Spending Review: Key points announced by Chancellor Rachel Reeves
But the Institute for Fiscal Studies is warning that the Chancellor has so little room for manoeuvre that if 'anything at all goes wrong with any of the current forecasts' further tax rises may be needed in the Autumn Budget
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The Sun
an hour ago
- The Sun
Households face council tax hikes and £10billion stealth levies as Reeves gets boxed into corner by shrinking economy
HOUSEHOLDS face council tax hikes and £10billion in stealth levies as Rachel Reeves gets boxed into a corner by the shrinking economy, experts warn. The Chancellor, who wore protective goggles during a visit to the University of Derby yesterday, learned growth fell 0.3 per cent in April — less than 24 hours after her £113billion spending review splurge. 2 2 Businesses are reeling from the National Insurance rise, a jump in the minimum wage and ongoing uncertainty over Donald Trump's global trade war. Economists warned the circumstances meant tax hikes are almost certain this autumn — along with hard-pressed town halls having to up council tax rates by five per cent next year to pay for local services. Former Office for Budget Responsibility committee member Andy King said 'the writing was on the wall for another fiscal hole' — which would trigger tax rises or possible spending cuts in the Budget. Another expert accused Ms Reeves of 'making up numbers' in her spending review as there were few clues where savings would be found. Paul Johnson, from the Institute for Fiscal Studies, said her demands that all Whitehall departments cut administration budgets by ten per cent a year were not the result of a 'serious analysis'. He also said that if Ms Reeves was forced to raise taxes, the most politically straightforward approach would be to extend the freeze on income tax thresholds. Mr Johnson added that her plans will result in a 'sting in the tail' because local authorities would have to raise their levies. More than half of Brits — 52 per cent — reckon Ms Reeves' spending review will have a negative economic impact rather than positive. But one piece of good news did emerge yesterday, as it was revealed the UK was finally ready to sign its trade deal with the US.
Daily Mail
2 hours ago
- Daily Mail
Reeves claims she's balancing the books - but sky-high bond yields tell a different story, says ALEX BRUMMER
The Chancellor's spending review is being billed by Labour as a signal moment for a government that is haunted by banana skins of its own making. It paints events as a moment for national renewal after 14 years of Tory chaos. It is nothing of the kind. An analysis by the Institute for Fiscal Studies shows, despite the hype and hand-outs for favoured constituencies, Rachel Reeves barely moved the dial on capital investment spending. All she did was maintain capital budgets, such as those for science and tech, at the same 'high' level of national income as Jeremy Hunt, the most recent Conservative Chancellor. IFS's director Paul Johnson doesn't pull his punches. He says if anyone was 'baffled' by the Chancellor's speech 'so were we'. He goes on to suggest that it wasn't a serious effort to provide useful information to anybody. It also exposed Reeves's ineptitude in framing arguments. There was no attempt to elevate and explain the spend, with focus on the white heat of technology, in terms of the nuclear, digital, and biotech revolution which will change Britain forever. Instead, there was revived talk of 'securonomics' (buried since Labour has been in office) and misleading crowing about the state of the economy. The boast that the UK was the fastest-growing economy in the G7 in the first quarter of the year was accurate. But as Reuters reported yesterday it was a case of 'pride comes before a fall'. Reeves and her team must have had early sight of the April growth data which showed output shrank by 0.3 per cent. A big factor was Trump's tariff war, which caused car, steel and other exports to stumble. One might have thought someone at the Treasury, or a special adviser, might gently have suggested the G7 comparison was a rhetorical trap which might have been avoided. The April data may be rogue because of Trump tariff uncertainty. The Government hopes the trumpeted trade accord with the US will soon come to fruition and the UK's upmarket car makers – Jaguar Land Rover, Bentley, and Rolls-Royce and the more eclectic Mini – will soon be back to normal business. However, it will take time for the logistics and supply chain to be revised. The downturn also was partly the result of policy. The end to concessions on stamp duty predictably produced a lull in home sales, despite the good househunting weather and the easing of the bank rate. Tax does make a difference. It is not wise for a government making a big bet on the housing market to bypass it as a recovery tool by punishing homebuyers, especially younger people seeking the first rung on the ladder. There is one G7 table which Rachel Reeves didn't mention. The Chancellor believes her fiscal rules, which require current spending to be matched by taxation but allow borrowing for investment, have secured the UK's budget after the Liz Truss disorder. Markets don't believe it. The yield on Britain's ten-year bond – or gilt – at 4.5 per cent in latest trading is the highest among the rich Western democracies. Reeves makes the reasonable case that UK yields move in lockstep with those in New York. There is, however, a serious flaw in the thinking. The Chancellor appears to believe that if the current budget is in balance, it is fine to borrow to invest. That may be the case in Japan and Germany, where bond rates are 1.46 per cent and 2.53 per cent respectively, because their governments' overall interest bill is, by UK standards, under control. In Britain's case, every pound that is borrowed for a new roundabout or bypass behind the Red Wall comes with interest at high rates. So the extra borrowing for Labour's £2 trillion or so of capital spend inflates the current budget via borrowing charges. In the autumn, the Treasury estimated the interest bill for 2025-26 at £126billion. If gilts had a similar yield to the German bund there would be an extra £60billion or so for education, health or even an end to the freeze on income tax thresholds which punish hard work and enterprise. Britain's national accounts do not provide a free pass for capital projects.
The Guardian
6 hours ago
- The Guardian
Demob-happy IFS director tears into Rachel Reeves's spending review
You can only conclude that Paul Johnson is demob-happy. The director of the Institute for Fiscal Studies is off to run an Oxford college in a couple of weeks and seems determined to go out with a bang. Normally, the scourge of chancellors and all things Treasury is quite measured in what he says. Borderline wonkish in his forensic analysis of financial statements. Choosing his words carefully as he peels back the political spin to deliver his verdict on the true state of the public finances. But for his last outing we got to see the real Paul. Paul Unplugged. The IFS press conference has become something of a tradition. The place where budgets and spending reviews come to die the day after they were delivered. Where the numbers aren't given a chance to lie. Johnson is nothing if not equal opportunities. No chancellor of either party is given a free pass. If there are discrepancies to be found, the IFS can be sure to find them. To get given a mark of B– from Paul is the sort of result a chancellor can only dream about. This wasn't to be Rachel Reeves's lucky day. Johnson had been up through the night crunching the numbers of Wednesday's spending review and they didn't look good. Maybe he had just had a bad morning, but for once his language wasn't couched in any niceties. The chancellor's spending plans might just about stack up according to her own fiscal rules, but if – as was probable – the Office for Budget Responsibility was to downgrade its forecasts, then Reeves was a 'gnat's whisker' away from tax rises in her autumn budget. It got worse. The £14bn of efficiency savings were just not credible. Rather than going through a line-by-line approach of every departmental budget, the Treasury seemed to have made a blanket 10% cut across the board. 'That is not the result of serious analysis,' he said. 'I hesitate to accuse the Treasury of making up numbers, but …' But the government had been making up numbers. We were in the realm of fantasy economics. On we went. Contrary to what Reeves had said, it was his view that the economic forecasts and the public finances had not improved over the last year. He waited to be convinced otherwise. Anyone any ideas? No. Case closed. He ended by saying that all spending reviews are largely a work of fiction. A triumph of hope over experience. Governments always end up having to revise their forecasts upwards and that health and defence were bound to need more cash in three years' time. With that, he put his copy of the chancellor's statement into the shredder. Even so, Reeves wasn't about to give up on her spending review just yet. It was still the only game in town. The Tories had nothing to offer anyone and Reform's plans extended to bankrupting the entire country within six months. Like it or not, Rachel is the only credible witness in parliament. The only politician with a credible economic plan. She had a programme of renewal where others only had fantasies. There was just the small matter of convincing people she could pay for it all. Over on the BBC's Today programme, presenter Nick Robinson had also insisted that tax rises were an inevitability. Reeves prevaricated. That wasn't in the plan but she wasn't going to make plans for what would be in the budget now. The downturn in the April Office for National Statistics growth figures was because of global events: when the quarterly growth figures had gone up, it was entirely down to measures she had taken to stabilise the economy. Everyone would be getting more money and feeling better off apart from the people who wouldn't. Labour wasn't about to change its mind about disability payments though it might change its mind about disability payments. This was a masterclass in misdirection from Rachel. A lesson for any politician in handling a media interview. Say one things and then immediately contradict yourself. Insist that two opposites can both be true. You had to feel for Robinson. He just couldn't keep up with Reeves. Couldn't lay a glove on her. And no one was any the wiser about the spending review. Earlier on the same programme, Kemi Badenoch had been given her chance to make the case for what the Tories might have done differently. Instead, she chose to pick a fight with presenter Emma Barnett. Mornings aren't Kemi's best time of day. Then neither is the afternoon or the evening. What bit of the spending review would you drop, Emma asked. That's the wrong question, Kemi snapped. After that, it was almost impossible to understand a word as they both talked over one another for the best part of eight minutes. But the rough gist, as far as I could tell, was that Kemi thought that everyone but Kemi was a complete halfwit and that her policies were far better than everyone else's because her policies were to have no policies. Over in the Commons there were near unanimous congratulations for David Lammy in securing a deal with the EU over Gibraltar. All centring on allowing British and Spanish border guards to be in place at the airport. Much as has happened on the Eurostar services at St Pancras for years. You rather wondered why it had taken so long to think of doing the same on Gib, but Lammy was insistent that this was the apogee of diplomatic relations and was effusive in his thanks to former Tory foreign secretaries for paving the way. Even Priti Patel seemed almost happy. There were just a couple of dissenters. Step forward former foreign secretary James Cleverly. He seemed mostly put out that it hadn't been him who had secured the deal. He couldn't help thinking Lammy must have given away far too much to the untrustworthy Spanish. Dave had to explain that the Gibraltar government were totally happy with the deal. No sovereignty was conceded. Jimmy Dimly wasn't convinced. The previous evening, Nigel Farage had said that Gibraltar now felt a little less British. What a sad little world he lives in. Dicky Tice took up the mantle. Could a Spanish border guard turf out a Brit? Lammy smiled. If Dicky was stopped, he would be handed back to the Brits and flown home. After that, the Spanish could ask to have him extradited to Madrid. We can but hope.
