Rachel Reeves’s spring statement will be an exercise in uphill skiing

The chancellor’s latest freebies row isn’t the only dark cloud overshadowing her mini-Budget, says Sean O’Grady

When Rachel Reeves stands up in the Commons to deliver her spring statement, she will do so in a maelstrom mostly of her own making.

Pre-statement briefings about cuts to the welfare budget have been met with derision from schools, the care sector and disabled Britons – not to mention her own Labour cabinet colleagues, the people she has strong-armed into pruning £5bn from departmental budgets.

In the run-up to today, the bad news has kept coming. Government borrowing exceeded the Office for Budget Responsibility's predictions last month, meaning its first-round forecast for her spending cuts have prompted some last-minute revisions and hand-wringing: even more benefits cuts have been scrambled in order to make up the new £1.6bn shortfall.

Little wonder that this morning’s better-than-expected inflation figures have failed to lift much of the gloom.

Faced with dire economic forecasts, Reeves recently likened herself to Margaret Thatcher – never an easy manoeuvre for a Labour frontbencher – saying that there is no alternative to the welfare cuts that she is about to announce.

But then came her latest freebies row, this time over tickets for a Sabrina Carpenter gig, which one fellow minister was quick to denounce as "not appropriate"; another broke ranks to say that she herself was far too busy to go to concerts…

With Reeves on the back foot, and unable to shake the admittedly misogynistic nickname “Rachel from Accounts” from the mini-scandal around the embellishment of her CV over her tenure at the Bank of England – her spring statement will be a stormy affair.

Has a chancellor ever faced such an exercise in uphill skiing?

She could do a lot worse than to begin with some arresting words that will set the correct, sombre tone for what follows: “Mr Speaker, the world has changed.”

It is a statement of the obvious, and will no doubt become something of a cliche, but for a politician badly in need of an explanation – if not an alibi – for the years of almost undiluted pain she’s about to inflict on the nation, she may as well get her excuses in early.

That’s unfair, of course. There’s room for argument about all the decisions she’s made since Labour came to office, but the state of the public finances was poor and action needed to be taken. That much was visible from space (well, at least the Institute for Fiscal Studies’ offices) since long before the election, and none of the sorties properly faced up to it – until Reeves was forced to.

Taxes, public spending and government borrowing were set on an unsustainable path. Something had to be done, and in order to get things under control quickly she did some slightly panicky things, such as means-testing the pensioners’ winter fuel allowance, and, more understandably, jacking up employers’ national insurance contributions (NICs).

She needed tens of billions of pounds to implement Labour’s promises, pay off the unions, fix the deficit left behind by Rishi Sunak and Jeremy Hunt, and give herself a bit of “headroom” for bad times – just in case.

Business and consumer confidence has since suffered, Brexit continues to exercise its depressing effects on investment and trade, and now, Donald Trump’s tariffs and practical abandonment of Nato have indeed changed the whole outlook for the worse.

Exactly how awful things are going to be will be covered by the Office for Budget Responsibility’s report. And, as is widely predicted, it will forecast growth halved to about 1 to 1.5 per cent a year for the rest of the decade, unemployment ticking up, inflation also rising (partly passing through the employer NICs), and the public finances just about hitting Reeves’ recently tweaked rules – trying to balance current spending and income, and seeing the national debt as a proportion of national income dipping as we approach 2030.

There’s also a “welfare cap” rule that impacts on areas which are not directly linked to the economic cycle. The OBR will need to have been convinced that Reeves’ broad plans for public spending are reasonably secure and realistic. The details for important areas, such as social security, defence and education will be presented in the summer, in the comprehensive spending review.

Things to look out for in this context, then, are things like: how high inflation will peak at later this year – pushing 5 per cent, perhaps, which will dampen the prospects for meaningful cuts in interest rates; real wages growth, which translates into living standards; infrastructure investment, including housing, key to future growth; and what the OBR guesses Trump’s tariffs will do to exports.

It will also be interesting to see how the OBR, informed by government policy, sees trends in migration developing. The higher it is, the better for economic growth; but the more problematic it will be politically. Signs are, however, that it will be about half the 740,000 a year or so most recently recorded.

Politically, this is one of the defining moments of the Starmer administration. It’s not a “last chance saloon” moment, so early in this parliament, but when Reeves let it be known after last year’s tax raising Budget that “we’re not doing all that again”, her instincts were right.

Whatever needs to be done to “balance the books” will be largely achieved by cuts to public spending plans across the board, with the exception of the NHS. The question, as we see with the abolition of NHS England, is whether cabinet ministers can find the kind of savings, efficiency measures, use of AI and other technology to get “more from less” from their budgets – some of which will be cut in real terms.

Reeves won’t use the word “austerity”, but the next few years will feel much like they did in the early part of the coalition government, when George Osborne was imposing deep cuts to public services. But these are cuts on top of cuts, because of that exercise, which local government in particular hasn’t recovered from. Add in ever-increasing demands from an ageing population, and the need to bolster defence, the coming years will feel very much like austerity 2.0.

Politically, Reeves desperately needs to make this spring statement a success. She has been the obvious disappointment in this government – high expectations followed by a dismal personal performance – and on numerous occasions has failed to offer the rationale, the logic, the “story” behind what she is doing.

Everyone knows there’ll be more pain – whoever is in charge. But Reeves hasn’t explained to the public what the gain is: the point of all this hardship.

The voters are capable of understanding that tough decisions need to be taken by a chancellor, but they’re owed an explanation as to why, when and how things will get better.

In the 1970s, we had pay policies that were supposed to get inflation down, and we understood that. In the 1980s, we had mass unemployment to restructured the economy to make it more competitive. In the 1990s, we had sky-high interest rates and a recession to squeeze inflation out of the system. We had to borrow huge sums to save the banks in 2008, and again to rescue the economy in the pandemic. Some worked, some didn't. But these were clear "narratives".

It's what the Labour government is lacking right now, and Reeves really does need is to present a compelling narrative for what she's doing. Assuming, that is, she's in possession of such a thing.