Spring statement: What to expect – Politics Weekly Westminster
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Well, the world has changed and we can see that all around us. And that is having impacts on growth. You can see that in every country. We can't just carry on like we have been. People want to know we're getting value for money when people are paying more in tax, that they're getting more in return. I'm Pippa Carrera. And I'm Kieran Stacey. You're listening to Politics Weekly Westminster for The Guardian.

Hello, I'm joining you today not from the boom cupboard at Westminster, but from a cottage in the Highlands of Scotland where I've been for the weekend. So hopefully the Wi-Fi will hold up for you. But Kieran, you are back at Parliament, aren't you? I am. Look at this for dedication to the podcast, Pippa. You're broadcasting from the wilds of the Scottish Highlands. This is a test for the government's rural broadband strategy, if nothing else.

Suddenly disappear halfway through. It's not a good look, really, is it? But it is a big week, and I am heading back down to London later today, because on Wednesday this week, the Chancellor, Rachel Reeves, will take to her feet and tell the public that the world has changed, as if we hadn't noticed, and how against that backdrop, the government plans to boost the economy, save public services, and balance the books.

even as growth forecasts are slashed and the impact of welfare cuts becomes clear. And that's before we get on to the war in Ukraine and the looming threat of Donald Trump's tariffs. The tough choices that Labour said that they have to make when they're first elected now look even tougher. So what do we think the government's plan is, Kieran, this week? Well, the first thing I think to say, Pippa, is that this is a very different fiscal statement from the budget.

I remember leading up to that budget last year, the Treasury was in very confident mode. It had been planning for that statement for months in opposition. And basically, Rachel Reeves knew what she wanted to do. And what she wanted to do was quite significant. You know, it was a big ramp up in taxes, a big ramp up in public spending and a big ramp up in borrowing, changing those fiscal borrowing rules.

to be able to fund this big increase in capital spending in particular. That was her moment of triumph, in a way. That was the moment where she stood tall on the domestic political scene and said, this is what I stand for. These are the things I want to achieve in government. This statement feels very, very different. The Treasury is on the back foot. I mean,

All my interactions with them, and I don't know if you're finding the same thing, Pippa, are kind of angsty in a way that they weren't last year. The officials are nervous. They're very nervous about the opinion on the Labour backbenches. They're very worried about how this will be seen both within the party and in the markets.

This is frankly, it bears repeating, I think, this is not where they wanted to be. This was supposed to be a very simple stand up for Rachel Reeves and read out the OBR forecasts. The thing that really changed was after she delivered that budget last year, our borrowing costs, UK borrowing costs went up quite rapidly and then growth started to stagnate.

And those two things have just meant that she is now in a position where she's having to deliver what she calls a spring statement, what the Tories are calling an emergency budget, what Ed Bulls says we should call a mini budget. I'm sure Labour won't use that terminology, but it's certainly a more significant statement than she wanted to make. And I think that she is kind of and the Treasury in general is quite nervous about it.

And you said that she was standing tall after the last budget, the one in October. You know, that was a big, it was a huge budget. It was a big tax budget. It was a big spend budget. It was a big borrowing budget. And when people sort of say, you know, what's happened to the Labour Party now, Treasury officials point to me to that last budget and say, look, some of the things we did then were very, you know, were very, showed our Labour values, were very Labour measures. But

But the fallout, and you and I have covered enough budgets between us to know that there's always a fallout of one type or another. I mean, whether it's pasty tax or in this trust's case, the economy almost collapsing. But there was a fallout from this budget in that some of the measures they introduced are things like raising national insurance contributions for employers, living wage going up, particularly measures which are sort of more business focused.

sent us a ripple of alarm through the business community who said, look, we're already under all these huge pressures. It's going to make our lives more difficult. And kind of was a blow to business confidence, which they clearly rely on to invest in the economy to help get that growth that they want. So that was sort of an understatement.

unintended consequence, if you like, or an unwanted consequence for Labour. And they also had that massive injection into the public services. So I think it was 190 billion of spending in the budget last year, which included capital projects, about 100 billion worth of capital projects over five years. And yes, we're looking into position where

where Rachel Reeves is going to set out the spending envelope for how much departments will get come the June spending review, which is now sort of the next big fiscal moment. So even though many MPs are feeling and many departments rightly are feeling the squeeze in a very major way, the Treasury keeps referring us back to that big investment that was put in at the last budget.

The problem is people aren't really feeling it, are they? Really, it all comes back, I think, to these promises that Rachel Reeves has made. Labour is so determined to stick to their fiscal rules. So she doesn't want to put up taxes. She's made it clear that there would be no more tax rises of the scale that we saw at the last budget, which in

increased taxes by £35 billion over the forecast. She's made it clear that there'll be no more borrowing. As you say, Kieran, borrowing costs have gone up substantially. And then what does that leave? That leaves really cuts to departments. So this is probably a good point of which to spell out what they're likely to do on Wednesday. We don't...

The great unknown in this is exactly what the OBR has given the Treasury as its final forecast of where the economy is going and how close she is to violating her fiscal rules. The fiscal rules, of course, there are two of them. They're a little bit complex, but basically...

According to the OBR's projections, Rachel Reeves has to be projected to be getting borrowing down as a percentage of GDP by 2029, 2030, and also projected by that point not to be borrowing to fund day-to-day spending. So essentially to have as much tax coming in as she's spending on her daily budget. These are, of course, fiscal rules that depend on projections, which is why things move around quite so much between fiscal statements.

Where they're at really is that £10 billion buffer that she left herself against her fiscal rules has essentially gone. We don't know how much further she then has to work to get that back. We know the Treasury does want some buffer, but they're not saying whether they want it to be £10 billion again or not.

But let's imagine there's around 10 billion that she needs to find. Five billion of that is going to come from welfare. That was announced around the time of the green paper. But interestingly, on Wednesday, we find out where the impact is likely to fall for that because we're going to get the impact assessments. Those impact assessments might end up being just as significant as the spring statement itself.

So that's about 5 billion. Then we're going to get some more spending cuts from departments, as you say, Pippa. Now, I've heard various figures about how much exactly Rachel Reeves is going to shave off existing departmental budgets. But I'm personally expecting somewhere around the region of 5 billion extra from departmental budgets as well. Then there's a couple of little add-ons. They say they are going to save another 1 billion pounds by giving HMRC more resources to chase down people who are

haven't paid their taxes and they're also saving a little bit. This is a kind of interesting quirk. They've saved a bit because by shifting money from aid to defense, they've shifted it from day-to-day budgets to capital spending and capital spending falls outside the fiscal rules. So there's a little bit extra that they've saved there.

But essentially, the two big things that are going to be very controversial on Wednesday are how are these £5 billion worth of savings from the welfare bill, how are they going to fall? Who's going to be impacted by that? Who's going to lose out? And how much extra are unpaid

are unprotected departments, so that's departments such as the Home Office, such as Justice, such as local government and housing, how much extra are they going to have to cut from their budgets beyond what they were already being asked to do? And just to give a couple of examples so people can sort of understand how it might relate to their own circumstances at home. So you mentioned local government there. There's warnings to the Local Government Association about how hard local councils are going to find it to make their books balance this year. And

you know, they have more budget cuts themselves on the cards and they're warning that some of those will impact on the most vulnerable people in society and also services that our listeners rely on every day. So, for example, it could mean that more older and disabled people are struggling to access vital care and you can find out more about that on John Harris' episode

of Politics Weekly last week. There could be less support, that sort of hardship funds for families in crisis, more potholes on our roads, despite an announcement by Keir Starmer this morning, less frequent bin collections, cuts to bus services and home to school transport routes, cuts to special educational needs provision. I mean, these are like sort of really good everyday examples of where the axe might end up falling because of what we'll be hearing this week and then later in the June spending review. And then the latest reports this morning, which have

some Labour MPs, is that there is a suggestion from the Treasury that the Department of Education could end universal free school meals for infants, cut school spending by £500 million and help the Treasury find, obviously, some of the savings that it needs to make, the cuts it needs to make,

across Whitehall. But you'll remember under the last government, they tried this several times to sort of remove the universal element and to remove bits of free school meals for kids to not renew the program they had in place. And who should appear but Marcus Rashford, the former England footballer. Is he former or is he still? Now back in the England squad, Pippa. His form has got him back into the England squad, which means that his political capsule is just as high as it ever was.

So they better watch out because as the last government had found to their cost, you don't want Marcus Rashford campaigning for free school meals and you're more likely to end up having to shell out more. But it should be said that Department of Education tell us that this is not the sort of thing that they're looking at. Now, whether the Treasury on the one hand is looking at it, but the Department of Education doesn't know about it, we'll have to see. But this is a real sort of totemic issue when you consider it's of the likes of things like the winter fuel allowance.

some of the benefits cuts. We're expecting a child poverty strategy from the government very soon, but it might be counterproductive if they were to then slash free school meals for hungry children. But it just, I think, gets to the heart of some of the really tough decisions that are having to be made in the Treasury at the moment in order to meet their fiscal rules. Okay, so let me go out on a limb here, Pippa.

I am going to make a prediction that this government does not cut universal free school meals for infants. Let me tell you where I imagine that one's come from. Every department was asked as part of the spending review process to draw up a list of the 20% lowest priority projects.

that if they were to have to cut as far as that, that they would be willing to offer up. Now, all of this is a ridiculous exercise because, first of all, the cuts are not going to be anywhere near 20%, even under Rachel Rees's worst case scenarios. That's not as much as she's looking for. Second of all, what it encourages departments to do is to put in projects to that list that they know the

cut so that they can say, look, you can't possibly cut our budget because these are the kinds of things you would end up having to cut. Let me give you another example of this that I reported in The Guardian last week, which is the Department of Transport in its submission back to the Treasury included cuts to the Oxford to Cambridge rail line. Now, this is the Oxford to Cambridge rail line that Rachel Reeves herself has just guaranteed funding for. So I think that is part of the traditional process behind any spending review where ministers

brief certain papers or maybe their aides do and say, look, this is the kind of thing we'd have to cut if you go anywhere near the level of savings that you're talking about. So who knows? In three days time, when we come back this time next week, I could be completely wrong and we could be embroiled in a massive round about free school meals with Marcus Rashford leading the case. But I just don't think this government would go there.

I suspect your instinct is right on that one. But it all feeds into this sense. We've been picking up a lot at Westminster recently and beyond, it should be said. It's not just amongst MPs, it's amongst the wider Labour movement about the direction the government's going in. And the big moment last week, of course, came with welfare when Liz Kendall announced five billion quid would be cut from pensions.

health and disability benefits, and an extra billion pounds would be put into getting people back into work. And much of the crux of the criticism that came from Labour MPs, the anger and the despair, really, and I had many people say to me, and I'm sure you did as well, Kieran, this is not the sort of thing that the Labour government should be doing, was specifically around personal independence payments, which are known as PIP.

which are not an in-work benefit, but are designed, they're universal, they're designed to help people that need practical support to go about their everyday life, whether that's installing a ramp up to their front door or helping them with transport to get to work or whatever else it may be. And it's been described over the weekend as potentially Labour's poll tax moment. Now, I've been trying to probe how different

deeply this despondency goes. And I think the answer is, you know, very deep. But what we don't yet know is how this will translate into any sort of more overt rebellion. Legislation will be required for making some of the changes to PIP. So is there a brewing labourer

Rebellion, it's certainly the case that there are probably several dozen Labour MPs that would think about whether they would be able to vote against such a measure. The biggest rebellion Keir Starmer has had so far, don't forget, is seven MPs during the King's speech vote on two child benefit limit. So seven to several dozen would be a major step up.

And of course, all of those MPs ended up losing the whip for six months. Some still have not had the return to them as well. I was speaking to some whips last week, end of last week, who thought that even though it was really hard and that they were

they were really sort of worried about what's happening in the constituencies. There would not be enough MPs that would be prepared to potentially risk losing the whip or to sort of single this out as an issue amongst a field of very difficult issues that they want to rebel on. But, you know,

MPs aren't happy. Yeah, that's really fascinating that the whips are saying that. I just wonder whether that's slightly Pollyanna-ish from the Labour whips office there. You know, I think I am picking up the same signs as you are, which is that we're talking at the moment, if the vote was held tomorrow, we'd be talking about a rebellion of around 30

maybe slightly higher, which, okay, is not enough to defeat the legislation, but it's pretty bruising for the prime minister. Now, that might even go higher after the impact assessments are released later this week. You say that these are not the things that people expected a Labour government to do. And that was definitely the theme, I think, of this famous, now famous cabinet meeting a couple of weeks ago, where several ministers spoke up, particularly about the departmental cuts, less actually about the welfare cuts, but about the departmental cuts and said, okay,

Basically, isn't there another way to do this? And several ministers during that, several cabinet ministers during that meeting raised the example of Germany, which has just taken off their debt break to be able to pay for more military spending. The Treasury response to that is, look, Germany has a debt to GDP ratio of about 60%. We have nearly 100%. Our borrowing costs are much higher.

For all this talk of, oh, Rachel Reeves has set herself very stringent borrowing limits and that's the straitjacket that she's tied herself in. I don't think that's true. And Treasury certainly wouldn't say that's true. The real problem, as we've discussed on this podcast before, is the straitjacket is the UK's borrowing costs. And they went up sharply after the last budget. And that is the problem. It's not her own borrowing rules. Her own borrowing rules are there to reassure the market. And if the market has not been reassured, then it doesn't matter what your rules are.

The answer coming back from investors in the city and elsewhere is don't borrow anymore. We already think you're too indebted. And that particular measure that you mentioned following the German route would cost about £4 billion a year, Treasury officials tell us, which is equivalent of the annual prisons budget, just to give you an idea of the scale. And there's other MPs who, so some have said, oh, let's follow the route of Germany. Others have said, why not?

Why don't we have a wealth tax of 2% on assets over 10 million, which they say could raise £24 billion annually. Treasury officials say absolutely no way. And they argue that the UK is on par with other G7 countries already when it comes to tax. Top 5% of taxpayers projected to pay nearly half of all income tax in 2023-2024. So the will is not there to go down that route at the moment. We've made...

We should say Reeves and the Treasury have made it very clear that there'll be no tax rises, no tax changes on Wednesday, that that will be done. And if it happens, I think it probably will happen to some extent, but it will happen in the autumn at the October budget. Wow.

But that's not to say there isn't still a bit of a row about tax going on. Last week, we were reporting that the government was considering reducing a major tax, the digital services tax for US tech companies. And of course, doing this while at the same time is cutting disability benefits and public sector jobs. We've heard that more than 10,000 civil service jobs will go and then obviously jobs in the arm's length organizations as well. Now, the digital services tax reduces

raises about a billion pounds a year on big companies like Alphabet, Meta, Amazon. It would be a big blow to the Treasury at a time when it's trying to shore up public finances. But the backdrop to all of this is that the government is right at a very critical

you know, crucial point in discussions with the US about what sort of trading relationship we could have with them, which could have a much more significant impact than, than, you know, losing a billion pounds from tax. It could be a multi-billion pound impact. So while all these discussions are going on about tax, though, the big thing, of course, as we've said, is about, uh, public service cuts. Now the government still says that this, uh,

It doesn't represent austerity, even though the cuts are expecting to be the deepest since George Osborne's time in charge of the Treasury. They say that actually the cuts are happening at a slower pace. The big problem is, though, is that even if they argue till they're blue in the face that the amount of money they put into public services at the budget is anything but austerity,

It's about how people feel and it's about whether people can get an appointment to their GPs, you know, whether their kids' school roof is crumbling, there's potholes on their roads. However they see that manifest itself. Public service cuts feel very real in people's lives and it's hard to tell them that it's not austerity. And it's worth bearing in mind, of course, those George Osborne cuts in 2010 started after...

over a decade's worth of investment in public services. So things did feel different when the coalition government first came in. This is not that moment in British political history. And I think it's also worth stressing, just to bring it back to where we started this podcast,

to say this is not where Rachel Reeves wanted to be. So this was always a bit of a trip hazard, I would say, for the Chancellor, because in November, when she presented her budget, she penciled in this massive great rise in public spending and then for budgets to start coming down after that.

I suspect, I suspected at the time, I suspect even more so now that she thought that growth would pick up in the interim, that the projections, the economic forecasts would start to look better and she'd never actually have to deliver those public service cuts that she penciled in. Now, in fact, she's having to deliver steeper ones. And I just wonder whether her...

actual plan was to just keep things rising through the course of this parliament and spend so-called proceeds of growth. And of course, it turns out there are no proceeds of growth because there is no growth. Yeah. And all of this set against the very stark backdrop of yet more predictions over the weekend that every family would be poorer by the course of this parliament, particularly the most vulnerable, which is not something that any Labour or indeed any government would have wanted when they were elected.

So while Rachel Reeves is going to try and handle this tricky domestic narrative, Keir Starmer is trying to handle the increasingly tricky three-way peace negotiations between Russia, Ukraine and the US.

I mention this partly because I had a fascinating half day last week where I went up to a place called Northwood, where we've got a big military base. And this was where Keir Starmer had gathered military planners from 31 different countries to talk about what the security force would look like in Ukraine after any peace deal was signed.

And I say it was fascinating. It was a very strange event. We turned up as a small group of journalists, and apparently these planners had been meeting all day. And we went into this kind of conference center where various people in fatigues were milling around. Now, we were told at first, we won't give you the list of countries that are represented here because some of the countries don't want to be named. Isn't this the coalition of the willing? Maybe more the coalition of the reluctant. But of course, they were all wandering around with their fatigues on with

their flags on the sleeve. So most of our job as journalists was to go around flag spotting to see which countries were actually in attendance at this military planning meeting. And it was very interesting that the US and Italy were both represented, even though Giorgio Maloney, the Italian prime minister, has expressed scepticism about it. And of course, as we're now founding out, there's a lot of scepticism in the US as well.

But this meeting had been going on all day. Keir Starmer then turns up. He's presented to this room. There must have been about 50 people in this room who were all sitting around in this big square. In the middle of this room, there's a map.

And there's five or six people gathered around in fatigues looking at this blank map of Ukraine. We were told they had been looking at a map with actual troop positions in, but they'd had to hide that map for when all the cameras turned up. So instead, they're looking and pointing at a blank map of Ukraine.

And then the prime minister walks in and asks them all how it's going. And they all look awkwardly at each other and think, well, we could tell you, prime minister, but the cameras are on right now. So maybe we should just offer some platitudes. So one by one, they go around. And one of the military planners says, well, prime minister, the important thing is to go forward, not backwards. It's just completely bizarre.

But the kind of more interesting thing in concrete terms was after that, the Prime Minister came and spoke to the journalists who were there. And we were asking him about, of course, the idea of putting boots on the ground in Ukraine after any peace deal is signed. It was very interesting. He didn't say that that wasn't still the plan, but he didn't use the phrase boots on the ground. He talked a lot about providing security by land, sea and air. I think that they kind of

Emphasis there was particularly on the CNR. And then he said, well, do remember that the Ukrainian forces are very strong. They've been fighting now for three years. They are some of the strongest in Europe. And maybe the best way we can help them is to reinforce those troops rather than trying to replace them.

Now, that to me suggests there's a little bit, perhaps, of backtracking on this idea of putting French and British boots literally on the ground in Ukraine to protect the peace after any deal is signed. And when you see the comments on Saturday night from Stephen Witkoff... So Stephen Witkoff is the US special...

And of course, he suggested that the British position and the French position was a posture and a pose and suggested that countries that were taking part in this coalition of the willing were trying to impersonate Winston Churchill by suggesting that Putin's forces were marching or could march across Europe. Absolutely. And this takes me back to when that coalition of the willing was first announced. And over that weekend, when there was the Lancaster House Summit and all of that, Keir Starmer, of course, spoke to Trump twice that week.

And I asked number 10 at the time, did he brief the White House about this plan of the Coalition of the Willing? And he said, yes, of course he did. And I said, and what was President Trump's response? And they said, well, we're not going to get into that, but we felt that we could go ahead. Now, that to me suggested that President Trump had not given this his full throated backing. Hmm.

And I just wonder whether at some point during the planning, the president has actually started to pay attention to what the French and the British are up to and decided, yeah, I'm not so sure that's a great idea. And so I think we're just seeing a little bit of a backsliding on what we thought might happen after this coalition of the willing was put together. But, you know, we're still in that flux moment. You know, there's obviously no peace deal at all, as Keir Starmer stressed to us several times last week. So we're still a long way off.

knowing what this is going to look like. And we should just say that US and Ukrainian officials have met for more talks aimed at hammering out ceasefire in Ukraine, in Riyadh, in Saudi Arabia, and Washington was signalling its hope for real progress. But we should say as well that Moscow warned that difficult negotiations lie ahead. It looks

some way off for any resolution to this. But that's all for today. We'll be back with John Harris on Wednesday with a special episode straight after the spring statement. In the meantime, if you've got any questions for us about what we could expect, what it might mean for you or anything else for that matter, get in touch with us by emailing politicsweeklyuk at theguardian.com.

This episode was produced by Frankie Tobey, music by Axel Kukutie, and the executive producer is Zoe Hitch. Goodbye. Bye-bye. This is The Guardian.