As Chancellor Rachel Reeves prepares to deliver her Spring Statement this Wednesday, leaks point to her putting forward extensive spending cuts as a means to balance the books.
We started this year with an estimated near £10 billion buffer in the UK budget but with borrowing over forecast and fledgling economic growth, the buffer has vanished. As the economic woes hitting the country continue last month alone saw a near £11 billion use of the government overdraft.
Reeves now has to somehow reduce overall debt as a percentage of national income and avoid any additional borrowing for spending. A combination that can only mean more austerity and thus cuts, and extensive cuts at that.
Social security is being targeted with the aim of an annual saving of about £5 billion by the end of the decade. To achieve this, Labour is widely expected to implement stricter eligibility criteria for critical benefits, including Universal Credit and the Personal Independence Payment (PIP). While these reforms aim to reduce unnecessary expenditure and ensure that public resources are directed only toward those in real need, they have ignited a fierce debate over potential adverse effects on the most vulnerable.
Departmental budgets across the board are going to get squeezed. These budgets normally grow annual at a rate around 1 percent in real terms, but now this will be reviewed to around under 1 percent. These spending reviews could see cuts reaching up to 7 percent in some departments over the next four years, affecting everything from education and health services to local councils. There are concerns about the potential degradation of essential public services if these measures are implemented.
A week ago it was announced that NHS England would be dissolved in order to save £100 million a year, but this kind of structural reorganisation will also cost in unemployment, with 9,000 people now out of a job.
The ongoing conflicts and balance of power in the world have required a rethink of defence spending, for now with a committment to a 2.5 GDP percent rise by 2027. Funding for this coming from cuts to the international aid budget.
Tax cannot be raised without breaking clear manifesto promises made by the still, fairly newly elected, incumbents. Existing measures like freezing income tax rates and thresholds are already in use and certain to be extended. However, these are the only direct taxation measures thought to be tabled for this week.
We'll cover more about the Spring Forecast/Spring Statement live on Wednesday.