Reeves doubles down on fiscal rules amidst waning headroom
Rachel Reeves doubled down on her fiscal rules in an interview with Bloomberg TV on Monday, despite speculation that economic conditions have left the chancellor with little or no room for manoeuvre.
Following the Autumn Budget, Reeves was left with a £9.9bn buffer to maintain her key rule for day-to-day spending to be funded by tax receipts.
A downgrade from the Office for Budget Responsibility (OBR), as first reported by Bloomberg last month, suggested fiscal walls were caving in on the Chancellor.
The weakened forecast would back Reeves into a corner, forcing further tax hikes or spending cuts when she delivers her Spring Statement on March 26.
However, Reeves has stuck to her guns, telling Bloomberg: “The fiscal rules we have set are the right ones.
“They are a robust set of fiscal rules but it is important that we balance day-to-day spending with tax receipts and that we get debt down as a share of GDP.
“Those are the right fiscal rules for the circumstances we face.”
Reeves eyeing cuts to welfare
The Chancellor cited the alleged “big black hole in public finances” and “lowest ever fiscal headroom” inherited from the Conservatives as she defended her reduced elbow room.
“We increased that headroom in the budget last October because it is important that there is headroom against the shocks we face,” she added.
In her inaugural budget, the Chancellor increased borrowing by £142.2bn, which the OBR described as one of the largest fiscal loosenings in recent history.
After pledging not to repeat similar tax increases made in the Autumn Budget, alongside her strict rules on borrowing, Reeves is now expected to take the axe to spending.
Welfare cuts look to be the top target, with Reeves telling Bloomberg: “We need to reform the benefits system.”
She cited the extra 1,000 people signing on every day for personal independence payments (PIP) as “not sustainable.”
She added those “often trapped out of work on welfare” were not able to “realise their potential”.
The Chancellor suffered another blow Monday morning, after the the Organisation for Economic Co-operation and Development (OECD) slashed its 2025 growth forecast to 1.4 per cent from 1.7 per cent.
Reeves defended the downgrade, telling Bloomberg: “[The OECD] have downgraded most major economies’ growth forecasts.
“The UK is not immune from those global headwinds.”