Analysis: Why Reeves faces political pressure over the Spring Statement
Over the next 24 hours, Rachel Reeves will be putting the finishing touches to Wednesday’s Spring Statement.
It marks her second fiscal event as Chancellor, and – despite the promised manifesto commitment of “one major fiscal event a year” – the economic backdrop, and wider political pressure, makes it hard to see the contents of her speech as anything other than major.
So, where exactly are the pressure points for Rachel Reeves?
Reeves’ economic issues
The UK’s economy has languished over the past six months, with a fall in confidence among both businesses and consumers, and fears of the impact of tariffs imposed by the US.
Monthly real gross domestic product (GDP) fell by 0.1 per cent in January, according to the Office for National Statistics (ONS), while inflation sits at three per cent.
It’s a blow for a Chancellor whose core mission is to kickstart economic growth – but perhaps unsurprising amid gloomy language from Labour, and perceived mixed messaging to firms.
What’s more, the Office for Budget Responsibility (OBR) is expected to halve its growth forecast for the UK for 2025 when it reveals its updated estimates on Wednesday.
And some 15 per cent of UK consumers surveyed by KPMG reported having to cut discretionary spending to afford the essentials, with two per cent racking up debt to pay the bills.
It’s far from a rosy picture, and Reeves will be conscious of the tripwires when she stands at the despatch box for the Spring Statement.
Rise of Reform UK
After boxing herself in with her fiscal rules, and pledging not to hike taxes on “working people”, Reeves was hit by an increase in government borrowing costs which wiped out her fiscal headroom.
This leaves the government with a major problem. Elected on a promise of ‘Change’, and to improve living standards for voters across the UK, if there’s no money to spend on public services, where might an increasingly dissatisfied and anti-incumbency public look next?
Nigel Farage’s Reform UK party is an increasing pressure on Labour from the right. They may currently have just four MPs – with Great Yarmouth’s Rupert Lowe under suspension – but the outfit are pitching themselves as a replacement to the government.
At the Spring Statement, Reeves will want to reassure the markets, offer stability to businesses, and find money – from somewhere – to fulfil enough of Labour’s pledges to maintain electoral appeal.
However, move too far towards Reform’s territory on immigration, or tax cuts, and Labour risk losing their own voters towards Ed Davey’s Liberal Democrats, or the Green Party.
Pressure from the left
Speaking of pressure from the left, Labour’s significant Parliamentary majority is both a triumph and a millstone for the government.
Winning 411 seats at the July election, the Prime Minister now commands a total 404 MPs – following a handful of resignations and suspensions.
Parliamentary arithmetic like this means power – to pass legislation, bypass opposition, and enact changes – but it also comes with internal factions, criticism and wrangling.
The recent welfare cuts announced by work and pensions secretary Liz Kendall have sparked the most significant grumbling by Labour MPs since taking power, who argue they were not elected to take money away from disabled or ill constituents.
Starmer and Reeves are focused on reducing the – admittedly – growing costs of the benefits bill, and say that money must be found somewhere.
But in the context of the winter fuel payments and the decision to continue the two-child benefit cap, could restive leftwingers find themselves plotting a rebellion in quiet corners?
Conservative reaction
Reeves’ official opponents, of course, are the Conservative Party led by Kemi Badenoch.
The party is yet to set out a full programme of policies, in the wake of their defeat at the July general election, but are embarking on a policy renewal process, starting with net zero – as they also face the prospect of bleeding voters to Reform UK.
Shadow Chancellor Mel Stride will be tasked with responding to Reeves’ Spring Statement on Wednesday.
He’s likely to have questions for her on the impact of Labour’s policies on employers national insurance, extra demands on businesses from the workers rights bill, and even changes to inheritance tax affecting farmers and small businesses owners.
The Tories still be diminished in numbers, but with attacks on “Reeves-terity” and “Labour’s jobs tax” from shadow business secretary Andrew Griffith, they have still been providing an energetic critique of the Chancellor’s sums.
International context
Finally, Reeves and Starmer face these fiscal decisions which, however important for UK businesses and public finances, are overshadowed by the looming prospect of global trade tariffs imposed by US President Donald Trump.
The Republican leader has suggested he will bring in blanket tariffs on most US trade partners from April 2 – and hinted exemptions were unlikely to what he called the “fair and reciprocal” duties.
And Bank of England governor Andrew Bailey has warned of the impact on the UK’s future growth prospects. Speaking on Monday, he stressed: “These two points: domestic macroeconomic forces and trade policy, are not incompatible.
“They sit together. My final point here is that to solve these issues we need authorities to come together and strengthen the rules of engagement in a multilateral setting.”
Ultimately, what Reeves announces at the Spring Statement on Wednesday could be thrown into obscurity by the White House as soon as next week.
Starmer has continued to lobby the US leader on an economic deal between the UK and US, amid reports that a digital services tax which would affect US tech giants could be slashed.
But when it comes to the US – and the new levels of unpredictability in world affairs – the outcome could still be anyone’s guess.