William Gladstone, it is said, was at the Treasury from 1860 to 1930. As they gaze across Horse Guards Parade, some in Labour ask whether George Osborne still is today. The £5bn welfare cuts announced in advance of Rachel Reeves’s Spring Statement on Wednesday were just a preview of the flinty decisions to come.
Ahead of this June’s Spending Review, unprotected departments – such as the Home Office, justice, transport and local government – have been instructed by the Treasury to model two scenarios. Under the first, they would receive a “flat cash” settlement – equating to a 5.8 per cent real-terms cut. Under the second, spending would be cut by 2 per cent in cash terms – or 11.3 per cent in real terms. “It’s a choice between bad and terrible,” one government source said, likening the spending pressures to spreading jam across a widening piece of toast. This, an increasing number inside Labour declare, is an “austerity government”.
Austerity and Labour have been juxtaposed before – as Ramsay MacDonald and Jim Callaghan could testify. But Reeves’s advisers vehemently reject this label, pointing to a Budget that increased day-to-day public spending by £190bn and capital investment by £100bn. “It’s one of the most lazy critiques,” an aide told me. “Those who are using it either don’t understand what they’re talking about or are trying to undermine the project of this government.”
The last time a Labour chancellor – Alistair Darling – warned of tough times ahead, the “forces of hell”, in his words, were unleashed against him by Gordon Brown’s No 10. Reeves, by contrast, retains the unambiguous support of Downing Street – meeting daily with Keir Starmer rather than hiding away in Whitehall’s grandest department.
One figure recently suggested to me that this government has two heads – a political one represented by Morgan McSweeney and focused on delivering for voters, and an economic one represented by Reeves and focused on the markets and business. But No 10 rejects such Hydra-like metaphors. Reeves’s fiscal rules and tax policy, a source said, are nothing less than the “foundation stone of a one-nation coalition”. Downing Street sees no evidence of a “large group of voters” willing to pay either higher taxes or the higher interest rates that would accompany more borrowing. In other words, political and economic strategy are aligned.
But the question “what has Rachel Reeves ever done for us?” still lingers. Her allies complain of a “year zero” mindset among those clamouring for higher taxes (Reeves’s first Budget increased them by £41.5bn).
When the Chancellor rises to deliver her Spring Statement on 26 March – speaking for around half an hour – she will seek to remind Labour MPs and voters of just what she has done for them: raising the minimum wage to £12.21 (a 6.7 per cent increase), cutting NHS waiting lists by almost 160,000, and introducing free primary school breakfast clubs. Also expect Reeves to argue that, in an era of geopolitical turmoil, the UK is fortunate to have an “activist government” – one prepared to intervene strategically rather than adopting a laissez-faire approach. The word “security” – No 10’s new refrain – will feature in her speech almost as much as “Mr Speaker”.
Reeves’s original doctrine of “securonomics” – set out in her Mais lecture almost exactly a year ago – was arguably made for dark times such as these. “It is no longer enough, if it ever was, for the state to simply get out of the way, to leave markets to their own devices,” she said then – a truth now affirmed in London, Paris, Berlin and even Washington DC (Donald Trump’s tariffs are quintessentially statist).
But intellectual consistency does nothing to alter the baleful choices that Reeves now faces. Her tax lock – prohibiting rises in income tax, National Insurance (on employees) or VAT – was predicated on the hope that growth would fill the gap. It has not. GDP contracted by 0.1 per cent in January and has now shrunk in four out of the seven months since Labour entered office.
Faced with this record, some chancellors would be tempted to reach for an emergency lever – a tax cut, perhaps. But this, Reeves’s team says, is precisely what she will not do. “Westminster has got addicted to short-termist, sugar-rush growth,” one aide remarked. “That approach has utterly run out of road.” Reeves will instead maintain her patient strategy of fiscal stability (aides refuse to rule out future tax rises), infrastructure investment and supply-side reform.
The Treasury – and an increasing number of City analysts – also express cautious optimism about the British economy. It could yet achieve what some deemed impossible: closer trade ties with both the EU and the US. Higher defence spending will provide fiscal stimulus. Lower interest rates – held at 4.5 per cent last week – may eventually provide monetary stimulus. Real wages are still rising (at 2.2 per cent above inflation).
It was Brown who once quipped that there are two types of chancellor: those who fail and those who get out just in time. Eight months after she entered the Treasury, plenty have already declared Reeves a failure. Confronted by this, her allies recall how the Thatcher administration recovered from its fraught start in 1979-81 – when both the economy and the Conservatives’ poll ratings sharply receded.
Remember, too, the trajectory of Osborne – lampooned for an “omnishambles” Budget in 2012 and booed at the Paralympics. A year later, he was presiding over an economy going “gangbusters” and laying the foundations for a second Tory election victory (but for a referendum that he advised against, he may have succeeded David Cameron).
Can Reeves, who says she has spent her life “proving people wrong”, dare imagine a similar renaissance? A chancellor playing a long game must hope that she does not have to wait too long for results.
[See also: Will Mark Carney win Canada’s snap election?]
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