Rachel Reeves has delivered an ‘emergency budget’ in all but name. The scale of the spending cuts set out in the UK chancellor’s spring statement today was itself a tacit admission of failure. At the time of her first budget back in the autumn, Reeves expected to have around £10 billion worth of public money to spare. Instead, she today announced measures to raise £14 billion, mostly from cuts to welfare payments and from Whitehall departments.
Ultimately, Reeves’s cost-cutting plans are a product of a broader, more profound failure – her failure to restore growth to the UK economy. The Office for Budget Responsibility (OBR) has slashed its forecasts for growth in this year from two per cent to one per cent. And although Reeves was eager to point out that its forecasts for later years have been downgraded, the OBR does not envisage growth reaching even a meagre two per cent at any year in this parliament.
Reeves and other senior Labour figures insist that growth is their No1 priority. In a speech earlier this year, in which she set out her government’s growth plans, she used the word ‘growth’ no less than 50 times. Elements of her plan were certainly welcome – especially measures to free up the green belt to promote housebuilding, to streamline planning rules for infrastructure and to give the thumbs up to major projects like Heathrow expansion.
Yet, all too predictably, Labour’s rhetoric on growth has not been matched in terms of policy – certainly not on the scale required. In fact, Labour is almost constitutionally unsuited to unleashing the UK’s economic dynamism, given its commitments to technocracy and greenism.
Reeves’s infamous nickname, Rachel from Accounts, captures some of the problem. It is now abundantly clear that she sees economic policymaking as little more than an exercise in managing spreadsheets. The main purpose of today’s spring statement was not boosting growth but meeting the chancellor’s self-imposed fiscal rules. And her success or failure in doing so is to be judged by the unelected fiscal watchdog, the OBR.
Reeves’s rules say that tax revenues must exceed public spending by 2029, based on the OBR’s predictions. The Treasury increasingly judges potential policies based on what ‘score’ they will be given by the OBR – that is, how they will impact the forecasts. Ministers even enter ‘negotiations’ with OBR number crunchers to try to persuade them to change the scorecards ahead of each financial statement.
The problem is, the accuracy of economic forecasts has been consistently poor. As Sky News’ Ed Conway explains, over the past few decades, the average error in forecasts has been in the region of 15 per cent of GDP – that is, more than double the NHS budget or the value of four HS2s. Indeed, the OBR clearly failed to notice just how much damage Reeves’s tax-rising budget back in the autumn would do to business confidence. According to the Bank of England, more than half of firms expect to employ fewer people and more than 60 per cent plan to hike prices when the national-insurance rises from the original budget take effect next week.
The OBR isn’t just another forecaster, of course. Established by George Osborne, it has serious sway over economic decision-making, and it has only been emboldened by this government. In one of her first acts in No11, Reeves unveiled a ‘fiscal lock’ to ensure the watchdog is consulted before every major change in economic policy. She has effectively allowed the unelected OBR to dictate policy.
In recent weeks, the frequent inaccuracy of these forecasts does seem to have dimmed Labour’s enthusiasm for the OBR. The Times reports that prime minister Keir Starmer’s allies are bristling at the constraints these flawed predictions can end up placing on spending measures that might boost growth. But this is a lesson it has taken far too long to learn.
Labour has clearly placed far too much faith in unelected technocrats to manage the economy. Despite its promise to reduce the number of ‘quangos’ (arms-length government bodies), Labour has created 27 new ones since coming to office. Worse still, the largest of them, GB Energy, is tasked with pursuing the decidedly anti-growth goal of Net Zero.
Indeed, it is Labour’s green policies that make its promises of growth impossible to take seriously. In January, Reeves decreed that ‘Net Zero is the industrial opportunity of the 21st century’. Those exact words were repeated by energy secretary Ed Miliband earlier this week. This is beyond delusional.
Far from boosting growth, Net Zero has already led to rapid deindustrialisation. The dash towards unreliable renewable energy has landed the UK with some of the highest industrial energy costs in the world, making it near impossible for our manufacturers to compete. Car factories, oil refineries and steelworks have all had to make major layoffs in just the past few months alone. Labour has responded to this mounting misery by accelerating the green transition, ignoring all the warning signs.
To get growth growing again after decades of stagnation, we need a chancellor who is prepared to take on the technocrats, the quangocracy and the Net Zero zealots. Rachel from Accounts could hardly be less suited to that role.
