Despite the Conservatives branding today’s Spring Statement as an ‘Emergency Budget’ over the past few weeks, it was (unsurprisingly) anything but.
The government was determined to kickstart economic growth when it came to power, but nine months is a long time. The election and unpredictability of Donald Trump, the potential of tariffs and the ongoing uncertainty over Ukraine’s future and Europe’s security is waying heavily. But throw into the mix a flatlining economy, an inflation rate that is still above target despite today’s modest fall, and higher government borrowing costs – not to mention our huge debt burden, an ageing population and a potential ramp up in defence spending – and the challenges are monumental.
The problem is that the government is restricted by its own self-imposed ‘fiscal rules’. The thinking behind that decision was sound in principle: they wanted to show they stood for financial responsibility and prove that the UK was able to pay its way and service its debts. However, being so arbitrary is now a big problem and today’s Statement demonstrated that in all its glory. The Treasury’s hands are tied and there’s no way anyone would have risked spooking the markets and causing another Liz Truss-esque scenario by going against their own non-negotiable commitments.
This situation of effectively living under self-inflicted fiscal restrictions is also mirrored in the government’s pre-election manifesto pledge to not increase income tax, national insurance for employees or VAT. It was a vote winner so it would have taken some guts to go against it and it could have dampened an already sluggish economy. Plus, businesses are still bracing themselves for their employer national insurance contributions to rise next month. That has been met with fury so any further rises taxes on employers were never an option.
I do feel for chancellor and her team; cuts to benefits and imposing spending cuts across Whitehall were the only real options available. Just how much of an impact they will make is debatable. When you look at the global uncertainty and the bleak economic reality that we are all facing, I fear they may not even touch the sides. It’s going to be an interesting few months and only time will tell whether this government breaks free from the shackles of its own making.
