Asked earlier if there would be a cut to the welfare bill before the next election, the chancellor said: ‘There will be a reduction in the benefits bill’
In his interviews this morning John Healey pushed back a bit against the claims that his plans are based on unrealistic assumptions about spending cuts. (See 11.29am.) Speaking to Bloomberg, he said “hard decisions” would be needed. He said:
My cabinet colleagues are demonstrating that they can also exert fiscal discipline and spending control, and we will take that into the spending review.
But the spending review will be framed by the priorities that we set in the 10-year plan for Britain, that’s as it should be.
Miller said higher inflation means John Healey would need at least £17bn to avoid real-terms cuts in some government departments under the long-term spending plans. Echoing a point made by the Resolution Foundation (see 8.36am and 10.21am), she said:
The chancellor left plans for overall departmental spending across the rest of the parliament broadly unchanged in cash terms. In the face of higher inflation, this means that the real-terms value of budgets has been cut. Taken at face value, and alongside the inherited plans to slow down spending growth sharply in coming years, that is a big choice. It effectively implies that some public services will see real-terms cuts in next year’s spending review. Avoiding the cuts implied by both higher inflation and tight envelopes could plausibly require a top-up of £17bn in 2030-31. That’s true even before thinking about the £11bn needed to fund defence plans.
She said she did not believe Healey would implement the future spending cuts implied by his departmental spending plans. She said:
I want to be clear that my concern is not that it would be impossible to deliver the implied cuts to other services – that could be done. But I’m sceptical that this government would be willing to do it. I’m also sceptical because I didn’t hear John Healey starting the kind of pitch-rolling that you would expect if he intended to deliver these spending plans. And I’m sceptical because history advises scepticism. When chancellors pencil in tight spending plans in the future, they tend not to deliver.
She criticised Healey for raiding the reserves to fund the defence investment plan. She explained:
I’m grumpy about how the chancellor decided to fund the relatively small hole in the defence investment plan – that’s the plan that gets defence spending to 2.7% of GDP next year and keeps it there until 2029–30. Much of it came from further cuts to the capital budgets of other government departments. Fine. Priorities change. But the rest came from raiding reserves in future years. This is worth drawing out: John Healey has now spent 25% of the capital reserve set aside for the next three years. He’s also spent 40% of the day-to-day reserve. This is categorically not what the reserves are for. Drawing down reserves is another way that the government has reduced its buffer against future shocks.
She said it was “sad” that the government was having to decide who should get energy support based on council tax bands that are based on property values 35 years ago. She said:
It is also sad that, in the time since the last energy price surge, the government hasn’t bothered to invest in the data that would have allowed a package more targeted at those most badly hit by rising energy prices. But here we are.
She said Healey was at risk of needing to put up taxes next year. She said:
I am left with the impression that the chancellor is hoping the economic forecasts improve enough that he can make good on his plan to cut borrowing without having to also make large cuts to public spending or raise taxes. I hope that happens. And it might – a re-opening of the strait of Hormuz or AI-driven productivity growth really could create sunnier skies. But, equally, things could get worse. If they do, the chancellor now has less insurance.
A clear short-term risk with the chancellor’s choices is that next year – with low headroom and a spending review that looks pretty brutal for some departments – we see another season of damaging speculation about tax rises.
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