In the face of a weak economy and an even weaker political environment for the Labour Party, the Chancellor has reaffirmed her commitment to fiscal restraint, and resisted pressure to turn the Spring Statement into another budget-style event.
Since the mixed reception to her Budget in the Autumn, the Chancellor has continued to face consistent pressure from various fronts. Deteriorating growth, employment, and inflation figures have emboldened critics of the Government’s economic strategy. Meanwhile, she has been forced into climbdowns on farmers’ inheritance tax, business rates for hospitality venues, and will almost certainly be forced to offer graduates some sort of concession on student loans in the near future.
Despite this context, the Chancellor has chosen to stick to the course, delivering a statement which was light on policy and figures, but heavy on political rhetoric, which seemingly aimed to justify why the strategy of fiscal restraint was working and driving down the cost-of-living. The government currently spends over £100bn on debt interest payments. That’s more than the defence and education budgets. By framing fiscal restraint now as an investment in more loser spending commitments in the future, the Chancellor is hoping to reassure left-wing Labour MPs that fiscal restraint now is the progressive course of action.
Alongside this, much was said about lowering the cost-of-living, with the Chancellor opening her statement with a list of cost-of-living related achievements such as freezing fuel duty and rail fares, and lowering energy bills. The shift here is that the Government would rather talk about the cost-of-living than about economic growth. Perhaps this is because they don’t have anything too positive to say here – GDP per capita is set to grow 1% a year by the end of the Parliament, with GDP growth peaking reaching 1.7% before the next election.
Or perhaps the Government has made the calculation that voters don’t care so much about economic growth when the cost-of-living is so high and wage growth remains sluggish. Either way, it does seem hard to square how the Government can so quickly pivot towards focusing on the cost-of-living when they’ve just come off the back of one of the highest tax-raising budgets in history, with 9 million people expected to be paying more tax by 2029, as a result of fiscal drag which the Chancellor has extended.
So it shouldn’t be surprising that the opposition immediately declared that the Chancellor has nothing of worth to say, and by extension no grip on the UK economy.
Yet perhaps that is precisely the point. The Chancellor does not want to be constantly rewriting fiscal policy throughout the year on the back of political events and economic forecasts. To her, a policy-lite update is the fiscally sensible course of action. Whether it is the right strategy politically, however, is an entirely different question.
It should, of course, be noted that this update was prepared before the economic and fiscal impact of the unfolding situation in Iran and the Middle East have been taken into account. As such, the picture in the autumn could look much gloomier, with further implications on tax and spend measures in the future.