Austerity fears grow as Reeves plans major spending cuts in spring statement

A swathe of spending cuts are expected in order to balance the books amid the worsening economic outlook

There are growing fears that Britain will be plunged back into austerity, as Rachel Reeves prepares to unveil a swathe of spending cuts at next week’s mini-Budget.

The chancellor is set to deliver her spring statement next Wednesday, against the backdrop of a faltering economy and reduced headroom when it comes to the strict borrowing rules she set herself in October.

According to The Guardian, the chancellor will announce plans to cut Whitehall budgets by billions of pounds more than previously expected, with some departments facing cuts of up to 7 per cent over the next four years.

It is understood that she won’t change taxes, meaning a swathe of spending cuts are needed to balance the books after the Bank of England reduced its forecasts for growth this year.

Chancellor Rachel Reeves (PA)

Ben Zaranko, associate director at the Institute for Fiscal Studies (IFS), warned that the cuts – which he said would be the steepest since 2019 – would lead to “adverse impacts on public services and those who rely on them”.

“The government will be hoping that the short-term cash injection provided last year, and efficiency improvements as public services continue to recover from the pandemic, will be enough to deliver service improvements even if money is tight,” he said.

“But we’re in a very different world to 2010 and, even though the pace of cuts would be substantially slower than in the peak austerity years, it would still represent the steepest cuts since 2019.

“It is difficult to see how this could be delivered without some adverse impacts on public services and those who rely on them.”

But chief secretary to the Treasury Darren Jones insisted on Thursday it would be “factually incorrect” to say Labour is implementing a fresh round of austerity.

Speaking at an Institute for Government conference, Mr Jones said: “It would be incorrect to say that we are doing what the Conservatives did after 2010.

“The numbers will be published next Wednesday, but as you saw at the Budget last year, we are increasing public spending, and we've increased it quite a lot.

“We are not factually taking an approach of just blindly cutting spending because we think we should just reduce spending without a plan for how to get there.

“So I just wouldn’t recognise that kind of definition of what’s what's taking place.”

Austerity is a term for government policy designed to control national debt, which was adopted in Britain following the 2008 financial crisis and led to major cuts to public services.

The expected cuts come just days after work and pensions secretary Liz Kendall unveiled £5bn cuts to the welfare system.

Around a million people in England and Wales are expected to lose their disability benefits as part of the overhaul.

While the prime minister has insisted that the current system was “morally and economically indefensible”, Labour MPs including veteran backbencher Diane Abbott have expressed grave concern about the plans.

“There is nothing moral about cutting benefits for what may be up to a million people.

“This is not about morality, this is about the Treasury’s wish to balance the country’s books on the back of the most vulnerable and poor people in this society,” the long-serving Labour MP said.

On Thursday, armed forces minister Luke Pollard denied that Labour had become a “centre right government”, insisting that the changes were not made to “fund defence spending, it’s to help people back into work”.

Liz Kendall unveiled a swathe of cuts to the welfare system on Tuesday (Getty)

“We know that there has been a big increase in the number of people out of work but when we’ve got one in eight young people claiming disability benefit, that is a crisis for our nation.

“That is why Liz Kendall, the work and pensions secretary, has set out plans to support more disabled people into work.”

Last month, the Bank of England painted a gloomy picture for the UK economy by halving its growth forecast for this year and predicting a surge in inflation.

The UK economy is only set to grow 0.75 per cent this year, down from a previous estimate of 1.5 per cent, before accelerating again in 2026 and 2027.

The Bank warned that more people will be out of work, as firms swallow higher taxes and wage increases announced at the October Budget.

The Treasury has been contacted for comment.