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Chancellor set to further tighten Whitehall budgets amid worsening economic outlook

Chancellor set to further tighten Whitehall budgets amid worsening economic outlook

 


Rachel Reeves is set to tighten Whitehall's public service budgets more than expected during the spending review due to the worsening economic outlook, Sky News can reveal.

This will pit the Chancellor against some ministers who are already claiming she is sacrificing the manifesto promises they are supposed to deliver – which will no longer be possible with tight budgets – so she can deliver.

The chancellor The government committed in the budget to financing day-to-day government spending through taxation rather than borrowing, something that has not been done for decades.

In the October budget, it left itself only 9.9 billion room for maneuver, out of a total public spending bill which exceeds 1,000 billion.

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Deterioration of economic conditions – including borrowing costs reach highest levels since 1998 – means the reserve could now be as low as 1 billion and could now be completely eroded.

Sky News understands that the Treasury is preparing for the possibility that, in the spring statement on March 26, the Office for Budget Responsibility will judge it to be in breach of its budget rule and take immediate action to avoid this.

We understand that it will keep its borrowing promises – the fiscal rules announced in the October budget. Treasury also committed that there will be no tax changes in the March 26 spring filing.

In this case, Ms Reeves would have no choice but to further reduce public spending budgets and consider further, potentially politically unpopular, cuts to the welfare budget.

In the Budget, Ms Reeves forecast a more generous spending increase of 4.3% in 2024-5 and a more modest 2.6% in 2025-6.

But after that it allocated just 1.3% between 2026 and 2029, which is lower than any point under the Tony Blair and Gordon Brown governments, or any point under the Tony governments. Blair and Gordon Brown. Boris Johnson.

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Worsening economic conditions would mean Ms Reeves would then have to cut her budgets further, delivering even less than 1.3% per year after 2026, which would likely put her on a collision course with ministries like the Home Office, justice, housing, transport and the environment.

The 1.3% increase must already take into account increased defense spending to allow the UK to reach 2.5% of GDP for defence, less for the rest of Whitehall, and any new budget reduction will probably be greeted with horror by some cabinet teams.

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