Jeffrey Matsu
With growth forecasts significantly downgraded, rising interest costs squeezing public finances, and ongoing global uncertainty, she had to make some difficult decisions. Despite these challenges, Reeves stuck closely to Labour’s core missions: to kickstart economic growth and to break down barriers to opportunity.
But the road ahead looks tricky, especially with the Spending Review coming up in June and the Autumn Budget later this year.
Getting the fiscal rules right for uncertain times
Reeves is determined to maintain fiscal credibility – balancing day-to-day spending with taxes by the end of this parliament. But with the latest economic forecasts looking much weaker (growth for 2025 cut sharply from 2% to just 1%), there's very little financial cushion left.
The chancellor had to act quickly, announcing further cuts, including almost £5bn from welfare budgets and higher visa fees and council taxes.
But here’s the problem: these savings are notoriously hard to deliver. Previous governments often found efficiency savings or anti-tax avoidance measures didn’t raise nearly as much money as expected.
If Reeves’ new savings don’t materialise fully, she could quickly find herself facing even tougher financial choices.
Given ongoing global instability – including potential trade conflicts and volatile financial markets – it might soon become necessary to reconsider these strict fiscal rules. Not to abandon fiscal responsibility, but rather to introduce a bit of flexibility, allowing the government to respond effectively to unexpected shocks.
What Reeves should do next:
Take a fresh look at the fiscal rules before the Autumn Budget, making sure they’re realistic and robust enough to handle changing economic circumstances.
Consider modest, targeted tax increases by the Autumn Budget, such as revising capital gains tax or adding fair windfall taxes, to avoid relying too heavily on more painful spending cuts.
Protecting growth-focused spending
One bright spot in the Spring Statement was Reeves’ commitment to protecting the government’s capital investment programme. This is crucial for Labour’s aim of delivering the strongest sustained economic growth in the G7.
She confirmed extra funding for areas like defence and housing, acknowledging that strategic investment remains essential despite higher borrowing costs.
However, these increases remain modest. Decades of underinvestment, particularly in housing and defence infrastructure, mean more might be needed.
For instance, the additional £2bn for social housing announced this week is welcome, but still not enough to fix urgent issues like unsafe cladding and poor-quality homes.
What Reeves should do next:
Use the Spending Review in June to clearly prioritise investment projects that drive regional growth, improve productivity, and create good jobs, directly supporting Labour’s growth mission.
By the Autumn Budget, introduce stronger evaluation mechanisms to ensure every pound borrowed delivers genuine benefits.
Explore innovative ways of borrowing, such as creating targeted “growth bonds”, to reassure taxpayers and markets that investment spending is responsible and directly linked to Labour’s missions.
Ensuring fairness while balancing the books
Perhaps the toughest decision Reeves made was to tighten welfare rules, notably restricting access to personal independence payments and freezing the health-related part of universal credit.
While necessary from a purely financial perspective, these cuts risk contradicting Labour’s pledge to break down barriers to opportunity. Over three million vulnerable people could feel the pinch, potentially creating new obstacles rather than removing existing ones.
Thankfully, Reeves also announced a new £1.4bn fund designed to help people get back into work. That’s positive news and directly supports Labour’s opportunity mission.
But previous welfare changes rarely delivered promised savings, suggesting caution and careful monitoring will be necessary.
On another positive note, planning reforms designed to increase housing supply could add slightly to GDP over the next few years, supporting Labour’s mission for sustained growth. But the reforms will only deliver real benefits if implemented quickly and effectively.
What Reeves should do next:
Carefully re-evaluate welfare savings targets at the June Spending Review, being honest about what's realistically achievable. If cuts are less achievable than planned, the government must clearly identify alternative savings.
At the Autumn Budget, proactively expand spending on employment support, childcare, and education, clearly offsetting welfare cuts and genuinely removing barriers for disadvantaged groups.
Speed up planning reforms with targeted investment in local authority support, ensuring these reforms deliver quicker improvements in housing supply and regional opportunities.
Navigating a tight path to deliver Labour’s missions
This Spring Statement shows just how tight a path Reeves must navigate to deliver Labour’s ambitious missions.
The chancellor’s commitment to fiscal discipline is commendable, but the rules may soon need tweaking to stay credible and practical. Strategic investment remains crucial but must be carefully targeted to generate genuine growth and opportunity.
Welfare and planning reforms are essential, but must be fair, realistic, and properly funded to succeed.
Ultimately, delivering Labour’s mission-led growth strategy requires flexibility, realism, and careful balancing of difficult choices.
The Spending Review in June and the Autumn Budget later this year offer crucial opportunities for Reeves to fine-tune fiscal policy, providing enough room to respond to uncertainty while still supporting sustainable economic growth and genuine opportunities for all.
