Rachel Reeves has been told she must use the Spring Statement to fill a £15 billion economic black hole as borrowing costs soar to staggering heights. Total Government spending came to an eye-watering £1.27 trillion in 2024/25, with the highest amount (£313.5 billion) being spent on welfare.
Labour has pledged not to borrow more money to fund day-to-day spending before 2030, and the Chancellor had to set aside a £10 billion contingency fund to keep this promise. Growth is currently around 1.2% weaker than in October and, at the same time, the Government is borrowing at rates between 0.25% and 0.5% higher than expected. On top of this, money brought in through taxes is £7.7 billion lower than expected. The Office for Budget Responsiblity is expected to announce that borrowing will be roughly £15 billion higher in 2029-30 than in October last year, when the Chancellor presented her first Budget.
She must now plug this gap, which may be difficult as the Government has promised not to hike taxes or borrow more.
Ben Zaranko, associate director at the Institute for Fiscal Studies, warned of “bigger cuts for some unfavoured bits of government” ahead of Wednesday’s Spring Statement.
He told The Times: “The signs are that she’ll prioritise her fiscal rules and her promises on tax, and instead pare back the generosity of her public spending plans for the rest of the Parliament.
“There’s no escaping the tough reality that this will mean bigger cuts for some unfavoured bits of government, not all of which can be delivered through painless efficiency savings or productivity improvements.”
This comes as the Chancellor prepares to strip the Civil Service of a staggering £2 billion in annual funding, a move that could see swathes of workers let go, unions have cautioned.
Alongside Cabinet Office minister Pat McFadden, she is reportedly set to impose a mandate requiring all government departments to slash their administrative costs by 15% over the coming five years.
Mr McFadden’s imminent demands will concentrate on HR, office management and governmental communications roles. Union voices argue that these austerity measures could gnaw through nearly 10% of the entire Civil Service wage budget.
It’s also speculated that savings could be achieved through by adopting technology, specifically by using AI for administrative tasks.
