London (AFP) – Britain’s Labour government will deliver a highly anticipated fiscal update on Wednesday, with finance minister Rachel Reeves expected to detail billions of pounds of spending cuts to address the country’s struggling economy. Under the pressure of a gloomy economic outlook, Reeves will reveal her Spring Statement, setting out plans to shore up the public purse including cuts to welfare payments and government departmental budgets.
Labour announced ahead of the update that it would slash the costs of running government by 15 percent over the next five years, targeting annual savings of over £2 billion ($2.6 billion) across Britain’s civil service. “I would rather have people working on the front line in our schools and our hospitals, in our police, rather than in back-office jobs,” Reeves told Sky News at the weekend. The measure targets 10,000 out of over 500,000 civil service jobs, though unions estimate the number could be as high as 50,000. The government also announced contested cuts to disability welfare payments last week, which are expected to save more than £5 billion annually by the end of the decade.
Centre-left Labour, traditionally accused by the right of excess spending on benefits, says the cutbacks are essential to help fill a black hole of £22 billion it claims to have inherited from the Conservatives after last year’s election win. The cuts add to criticism piled on Labour after it scrapped a winter-fuel benefit scheme for millions of pensioners last year.
– ‘World has changed’ –
The Labour government, led by Prime Minister Keir Starmer, launched a raft of economic measures after it came into power in July, including improved workers’ rights and minimum wages, a vast green-energy plan and proposals for mass building of homes to address a severe housing shortfall. But the Treasury has said that since then, “the world has changed”. Faced with a stagnating economy and global uncertainty over the fallout from US President Donald Trump’s plans for hefty tariffs, Labour has been left with little room to maneuver. Recent data has shown the UK economy unexpectedly shrank 0.1 percent in January, while inflation rose to three percent. The government also borrowed more than expected in February.
Reeves is also constrained by her own fiscal rules, which prevent her from borrowing to fund day-to-day spending, and which call for debt to fall as a share of the gross domestic product by 2029-2030. Since she has also committed to not increasing taxes, sticking to the rules raises the prospect of spending cuts to some departments. At the same time, Labour has recently said it would hike spending on defence, especially to deal with the war in Ukraine.
The government is already reportedly considering scrapping a tax on tech giants, which raises around £800 million annually. The move would likely add further strain to public finances, but could help the UK appease Trump and avoid the worst of his tariffs. Wednesday’s update comes as a business tax hike, announced in Labour’s inaugural budget, is due to come into effect in April. Businesses heavily criticised the tax increase, warning about the adverse effects on hiring and wages. Mel Stride, the opposition Conservative party’s finance spokesman, said Sunday that Labour’s latest reforms were “not bringing back stability to the economy, it’s deeply damaging it.” “Business confidence has collapsed, growth has been killed stone dead, firms are slashing jobs and their borrowing splurge has pushed up mortgages for families,” he added.
© 2024 AFP
