ANALYSIS
Chancellor Rachel Reeves’s time at the Treasury has been plagued by a lack of growth (Image: Getty Images)
Britain is now braced for spending cuts in the spring and potential tax rises in the autumn.
The fatal combination of terrible growth and high borrowing costs means Chancellor Rachel Reeves is on track to break her fiscal rules.
Any reputation for financial competence will vanish if the country goes into the red.
The Office for Budget Responsibility’s preliminary forecast warns her nearly £10billion of “headroom” in the Budget has been wiped out.
More bad news will come this week if the latest growth figures show the economy went into reverse in the final three months of last year.
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All this translates into real-world pain.
Living standards for the bottom 40% of households will not return to pre-2022 levels before the end of 2027, according to the National Institute of Economic and Social Research.
Nervous ministers will hope Britain does not face a national emergency anytime soon. The think tank warns that the elimination the Chancellor’s spare cash could “limit the Government’s ability to respond to shocks if tax and spending plans remain unchanged”.
As Bloomberg puts it, the UK is “facing the worst of both worlds”. While our borrowing costs are in line with the “fast-expanding US economy” our growth is “closer to the struggling eurozone” – but those turgid EU economies benefit from lower .
Britain is in a fix. The Chancellor’s energetic attempts to revive optimism by getting behind long-term projects such as a third runway for Heathrow have been greeted with a shrug of the shoulders.
Instead, retail giants have joined forces to warn that cuts in business rates relief could lead to a jobs disaster. Employers are also braced for the looming hike in National Insurance contributions – the so-called “jobs tax”.
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Business leaders may like the idea of more runways but right now they are worried about getting through a storm that can be traced straight back to the Chancellor’s Budget.
In the summer election Labour tapped into the country’s longing for growth and the deep frustration at the turmoil experienced on the ’ watch. People wanted growth and stability but instead the talk is whether the UK can escape a recession.
Britain is not immune to difficulties. Niesr says the UK could be the “third fastest growing economy in the G7 this year” and it expects growth to increase by 1.5% this year in 2025.
Like other European economies, we face the challenge of paying for terrifyingly expensive public services and a gargantuan welfare system. But the pain will be especially acute here if the Chancellor’s decisions push up unemployment as high living costs drain families of their own “headroom”.
After seven months in the Treasury it is not at all clear that her policies are working but they are certainly hurting.