| Yesterday began very badly for Rachel Reeves, and for those who rely on disability benefits, with news that the Office for Budget Responsibility (OBR) had studied the welfare cuts set out last week and concluded that they would not save as much as the government hoped. That meant another £1.6bn cuts on top of those that have already been trailed, with £500m from the same benefits. Last week’s announcement was described as a thoughtful move to a “more pro-active, pro-work system”; this week’s expansion is dressed as very little but a matter of fiscal necessity. “The problem with the emphasis placed on fiscal rules is that it puts so much weight on being just the right side of a slightly arbitrary line,” Mike Brewer said. “If she had more headroom in the first place, we would not be scrutinising every single raising of the eyebrow by the OBR in the way we are.” When the OBR’s forecast was published, it also showed that predicted growth this year had been downgraded from 2% to 1%, while forecasting slightly improved figures for later in this parliament. But, Brewer noted, “the 2020s as whole are still going to be terrible compared to the 2010s, let alone the 2000s. We’re still stagnation nation.” The big picture, he said, is that “this was a lot more boring than we might have expected. Perhaps that shows the power of briefing and announcing policy in advance. When you look across the whole government, it amounted to a small trimming of the sails.” What new cuts did the chancellor announce? In October, the OBR estimated Reeves’s budget left her with £9.9bn in fiscal headroom. That has been wiped out by high borrowing costs, primarily driven by Donald Trump’s economic policies, and lower than expected UK growth. Yesterday, the OBR said that without any changes, the UK would now be forecast to be £4.1bn in deficit in 2029/30. Here’s what Reeves said about how she would plug the gap: • The same welfare cuts announced last week by the work and pensions secretary, Liz Kendall, now valued at £3.4bn instead of £5bn, plus another £500m. The difference will be covered by freezing the incapacity element of universal credit until 2030, meaning a real terms cut in light of inflation. There will also be a cut to the basic rate of universal credit, which Kendall said would be raised. • A 15% reduction in administrative costs across the civil service, targeting savings of about £2bn; and £1bn in expected additional tax revenues thanks to new anti-avoidance measures. “All governments do this, so I’m not going to blame this one in particular,” Brewer said. “But the government already came out with a very big clampdown on avoidance in October, so it’s a bit surprising that they’ve found so much more five months later.” But in this interesting piece, Dan Neidle of Tax Policy Associates welcomes the changes. • Other measures will not be set out in detail until the three-year spending review in June – but the expectation of much larger cuts for “unprotected” departments has not really materialised. “She has made what amount to quite small changes, asking departments to spend £3bn or £4bn less by the end of the parliament,” Brewer said. • Another £3bn was expected to come through growth, thanks to the OBR’s forecast of an improved picture later in the parliament. Taken together, all of that is forecast to put Reeves back in the black, with the same £9.9bn headroom. “It does suggest the last-minute fine tuning to the welfare package was done so the Treasury could say they were back where they were at the last budget,” Brewer said. In her analysis piece, Heather Stewart writes that Reeves ended up “boxing and coxing to accommodate every last few million quid”. Were there any silver linings? Reeves was determined to take a positive tone where she could, highlighting a “transformation fund” worth £3.25bn over three years to support projects that will enhance productivity. She was also able to celebrate the impact of planning reform on the OBR’s growth forecast. But it was hard to find much to smile about in the new measures: the extra money for defence, for example, has largely been paid for by a cut to the international aid budget. Reeves did say that she would allocate £2bn for new social and affordable homes. “But that is in no way new money,” Brewer said. “It’s just giving detail ahead of the spending review on part of the broad allocation set out in October. It’s actually less than the previous government was spending, which is why they’re very keen to emphasise that it’s a ‘downpayment’.” What did the impact assessment on welfare cuts say? Last week, the government said that it would not publish its findings on how severely the cuts would affect those who rely on universal credit and the personal independence payment (Pip) until yesterday. Many viewed that as a deliberate attempt to bury difficult headlines – and the stark picture that the document revealed certainly lends weight to that case. 800,000 will lose Pip, 150,000 will lose the carers’ allowance, and 250,000 more will be in poverty, including 50,000 children. Across all the changes, about 3.2 million current or future claimant families will lose an average of £1,720. Many Labour MPs are now considering voting against the changes in May, with rumours of frontbench resignations. One striking detail, Brewer said, was that the assessment “suggests that this is a cut on a really slow burn. By the end of the parliament, only 700,000 of the three million people on the health-related part of universal credit will be on the new lower rate. The case load changes very slowly – so newly disabled people in the future who are going without will mean that the impact will get bigger over time.” Are tax rises likely in the autumn? The cost of borrowing has risen further since the OBR made its working assumptions last month – and its growth forecast rests on productivity assumptions which some economists think are unrealistic. That means that Reeves could very easily slide back into the red. Richard Hughes, of the OBR, said that the entirety of Reeves’ headroom would be wiped away by a 0.6 percentage point rise in the cost of borrowing, or 20% tariffs from the US. If that happens, she may feel that there is no room for further cuts, and that the least politically awful option is to increase taxes. “Despite everything the chancellor said about how the world has changed, the OBR forecast doesn’t fully reflect that,” Brewer said. “And we can’t factor in the possible consequences of a global trade war, or European countries devoting more of their economies to defence. We don’t think that she’s really grappled with public spending pressures that might be coming, either – the most obvious of which is defence. There is a fully costed plan to get to 2.5%, but the prime minister has said that he wants to get to 3%.” Does this amount to austerity? It depends on how you look at it. Labour firmly denies it, and has some decent reasons for doing so: any analysis of the new cross-government cuts should reflect that because of the spending increases baked in last year, they are coming from a higher base. “There is no doubt that she is being more generous than Jeremy Hunt planned,” Brewer said. “It isn’t like the austerity of the early 2010s, where George Osborne made really big cuts across a large number of departments. But there will be departments that see their spending fall.” But it is also true that the legacy of the austerity era means public services are creaking, and that further cuts are therefore bound to show up in people’s lives more painfully than they might do against a brighter backdrop. “Technically none of this constitutes a return to austerity,” Gaby Hinsliff writes in this piece. “[But] good luck explaining that to people who use the phrase more as shorthand for the sinking feeling that no matter what was promised, nobody is coming to the rescue.” | 