Rachel Reeves's plan is unravelling. She could be gone before the next Budget

Telegraph

3 hours ago

It can't be easy living in the maelstrom of 11 Downing Street these days.
First, Rachel Reeves had to endure almost four months of being warned what not to do with taxes, such was the brittleness of the UK economy.
Then – after she chose to both increase taxes by a record amount and increase borrowing so she could afford her spending commitments – came months of warnings about the dire consequences.
People are losing their jobs because of her choices, which will push up benefit claims and spending. Tax revenues will fall rather than increase by the numbers she expected. The economy has been flatlining with miniscule and highly erratic growth as it stops, starts, then stalls – seemingly on an endless repeat.
Then there were the cuts to pensioners' heating allowances, the cuts to disability benefits, the death tax changes for farmers, businesses and pensions.
On top of that, there were the tax rises we always knew were likely because Labour had refused to rule them out – the increases in capital gains tax and stamp duty, and the removal of incentives to entrepreneurs.
It has maybe taken longer than some of us expected, but the bad news for the Chancellor – and us – now seems to be arriving like buses.
I've imagined what it's like to be at the end of that constant deluge of bad numbers.
'Incoming!'
The annual estimate for public sector borrowing for year ending March 2025 is £148.3bn – £17.2bn more than last year and £11bn more than the OBR forecast.
Reeves carries on with her Sudoku.
'Incoming!'
Oh no! The latest inflation figures for April have surged to 3.4pc, trending towards double the Bank of England's target of 2pc.
Reeves stares out the window.
'Incoming!'
The unemployment rate is up 0.2pc to 4.6pc – the highest since 2021. The unemployed claimant count is up 107,000 year-on-year to 1.73 million.
'Incoming!'
Monthly GDP is down -0.3pc, three times worse than the -0.1pc consensus prediction.
Reeves purses her lips.
Looking forward, we can imagine over the months of July, August and September an unrelenting series of indicators breaking bad.
'Incoming!'
The latest tax receipts are below estimates. The latest borrowing numbers are up again. Finally, the markets are beginning to react.
'Incoming!'
The pound has fallen to $1.20, the lowest since 2023. Gilts are moving too.
'Incoming!'
Ten-year gilt yields are over 5pc. The Bank of England reverses course and puts rates up to 4.5pc.
'Incoming!'
The team from the IMF has arrived.
'Incoming!'
Prime Minister! I have the Chancellor's letter of resignation.
That type of scenario might seem far-fetched, but it is the trajectory the country is travelling.
Unemployment is already up 10pc since Labour came to power, and sadly there's no reason to believe this trend will be reversed. Since 'modern' records began, in 1971, every Labour government has left office with unemployment higher in percentage and absolute numbers than when it took power. Reeves is continuing that tragic tradition.
The spending statement from Rachel Reeves was not so much a review as a litany of unfunded spending commitments aimed not at reassuring the markets, but at reassuring Labour backbenchers.
The brighter among them will not buy it. They will soon notice the important numbers getting worse every month as the full effect of the employers' National Insurance increase, the lowering of the threshold to start paying it and the increase in the minimum pay rates costs jobs and halts hiring.
What does this all mean for people trying to get by: the savers, pensioners and those running their own businesses?
It means that tax rises are not just inevitable in October's Budget, they will become a must-do if an embarrassing bail out is to be avoided.
Labour likes to talk of having ended austerity – something that Philip Hammond, former Conservative chancellor, first claimed back in 2017. The truth of it is the UK has never had real austerity this century. The direction of travel of our public spending has always been up.
When you hear of spending cuts, what you are being told about is cuts to the rate of increase in government spending, not a cut in the total amount of spending, which continues to rise year-on-year.
Increasing taxes means an attack on our pensions, our savings and our properties. The tax hikes will be passed off as necessary to save the NHS when the NHS really requires an overhaul that boosts its productivity.
The much hyped increases for the NHS of £29bn each year over the next three years is most likely to be eaten up by rising pay awards.
The NHS is one of the world's largest employers, with around 1.3 million full-time equivalent staff in England (as of February 2024). Consequently, the wage bill for the NHS makes up a substantial proportion of its budget. Nurses are already being balloted about strike action over an 3.6pc inflation-busting pay offer – junior doctors are also wanting more again.
In 2022-23, the total cost of employing the staff in the NHS was £71bn – 45.6pc of the NHS budget.
These statistics don't include salaries for GPs (who are not directly employed by the NHS), nor employees in the Department of Health and Social Care and other national bodies, such as NHS England. GPs and GP practice staff are indirectly funded by the NHS through a complex system of contracts.
The Resolution Foundation think tank estimates that, by the end of the decade, half of all public spending will be going to the NHS – and continuing to rise.
So optimistic has Reeves been about 'fixing the foundations' and 'delivering growth' while 'making the right choices', that there will be no way back for the Chancellor when the next crisis begins.
The next time someone shouts 'incoming!' in the Treasury, everyone had better duck under their desks. It will be to announce a new Chancellor.