The Chancellor has only herself to blame for our problems

Yahoo

26-03-2025

'It's not my fault' and 'the world is changing' were the plaintive cries from the Chancellor of the Exchequer. If the promised land flowing with milk and honey had not been delivered, it was because of 'economic headwinds' overseas: Ukraine, Trump, tariffs.
In the Chancellor's mind there were no similar external events that ever confronted the previous Conservative governments. Whatever went wrong then, forget about it: the financial crisis, Covid or Ukraine. It was all the fault of 14 wasted years of Tory governments.
It is true that recently there have been some awkward, unhelpful events. But these were not, in Donald Rumsfeld's phrase, all 'unknown unknowns'.
At the time of last year's Budget, the Chancellor was repeatedly warned that she was not allowing sufficient headroom in her fiscal rules.
There was a real risk that if interest rates rose, on the back of Britain's Covid debt, this would mean large increases in interest payments, in turn squeezing public spending. Equally, if growth came in below expectations, the public finances would be in trouble.
The Chancellor was accused then of gambling with the economy by increasing borrowing at the same time as raising spending and taxes. She was surely the architect of the awkward choices that confront her. The Government claims to be bringing stability to the economy, but the last Budget was destabilising, in that it loosened fiscal policy when the opposite was required.
Labour loves to refer to the turbulence of the Truss-Kwarteng Budget, but today's market interest rates are higher than then. Ten-year UK bonds now pay the highest rates in the G7.
The Chancellor confirmed, as expected, that without any changes she would breach her two fiscal rules. Alterations to public spending had to be made in the later years of projections.
Many people will be relieved that the Chancellor did not make any increases in taxation. If she had put up taxes, it would have been difficult to avoid the accusation that this was an emergency Budget. But the question remains: will the Government be able to avoid tax increases when it comes to the next Budget in the autumn?
Some of the Government's changes in spending ought to be welcomed. It is both surprising and good that a Labour Government should abolish NHS England and aim to reduce the size of the Civil Service. But are the targets actually enough, and will they be achieved?
The Chancellor has tried to plug the gap with unspecified cuts in future years. Savings have been made in welfare to pay for the increase in defence spending. Savings from sickness benefit and welfare more generally are extremely sensitive, and must be targeted with great accuracy. But is a sum of less than £5 billion really the maximum that could be extracted from the budget for health-related benefits, which is projected to rise to £100 billion?
The object of the policy is not just to save money but to help people back into work. It was strange that neither the Government nor the Office for Budget Responsibility (OBR) gave any estimate of the number of people who would return to work as a result of these changes.
The Spring Statement, as expected, confirmed that the OBR has halved its forecast for economic growth this year. And that is even before the Government's increases in National Insurance Contributions come into effect. It is difficult for the Government to deny that its constant talking down of the economy, combined with the NI increases, have created this Government's very own black hole.
The Chancellor made much of forecasts of better growth later on, and also of planning reforms and what those might mean – if they ever actually happen – for GDP growth. She trumpeted growth figures as a result of the planning reforms as though they had already happened, rather than admitting they were just being forecast.
The hills were in labour but only produced a small brown mouse of a Spring Statement. We must await the Budget in the autumn to see what is really in store for the economy.
The Government's vision of economic growth is that it comes from the state, rather than from individuals and firms. Starmer and Reeves believe that bodies like GB Energy and the National Wealth Fund are what create prosperity.
Until we get a government that believes in incentives and recognises that the real source of wealth creation is the private sector, we will just continue to bump along the bottom.
Rt Hon Lord Lamont served as Chancellor of the Exchequer
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