same time, Reeves has a window of opportunity for swingeing change. The major impact will be felt in tightening welfare spending on working-age people, which has ballooned from £48.5bn in 2023-24 to £75.7bn in 2029-30. Prodding more people on long-term sickness benefits, or youngsters not in work or training, to get economically active or lose income is now a priority.
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Read MoreThe classic Starmer-Reeves recipe in their approach to public finances is to make a lot of people a bit unhappy. So the welfare-to-warfare spending push will likely be offset by measures which do not contravene the hardcore pledges not to raise key taxes. Jeremy Hunt was mocked as the “fiscal drag” artist for his reliance on quietly freezing tax bands to bring in more tax revenue as inflation rose. Expect a tribute band performance from his successor.
In many ways, a Labour government is going to look a lot more Tory in the next months. Even the “austerity 2.0” description once resisted by ministers is now greeted with sombre reflection that the situation has changed and unthinkable things are now the norm.
Up till now, the recipe was based very largely on blaming the previous management. That is no longer enough: big, persistent problems are Labour’s to solve. Tellingly, the Chancellor met the major gilt (government bonds) dealers in the Treasury last week, explicitly to reassure them she would keep a tight lid on public spending, rather than being seen to risk a rise in the cost of borrowing. It is a sign of her methodological approach, but also the level of concern in the Treasury at the impact of this statement and what it foretells.
Anne McElvoy is host of the Power Play podcast for Politico
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