[rewrite this title] The Observer’s Perspective on the Spring Statement: Rachel Reeves Achieves Budget Balance – But What Are the Costs? | Observer Editorial

Navigating the path to recovery for the British economy, inherited by Labour, remains a slow and arduous journey fraught with economic and political pitfalls. The aftermath of World War II has seen four Labour governments disrupted by financial turmoil in 1949, 1967, 1976, and 2008. Not far behind, the Conservative government stumbled through crises in 1992 and 2022. However, as we look to 2025, the economic vulnerabilities facing Britain appear greater than ever. The chancellor’s daunting mission is to diligently pull the nation out of this predicament without triggering a sell-off of sterling or bonds—events that could cripple the government, the party, and the entire country as severely as previous crises.

This is why the much-criticized fiscal rules are in place. They are not arbitrary limitations to be tossed aside whenever convenient. Instead, they serve as a protective barrier to bolster market confidence, permitting the government to maintain and enhance public investments. The pledge to harmonize day-to-day public spending with tax revenues within five years is essential to establishing fiscal credibility. Achieving this goal opens up the possibility for a second rule: allowing state borrowing to sustain and expand capital investments. This, in turn, shields public investment from becoming an easy sacrifice when budget pressures mount—an all-too-common practice for more than half a century, with consequences we witness daily.

Rachel Reeves faced a barrage of criticism for her spring statement, yet her strategic approach hits several right notes. By leveraging fiscal rules, she is cementing the public investment boost announced last October and is pushing for further increases. Coupled with planning reforms recognized by the Office for Budget Responsibility (OBR) as catalysts for increased housebuilding, these steps aim to spur economic growth. Enhancements in public capital stock, from hospitals to eco-friendly housing, are part of this growth strategy acknowledged by the OBR. Complicating matters are significant risks to global trade, growth, inflation, and interest rates, as former President Donald Trump gears up to launch his counterproductive “liberation day,” imposing 25% tariffs on imports like cars, steel, aluminum, pharmaceuticals, and semiconductor chips from any nation perceived to be exploiting the U.S. This threat underscores the urgency for the UK to maintain and elevate public investments, which are currently high by historical standards, to counterbalance the likely fallout.

However, the markets are likely to react calmly to related borrowing if the government adheres to its primary fiscal rule. This was at risk this spring due to underperformance in the economy, skyrocketing interest payments on debt, and an increase in health-related welfare benefits. If unchecked, these expenses were on track to nearly equal education spending by 2029. It’s prudent for the government to rein in this growth. Regardless of wealth, no society can sustain outsized spending on disability benefits that overshadows other essential expenditures. What about social care, education, defense, housing, apprenticeships, international aid, prisons, and the legal system? The millions reliant on minimal universal credit need support for economic growth. While increasing taxes on properties and the wealthy is compelling, it’s less apparent that all additional revenue should exclusively benefit one group. Although it’s a difficult decision, slowing down the expenditure growth became necessary.

Yet, this is where the chancellor and the Treasury lost their ethical and political bearings. Imposing financial hardships on 3.2 million already disadvantaged households, causing them to lose an average of £1,720 a year by 2029 and thrusting an additional 250,000 people into poverty, with only minimal efforts to support their employment, is a grave misstep. Some potential support measures were hinted at, like a pledged £1 billion for a back-to-work initiative (lacking details) and assurances that those on sickness benefits could remain so while working. However, this was insufficient. Gordon Brown’s New Deals for work cost about £3 billion in 2025 prices; a comparable set of programs to encourage employers to hire people with disabilities and mental health challenges, while providing support and financial incentives to re-engage with work, would be just as costly. Instead, we are witnessing a budgetary and PR exercise where some of society’s most vulnerable are paying the price. This isn’t tough love to win over Reform voters, as some Labour MPs might suggest—it’s a neglectful abandonment of responsibility toward the most vulnerable.

Given this situation, the chancellor needed to locate additional resources. Thus comes another significant error: avoiding innovative revenue-generating methods. Creating a national defense fund, supported by 50-year bonds with debt service costs covered by a national defense levy—averaging 1% of income, with the affluent paying a higher share—would likely gain widespread backing. This would achieve a dual purpose: ensuring defense spending rises to 3% of GDP sooner than 2029, while preventing the rest of the government from undergoing debilitating cuts to allocate more funds for defense. Additionally, at some point, a chancellor will need to reform the outdated and low-yielding council tax. This is a necessary step. There is a potentially successful economic strategy in the works, but the government must steer clear of the preventable mistakes made last week and take proactive, decisive action moving forward.