Listen here on your chosen podcast platform.
Rachel Reeves is facing some more tough decisions on tax, spending and borrowing this year.
As Britain’s public finances are being battered, economists are warning that her economic cushion, or fiscal headline which was just under £10 billion, is now down to around £2 billion.
That may sound a big sum but in public finances terms it is small.
The Chancellor has sought to put the blame for the dire state of the public finances on the previous Tory governments, as well as global factors such as the threat of tariffs by new US president Donald Trump.
But she has been accused of a major own goal, with her Budget, in the Government’s No1 mission of delivering healthy economic growth to Britain after years of flatlining or miserly improvements.
The main criticism of Ms Reeves’ Budget is the £25 billion hike in National Insurance contributions by employers, which has been slammed by business chiefs and Opposition parties as a “tax on jobs” hitting the economy.
Her Budget included £40 billion of tax rises, some £30 billion more of borrowing, to plough around £70 billion more into Britain’s crumbling public services, including the ailing NHS.
Ms Reeves is vowing to stick to her fiscal rules on day-to-day spending and cutting the nation’s debt mountain as she seeks to reassure the markets by insisting and displaying that she will be an “Iron Chancellor”.
But given the state of the public finances now, and no sign of any significant growth yet, economists are warning that if Ms Reeves does stick to her fiscal rules she may have to raise taxes again or cut back spending plans in either the Spring Statement or Budget next autumn.
The Government has ruled out any major new wave of tax hikes.
So, Ms Reeves is more likely to scale back spending plans if forced to do so to find billions in order to stick to her fiscal rules, with Whitehall departments already under intense pressure to come up with savings.
But she might still raise some taxes, most likely ones that don’t impact on people directly, to limit the size of public spending plan cutbacks, or resort to some sleight of hand which chancellors over the years have drummed up to make the books balance, or at least seem to balance.
