Hello and welcome to this special live edition of The
Forecast after Rachel Reid's spring statement.
And it's painful medicine for an ailing economy.
Growth this year is halved. Inflation will tick up.
There's £5 billion of welfare cuts targeted at disability
payments affecting over 3 million people.
The impact assessment says 1/4 of a million people will be
pushed into relative poverty, including 50,000 children.
And it's almost as painful for Labour MPs who didn't come into
politics to take money from poor people.
But the world has changed, says the government, refusing to say
exactly why, even though it is Trump who has forced defense
spending to rise and started a global trade war.
To analyze what's happened, I'm joined from Leeds by our
economics correspondent Helia Ebrahimi and from Westminster by
our senior political correspondent Paul McNamara,
who's just come out of Rachel Reeves press conference.
Helia, I mean, a whole world of pain in the cuts, but for what?
What? What has she done this for?
Is it credibility? I mean, it's all about being the
Iron Chancellor. She's got her fiscal rules and
they are non negotiable. She wants to make sure that she
absolutely sticks to those rules.
Today was a fiscal patchwork. She, you know, they were, they
had 9.9 billion of headroom in autumn that disappeared, not
just disappeared, but they went 4 billion into deficit.
And today she outlined that she would take the political pain in
order to make sure that she stays on course.
But don't forget, Krish, that this is a tiny, tiny bit of
headroom for a huge amount of different risk, you know, and I
think that's worth remembering. So yes, the markets are calm.
There was a bit of a spike in the gilt market, but they seem
to have calmed down. But there is a lot of pain still
to come. Of the reports that go along
this from the Office of Budget Responsibility say that it could
all be wiped out very quickly and very easily if Donald Trump
sparks his trade war, if the global tariffs kick in.
We'll, we'll analyze all of that in a moment.
But, but Paul, I mean this, the pain which is being felt in
welfare cuts is, I'm guessing, reflected in the pain at
Westminster amongst Labour MPs. Yeah, I think you can always
gauge just how miserable people are by how quickly they respond
to your text messages or how quickly your inbox is filling
up. They're responding very quickly
today. There are a lot of messages when
these welfare cuts get to a vote in front of the House.
This is not going to be a nice experience for the government.
Now, look, truth is, they've got a whopping great big majority.
They don't really, really need to worry about that.
But red on red attacks are not going to be a great look for the
next couple of months, and that's what you can expect.
I'm I'm guessing a lot of them are wondering if this is what
they came into politics for. Oh my goodness.
Look, so firstly, you know, you get lots of text messages from
people, backbenchers saying, yeah, this is what I think,
don't use it on the record. But actually now we're just
getting statements that come out posted to Twitter.
So this one, Kim Johnson, the first, she's an MP from
Liverpool. The very first line, Austerity
2.0 is here. That is very definitely not the
line that number 11 wants to be selling.
And then this one here who really caught me.
This assault on disabled people and those in need of support is
nothing short of sadistically cruel.
That's one of their own MPs. Right.
Hell yeah. So to the question of whether
this is austerity or not, I mean, how how does this compare
to where we were in the Cameron, Osborne years of austerity?
And and can we say it is or it isn't?
Well, I think you have to separate all the protected
departments from the unprotected departments and overall I think
it's not the same as 2008. What we're talking about is
cutting about 3 to £4 billion from department spending.
That's, you know, far cry from what happened in the Osborne
year in 2010, but it's less generous than we thought back in
autumn. And today the government said
look, we're, we're only cutting spending, you know, from 1.3%
for the overall envelope down to 1.2%.
Don't worry, don't worry, don't worry.
And of course if you're in defence, if you're in the NHS,
sure you might not worry. But if you are in the court
system, if you are the Home Office where you have had
sustained kind of cutbacks and sustained problems with your
funding packages over a decade and a half, really then I think
anything less than the generosity that was promised,
where they thought they're going to give this big fiscal boost,
there's, you know, basically lots of cash in the first two
years. Inflation has eaten into a bit
of that and now it's going to be even less generous than they
thought. So in real terms, those
unprotected departments, the IFS says face cuts of about, you
know, you know, real terms, it's only rises of 0.8%.
So that's a real term cut. So it's not austerity as we knew
it, but I mean, the government has been sticking to this line
since well before the election. I've grilled Rachel Rees and
Keir Starmer about this so many times.
And, and the chief secretary to the Treasury, Darren Jones, that
they, they keep saying, you know, overall spending is up and
it continues to rise, But that's because there are some
departments getting more than others.
And in some departments, it's going to feel very much like a
cut. Look, their whole shtick is we,
we came into government and what we announced was a funding
package that was so much more generous than what the Tories
had in mind. And, and that is true, they had,
they increased spending, you know, in the last year by £50
billion. So it is more generous.
What's happening now is that they are whining, finding some
of that down. Now people like the Resolution
Foundation say, hang on a moment, You said you wanted to
rebuild public services. You say that you want to get
people back into work. And you've done all of these
cuts really just to make the maths work, just to fall back
into your fiscal headroom. And, you know, there's lots of
suspicion that she had fiscal headroom of, you know, £9.9
billion back in autumn and all of the policy measures equal,
you know, give her that exact same number again.
So or, you know, to Paul's point that, you know, all of these
welfare cuts have political ramifications, not to mention
the real world ramifications. You know, the complaint is it's
being rushed through, and it's being rushed through only to
meet the Treasury's kind of wonk desire to make the numbers work.
Yeah. I mean, Paul, that the argument
is going to be that they they say that this is all about
getting people back into work and that this is a philosophical
change that they had been working on for months before the
election. But but my goodness, isn't this
an astonishing coincidence that the numbers end up the same in
terms of sort of the headroom that the money that they got to
play with at the end? And that quite that.
That leaves a big question mark over whether this is really
driven by the numbers or some, you know, deep seated idea or
philosophy around getting people back into work.
No, I think Rachael has announced her her stringent
fiscal rules, you know, ages ago come hell or high water.
She is not moving away from them.
Of course they want to get people back to work.
Well they were given a little bit of cover actually on that
whole thing of austerity. 2 point O Paul Johnson, the old
boss of the IFS turn around last last yesterday, put out this.
Not old boss. Yeah, Paul.
Oh, not old boss. Yeah, so God, I've already.
I've already got him out the door.
My sincerest apologies both Elliot and Paul Johnson, but
like, you know, he puts out this graph saying look, it's not,
there's nothing like austerity that gave Labour a good bit of
cover. Darren Jones first sector to
Treasury when he was in Downing St. yesterday, bringing all the
members of government saying look, this is what we've got
planned. First of all, he didn't mention
the extra half a billion pounds worth of cuts to welfare that
came overnight. So quite a few people in the
government payroll are annoyed about that.
But he was making the point it's not austerity 2.0.
The truth is though, you can bang on about that all you want.
If local MPs are getting people turning up to their surgery
saying wait a second, you've cut all of my benefits, I am now
significantly worse off and there will be vast amounts of
people who are significantly worse off.
It doesn't matter the messaging, it's what people really feel.
Yeah, and what we got since the statements in the House of
Commons, Paul, is the DWP impact assessment, which has some very
stark numbers. I mean, you look at the and you
wonder how they managed to go ahead with a policy that results
in 250,000 more people being pushed into relative poverty,
50,000 of which will be children.
So that is that is an increase in child poverty as a result of
Labour policies that. Now Rachel Rees was just asked
about this in a press conference.
Has she got an answer? Yeah, I'll, I'll, I'll, I'll do,
I'll do the bit of balance here. I'll play the role of labour.
They're lying. And you can expect to hear
they've been trotted out time and time again over the next
couple of months. Those figures, they Labour turn
around and say actually look, but what we did do is we said
that we put in a billion pound of support to get people into it
and none of these are but. By the way, that that that, that
billion pounds that they're, they're basically adding a
billion pounds for coaches. They got a bit of a wrap on the
knuckles from the OBR this afternoon because the OBR, who
obviously Labour have lauded, much to their chagrin, because
they now keep being told off by the OBR.
But they were saying there's no evidence, there's no detail of
all of these coaches. So yeah, they've they've said
they're going to add these a billion pounds to bring coaches
into the world to, you know, job centres to bring people back
into employment. But actually that doesn't yet
seem to be much detail about it. I love this.
It's all in the messaging earlier the OBR say that and
then Labour use it in terror and say Oh no actually, but OBR
haven't been able to assess the impact of that billion pounds.
So really people are probably going to be fine.
But actually on the stuff that we do have, the things that we
do have numbers for, the things that they have been able to run
assessments for, we've got quarter of a million people,
additional people in in relative poverty, including 50,000 kids,
3.2 million people will be worse off.
Those are those are tough numbers to to swallow.
So their messages of those 250,000 people, some may end up
not being in relative poverty because they might go back to
work. But this is all amorphous, you
know, unworked out and a bit of a guess.
And they are, they are quite clearly not saying that we'll
wipe it out. They are admitting that there
will be people no matter how many we end up with being pushed
more into poverty. But.
Which is exactly what is an ambiguity.
There is a there is an economic problem that is going on that
underpins this. I mean, forget about Rachel
Reed's trying to make sure that she meets her kind of fiscal
rules. We have a problem with
inactivity in this country. It was something that economies
around the world faced but have seemed to recover from after
COVID. We haven't in this country.
And the numbers are quite stark. You know you've got 2.8 million
people who are long term sick. You know that's a third of all
people who are inactive. And without people re entering
the labor market, all of our issues around growth, around
productivity are not really going to be fixed.
And in terms of the cost, if I just talk to you about that,
back in 2010 it cost £28 billion.
Before COVID it cost £37 billion.
Currently for that health segment of Universal Credit,
we're paying almost £50 billion. So you can see that there is a a
problem that needs to be solved. I think everyone is on board
with that. Everyone accepts that we need
reform in the welfare market. I mean it's simply not
sustainable long term because if the new claimant count continues
at the same pace then it's going to dwarf all of our departmental
spending and all of our budget will be eaten up by it.
But it's how the government want to go ahead ahead and get
across. And if you talk to people from,
you know, Resolution Foundation for example, they say this is
all being rushed through. Look at the personal
independence payments. That's not even work dependent
and you've got a whole lot of cuts that just mean that people
will not qualify. I think 800,000 people will now
not qualify for those pit payments.
That's not anything to do with getting people back into the
labour market, but. It's it's just that rush.
I think that has got a political impact that they, they haven't
perhaps foreseen because what you would normally do, I think
around, around quite a big reform such as this, because
after all, what they've, what they've sort of done through the
back door is reintroduce this idea of deserving and
undeserving, you know, welfare recipients.
They are basically suggesting there are a load of people who
are getting these welfare payments who shouldn't be
getting them. Now they're dressing that up as
saying we don't want to write people off.
We don't, we know we don't want to, we don't want to sort of,
you know, sort of push people onto a, a scrap heap under which
they will never work. But they but the sort of the
coded messages, they don't really deserve these payments.
And that's why we're stopping them to get the public to a
place where they will agree with that normally would take quite a
long time. And they haven't really Have you
done that job of work politically, have they, Paul?
There so much of this has been rushed even in the last 48 hours
to try and get. So for those who who don't know.
So last last week a holiday welfare reforms renounce was
meant to save £5 billion. Turns out they're not going to
save £5 billion, they might save about 2.9 billion.
Well, now all of a sudden the Treasury had to find an extra 1
1/2, two £2 billion. So overnight we get 5500 million
more in cuts to the welfare bill.
That's happened at lightspeed. Not even the welfare cuts the
DWP has been working to for ages, The 500 million we've seen
just overnight. Then there were more cuts that
were had to be found. So all the legwork that you
would need to do, bringing people on a journey with you,
bringing your backbenches on a journey with you, they haven't
been able to do whatsoever. Heavier.
Let's talk a little bit about why we're in this mess.
I mean, growth cut from 2% to 1%.
The Chancellor talking about the world is changing but not
spelling it out. Why nobody's actually nailing
Donald Trump for any of the changes that he's forced on
Britain, you know, which is increased defence spending.
That's a whole load of money away from the poorest people in
the world in the development budget into defence and the, you
know, the start of a global trade war, which could get
worse. So it's what Why are we in this
mess, for a start this year? And what does the uncertainty,
ongoing uncertainty, around Trump mean for the next few
months and next year? First of all, to Why are we in
this mess? Why did her headroom disappear?
Why did it vanish? Well, it disappeared because
borrowing costs went up and that is to a large degree outside of
the chances, outside of the government's control, driven by
what happened with the US, but also now latterly because of the
bond markets, understanding that Europe will need to spend so
much more on defence. Now today the Chancellor was
presenting defence as a kind of platform for industrial
renaissance. But when the bond market looks
at it, they think, hang on a moment, you are going to need to
borrow a hell of a lot more money Europe.
And therefore it adds to the cost of borrowing for European
countries, including the UK. But a lot of that is driven by
the USI think to your opening, to your opening remarks, Krish,
you know, this is all on a coin toss.
That's what the OBR said. This whole forecast is about 54%
chance of actually surviving contact with oxygen.
I mean, that is extraordinary. You know, you've got this, as I
was saying, this tiny incy wincy bit of headroom.
You know, it's really waffle thin and you've got huge amounts
of uncertainty and that huge amount of uncertainty is because
of trade. And that could all come to a
head next week. I mean, literally one week from
now, all of this might be completely irrelevant if we
have, yeah, tariffs day. You know, we'll, if, if, if
Donald Trump up ends the global economy, if we, the UK doesn't
necessarily get this deal that we think we're going to get by
giving, you know, tax relief to the likes of Meta and Google,
then then it's going to spell real problems for the UK economy
and the global economy. And, and the OBR are saying
there's a huge chance that will happen.
But it's not just that, it's also productivity.
We have an issue. It's a kind of nerdy thing to
talk about, but basically economists have struggled to
describe why the UK is no longer as productive.
And the OBR has been way more optimistic than other
economists. And now they're saying, look, if
productivity doesn't recover, if we don't get back, not just to,
you know, we're not talking about the, you know, house in
days of the last Labour government into 2007.
I'm talking about just a 2010. We don't get back to that.
Then we have another real problem.
And, and, and so in a way, yes, she's managed to get through
today. She, she, she's, you know, the
chancellor's great at fighting. She's great at saying I am
absolutely determined. I've made all the right
decisions. And she, she believes that
that's what she says. She says everything that
happened in autumn, despite what all these businesses say about
Nick's, everything I did was right.
But actually a lot of the hard work is only going to start now.
Yes. And.
We're going to spend the next six months speculating about
which taxes she's going to have to raise in the autumn or which
spending cuts are going to have to be made as well.
And, and, and that again, Paul seems to be an, I mean, quite
striking failure of today that it hasn't hasn't stopped or
scotched anything. It is actually, if anything
fired the starting gun on the next round of debates.
And that's not the press being troublemaking.
That's that's just looking at the economic reality.
Oh, yeah, Like I sat there in the chamber, which was going
through everything and you talk about the numbers, Helia
bringing up their excellent Monty Python reference for the
Waffa Thin head headroom. You know, there is there is no
way that we're not going to be spending the next six months
talking about what she's going to have to do when it comes to
an actual budget. And in fact, you know, there was
a briefing afterwards with, with Rachel Reeves officials where
we're all going through this quite hearty document and like
picking out all the things that the OBR that basically picks
apart her numbers and goes, OK, well, if there's trade war with
Donald Trump, your surplus has gone.
OK, well, productivity falls, everything goes.
And like just sort of nailed down everything because it's
very, very unlikely that we're going to get to her actual
budget. And, and all of this is, is
going to be intact. So you're sitting there
listening to all of this. My goodness, there is going to
have to be something that happens between now and then.
And the line that I keep hearing from Labour MPs, and this isn't
just from. And the ones on the left that
are kicking off about everything that number 10 does, it's a lot
of these are centrist ones. They're saying at the moment, my
God, if we're already having to cut the welfare budget by this
much and this quickly, what on earth are we going to have to do
when it turns out we've got no money in six months time?
Well, if the economic growth isn't delivered, what on earth
are you going to have to cut then?
Yes. And the other thing that came up
in the press conference was the whole question of this digital
services tax and whether there is some secret deal being done
to offer tax relief to the tech Bros in return for a deal on
tariffs. Now, again, I mean, is the
government really going to go to the country and say while
delivering these welfare cuts, it's going to give a tax cut to
the handful of richest people in the world?
It's only a handful of people who actually pay this tax.
The verbal gymnastics that go on whenever you're one of those
press conferences because no one wants to call out Donald Trump.
No one wants to pin their thing on him.
When when Rachel Reeves was asked a specific question about
Donald Trump, the answer, the answer, go back and fair play to
her researchers. They've done their work.
They've got a whole load of stats.
Here you go. Just just say this.
She was able to run. Look under the last Trump
presidency. He loves us.
Actually, the amount of trade that we did went up.
And they find every argument they can.
You can carry on doing that all you want, but in a week's time,
Donald Trump talking about Liberation Day.
If that comes, then all bets are off.
And yes, you're right on that tax for for tech Bros.
My goodness, that will go down badly.
Yeah, there's a risk crush that we're just allowing the US to
pick our pockets here. You know, we're we're bending
over backwards to make it happen.
I just wanted to go back to growth because I do think that
is a big deal because this year, don't forget, one of the big
pieces that came out from today is that, you know, when Labour
came into power, they said growth is their number one
mission. In fact, they said we're going
to grow faster than any other G7 country.
That quickly became the. Sort of ditch that, haven't
they? We're not really quite clear
whether they still pretend that to be the case or not.
Yeah, they just ditched that, but they replaced that with
living standards. They said, OK, well we're not
going to grow faster than everyone else.
Fair enough, fair cop, but we will improve living standards.
And there was a lot made I think today by Rachel Reeves that
living standards are going to go up by the end of this
Parliament. She made a big deal of the fact
that households at the end of Parliament would be 500 lbs
better off. And let's have a listen in on
how that that sounded. This isn't just about lines on a
graph, it's about improving people's lives.
Real household disposable income will now grow this year at
almost twice the rate expected in the autumn.
The OBR say today that people will be on average over £500 a
year better off under this Labour government.
It's so amazing, Lots of cheers, lots of cheers, lots of
applause. And it's all because of Labour.
Except is it really? Because when you look at the
numbers it, a lot of that is driven by the simple arithmetic
of pay going up faster than inflation.
And most of that actually happened not now, not in the
future under this Labour government, but last year.
So that big uptick in incomes happened.
Well, it's already happened. It's very.
Unclear whether she's misspoken there as well.
Isn't it because she said £500 a year better off and it's not
clear whether she means 500 lbs every year or £500 by the end of
this party? By the end of the Parliament, I
think by the end of this Parliament and you get this and
you I mean there is an improvement.
But as the point I wanted to make was that a lot of that
improvement is because it's from a much higher start.
The OBRS forecast today says that actually incomes last year
were much higher than they had accounted for even in October
2024. So a lot of the heavy lifting
has been done already and the problem you face then is that
going forwards or incomes going to be rising at a kind of rate
of not well, I'm afraid no, they're not Chris.
And if it's if. It's £500 / 200 weeks.
I don't think many people are going to be very impressed by
that. I also earlier how many times in
your reporting career have you listened to a chancellor or a or
a Prime Minister say you're going to be X amount £100 better
off in a few years time? Just just one other thing to
mention though, which is very awkward, I think, for the
government today, which is that the OBR have made clear that the
rise in National Insurance at the last budget was in fact a
tax on working people. Yeah, I think that's absolutely
right. I mean, this is one of the
things that there's a slight mismatch between how the
government described their interaction.
Whenever you talk to businesses, from all the surveys, from the
kind of sentiment amongst the business community, they
complain about that £40 billion tax hike that we had last
October, most of that driven by the increase in employer NICs.
Now Reg Reeves says I was absolutely right to do that,
there's no problem with that. That gave us the position to
continue to grow from. But the OBR again, as you said,
Chris said today that 76% of the cost of that would be passed on
to employees through lower incomes.
So going back to that household income thing, where are we going
to be richer? Well, going forward, companies
are going to feel squeezed because from next week these and
I increases come into effect and who's going to pay for that?
Well, you and me, the employees of the of the country.
Right, let's finally talk about Rachel Reeves.
There are still still whispers on there around whether she's
going to stay the course. Paul, do you think people in the
Labour Party are considering whether she should be swapped
out? I think name any chancellor and
I've heard rumors that they're going to be swapped out.
That's kind of an eternal thing that that happens around here.
I think the bigger worry that they've got is a mass rebellion
when it comes to a vote on on the welfare cuts.
But if it gets to, if you make a rule which you say, I'm going to
live and die by these these fiscal rules and I'm and I'm
going to pay for everything by growth.
If we get to six months from now and there isn't growth and
you're still with these fiscal rules.
So you're either going to have to raise taxes massively or
you're going to have to slash spending massively, a mixture of
the both massively. Then yeah, there are going to be
people who are going to be bang for your head.
Do the do the financiers and city people, Helia talk about
this? I mean, do they think she's
she's the one for the full term or do they want Pat McFadden or
somebody else? No, I listen.
I think, you know, department politicians, you know, secretary
of states will always be against Treasury because Treasury is the
one that holds the purse strings.
So I don't think chancellors necessarily have a popular ride.
I mean, particularly Rachel Reeves, but I think she likes
fighting. And I think despite the fact
that businesses are very upset because they feel like she let
them down when it came to the tax rises last year, there's a
lot of hope. When you talk to people within
the market and when you talk to, you know, companies about their
investment plans, don't forget, I mean, to give them the credit,
you know, they were talking about, you know, raising,
they've just had a bill, you know, of reforms for house
building. And you see that the OBR has
actually scored that today. So the, the government has said
we're going to build 1.5 million homes.
Most builders say that's not possible, but the OBR today say,
well, actually we think, yeah, you might, you might just under
that, you know, 1.3. But that's a lot of improvement
from the last government. And so there's a lot of hope, I
think, from companies that the kind of reforms to planning, the
kind of changes to infrastructure will start to
materialize, the kind of changes to the the national wealth fund,
all of these pieces of reform will add up to something.
But of course that's all all dependent on, you know, don't
come back in autumn and ask for more tax.
So she's safe for now, Paul. You reckon she's?
Safe for now, but six months from now, that's when.
That's when if they. Have to break their manifesto.
Yeah, you know, and it's not just going to be MPs are going
to talk about it, headline writers are going to be full of
it. If you get 6 months from now and
a certain section of the press thinks that she's doing an even
worse job than they already feel that she's doing.
Because a certain section of the press are always going to be
anti Labour government. But those headlines are going to
ratchet up and ratchet up and ratchet up.
And it's when the it's when the gossip on the WhatsApp group
started ratcheting up, ratcheting up and inevitably
starts to leak. And that's when you know, things
are in real trouble. We started getting leaks out of
cabinet or six months ago, we definitely weren't getting that.
They were rigid as hell. Now we started getting the odd
leak from what's happening in the WhatsApp groups.
Again, six months ago, that wasn't.
Happening, but that's because we've got a spending review
coming up. I think some of that is just the
normal, you know, class of yeah, exactly, exactly.
And I'm, I mean, I think a. Bit I think a bit of it is that,
but you know, you know, these are the guys that have been
fighting for years to turn everything around, turn the
perception of them around and talking to the special advisor,
to some, to a cabinet member. One of the one of the things
they said to me two weeks ago was first of all, we're talking
about the relationship. This is the special from from
the unprotected department. They were talking about the
relationship with the Treasury. They were saying that Rachel's
never been stronger. They're feeling really weak.
And the, and the line that kept that got me was I thought the
bonds of friendship would have extended further into government
than this. So it wasn't just about spending
review. You can start, you can really
start feeling the fractures between some of the people that
have been, you know, fighting for this for years together.
We better leave it there. This is great.
I like we should have correspondents arguing on
Channel 4 News more. It's like a sort of a peek into
our morning meeting. But I've got to get down to
Westminster for Channel 4 News at 7:00.
Can't. Wait to see.
Chris for this edition of the Forecast.
Until next time, bye bye.