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BBC News
25-03-2025
- Business
- BBC News
Spring Statement: Potentially unpalatable trade-offs loom for Labour
"The world has changed" is the mantra we are hearing from the is a phrase designed to explain and justify the chancellor's argument on Wednesday in what is known as her Spring Conservatives are branding it an "emergency Budget", which ministers insist is nonsense, but it is certainly true it is a bigger event than it was expected to be just a few months won't see Rachel Reeves standing on the steps of 11 Downing Street waving a red box around and it will be shadow chancellor Mel Stride responding to her in the House of Commons, rather than the leader of the opposition as happens on Budget Day. But other elements of the day will have a Budget day feel, not least in the overall vibe of whether Parliament and the country feel confidence in the government's economic backdrop is pretty Labour won last year's general election, they said the first of their "missions" was to "kickstart economic growth".The thing is, there isn't any - the economy is inflation is up and government borrowing costs are there are the big-picture challenges: the UK has an aging population, the benefits bill is going skywards, the dangerous international picture is demanding more money for defence and the country is saddled with huge debt, which attracts huge debt interest to that the wild unpredictability of US President Donald Trump, the looming prospect of tariffs and the vast uncertainty over Ukraine's future and European of which prompts the question: if the world really has changed, how much appetite now or in the future might Labour have for a really far-reaching re-examination of how it approaches government?With big and potentially unpalatable trade-offs looming, what alternatives could there be?There are loads of ideas it could explore, from the left, the right and everywhere in between. But let's take a look at a few, all floated publicly by some on their own side. Loosen the fiscal rules? At the heart of the political conversation this week are the government's self- imposed "fiscal rules". The government has chosen them in the hope they illustrate financial responsibility, a trustworthiness on the international stage that the UK can pay its way and service its two rules are that day-to-day costs are met by tax revenues and that debt is falling as a share of the economy five years are, ultimately, arbitrary: managing the national finances is complex and multilayered and while governments will often impose limits on themselves in the hope of portraying credibility, precisely what they are can vary Labour cabinet minister Lord David Blunkett told the BBC at the weekend he "would like the Chancellor to loosen a little the self-imposed fiscal rules", adding that they amounted to "Treasury orthodoxy…at its worst"."I would lift them marginally. I would raise the self-imposed rule by at least £10-15 billion and I would spend a great chunk of it on what we did back in '97 with the new deal for the unemployed," the former work and pensions secretary told BBC Radio Blunkett isn't the only one – Jagjit Chadha, Professor of Economics at Cambridge University, has written in The Guardian this week of his scepticism about the value of the fiscal rules. There is another parallel that could be drawn week the German parliament voted to allow a massive increase in defence new law will exempt spending on defence and security from Germany's strict debt should, the UK do the same?Both the German parallel and Lord Blunkett's suggestion get short shrift from senior government figures."When people say change the fiscal rules, that means borrowing more money," is how one source put it to me."We have got to be honest about the implications of higher borrowing. If we did what Germany is doing, it could add £4bn to borrowing costs, not far off the prisons budget," they is also pointed out that Germany's national debt is vastly smaller than the UK's as a share of national there is no appetite to do anything that might provoke the international markets to go wobbly about the UK again, as happened when Liz Truss was prime minister. What about a wealth tax? Some on the left of the Labour Party have been calling for this, as have the Green Party and idea would attempt to do what it said on the tin, but observers such as Paul Johnson of the Institute for Fiscal Studies are cautious about its likely effectiveness as a revenue the last Budget in the autumn a cross-party group of MPs suggested it, while Labour MP Richard Burgon raised it as an idea at Prime Minister's Questions earlier this month. Reeves has long distanced herself from the idea, arguing in 2023: "I don't see the way to prosperity as being through taxation." Reeves and Prime Minister Sir Keir Starmer are fearful of being portrayed as high taxers and high spenders, an image plenty within Labour think has previously cost them dearly at could a one-off such tax ever be tempting as ministers confront awkward spending squeezes in places and that ever growing demand for defence spending? Other taxes rises in spotlight What about cranking up income tax, national insurance or VAT?After all, these are the big levers of revenue raising for any there is a catch: Labour promised not to in its election did, nonetheless, put up national insurance, albeit on employers not employees – a rise that is due to kick in next month and is causing considerable anxiety for many why not ratchet up one of the others?Some say, for a start, it could further depress an already stagnant economy, as well as further depress the outlook of many on politicians' capacities to keep the other hand, increases to these taxes tend to lead to a reliable big uptick in tax revenue and because they reach significant swathes of the population, they don't energise smaller, often well organised sectors who can then vociferously oppose a more targeted and less revenue rich idea.A good example of this are the dozens of tractors on Whitehall as farmers in their thousands made their views known about changes to inheritance tax. Thinking about all this was hinted at, alongside changes to the fiscal rules, by the now former international development minister, Anneliese Dodds, in her resignation last month over the cut in the international aid budget to bolster defence spending. In her resignation letter to the prime minister, she wrote that she had hoped the government would "collectively discuss our fiscal rules and approach to taxation, just as other nations are doing".She added: "It will be impossible to raise the substantial resources needed just through tactical cuts to public spending. These are unprecedented times, where strategic decisions for the sake of our country's security cannot be ducked."Smashing manifesto promises is not something governments do lightly and Labour would tread particularly carefully around these flagship pledges on the economy, so often for many a perceived weak spot in the party's tax burden, on average, is also generationally high – another reason these ideas could be a mighty hard sell even if ministers were willing to break their if ideas from their own side, like these three, aren't palatable, all of which make an already big State even bigger, there are those suggested by the Conservatives and others. Reducing benefit spending Cutting benefits much more is one such former Conservative and UKIP MP Douglas Carswell, writing in the Telegraph, suggested closing eight government departments, saving £24bn by cutting the public sector workforce and instituting a two year public sector pay reckoned these ideas alongside others could cut government spending from 45% of national income to 40%.Many of these might not be instantly palatable to a Labour government, just like those from their own side, but all of this brings us back to where we began: has the world changed? By how much? For how long?And just how bold might the government have to think – and soon – if it really has?
BBC News
24-03-2025
- Business
- BBC News
Government can be more efficient, says Keir Starmer
Sir Keir Starmer has challenged government agencies to make efficiencies using AI and technology, ahead of the Spring prime minister was speaking after Rachel Reeves confirmed civil service departments will be asked to cut 15% from their is political unease among Labour MPs about the scale of cuts to government departments, which the chancellor will outline in her statement on Wednesday. It comes after the government unveiled sweeping changes to the benefits system, aimed at saving £5bn a year by Monday, Transport Secretary Heidi Alexander denied the government was signalling a return towards an austerity model. Challenged on BBC Radio 4's Today programme, Alexander highlighted that Labour had increased public spending in its first budget in October."We have to take some really very difficult decisions and in terms of welfare we will always make sure that there is a system that provides a safety net for the most vulnerable," she said."We're investing over £20bn more in the NHS and we've seen waiting lists coming down in hospitals now for the fifth month in a row. "The Office for Budget Responsibility last year at the time of the budget said it was one of the most expansionist budgets ever, of all time, so we are not returning to austerity."Reeves' plan for major money-saving from the welfare budget comes on top of her decision to axe the universal provision of winter fuel payments and only give them to the poorest told the BBC's Sunday with Laura Kuenssberg programme that government running costs would be cut, with savings made from back office and administrative roles rather than front-line Monday, speaking to BBC Radio 5 Live, Sir Keir said he was setting the same challenges for government that he was for business."One of the areas we will be looking at is can we run the government more efficiently, can we take some money out of government, and I think we can."We're essentially asking businesses across the country to be more efficient, to look at AI and tech in the way that they do their business."I want the same challenge in government, which is why shouldn't we be more efficient, so we will be looking there and in one or two other places."Civil Service unions have warned that services could deteriorate with the loss of jobs, with Public and Commercial Services union general secretary Fran Heathcote saying that former prime minister Gordon Brown had attempted to cut backroom staff, and the "consequences of that was chaos". Sign up for our Politics Essential newsletter to read top political analysis, gain insight from across the UK and stay up to speed with the big moments. It'll be delivered straight to your inbox every weekday.
BBC News
18-03-2025
- Business
- BBC News
Around a million people will be thousands of pounds worse off
The work and pensions secretary has set out plans to "fix the broken benefits system" and tackle the "perverse incentives" driving people to depend on Kendall's announcement is designed to bring down the spend on sickness and disability benefits – which has massively increased over the last few years and is forecast to hit £70bn a year by the end of the measures are expected to reduce this spending by more than £5bn a year by there's something a little odd about the fact we are getting no breakdown of which of these welfare policies will generate the cash government attributed the lack of numbers to the need for its official independent forecaster the Office for Budget Responsibility (OBR) to cast its eyes over them ahead of next week's Spring OBR's verdict will matter because there are some uncertainties about how much money will be saved, given for example the significant incentive now existing to claim the most severe disabilities in the Personal Independence Payments (Pips) the government will already have a clear idea of how many people are affected, and by how plans are more geared towards making budgetary numbers add up than fundamental welfare bottom line is that around a million claimants with a range of less severe problems will lose thousands of pounds from next November. It reflects the argument that spending on Pip benefits is "unsustainable" and puts the whole welfare system at in the Universal Credit savings, much of the impact is generated by changes for future claimants, raising the eligibility age to 22 and halving the health payment, this is not the case for Follow the latest on benefits changesAt-a-glance: Key changes to benefits in welfare shake-upWhat are the benefits changes and who will be affected?Pip payments are determined by a questionnaire about your daily life, such as your ability to prepare and eat food, wash and get dressed or communicating and are scored on a scale from zero - for no difficulty - to 12 - for the most severe - by a health payment depends on the total score across all proposed change is that people will need to score at least four on one item, indicating a more severe disability in one area. Whereas currently claimants can qualify for support with a score that could describe less severe difficulties (ones and twos) across a broad range of example, needing an aid or appliance to speak or hear counts as two points, while needing support to express or understand complex verbal information counts as four needing help to wash your hair, or your body below the waist, would be awarded two points, but needing help to wash between the shoulders and waist would equate to four changes announced aim to take Pip payments away from such people from November 2026. The government knows how many, and who they are. For now, until the Spring Statement next week, we can deduce that there are around a million people who will lose their entire £70 a week or £3,500 a year is a down payment on welfare reform, and a much bigger up front scorable spending cut to help the chancellor's numbers, and so avoid tax rises or missing her non-negotiable borrowing limits.
