Rachel Reeves’ Spring Statement seems to be a continuity of the Treasury’s fiscal conservatism, guided by a reaction to short-term economic projections, argue Nathan Critch, Darcy Luke, David Richards and Sam Warner. If Labour is to avoid being buffeted by events, it will need to develop of longer-term vision beyond narrow “missions” and “milestones”.

Enjoying this post? Then sign up to our newsletter and receive a weekly roundup of all our articles.

The gap between rhetoric and reality in politics is a familiar theme, and one that currently hovers over Starmer’s Labour Government, elected in 2024 on a platform of “Change”. Yet in practice, Chancellor Rachel Reeves’s Spring Statement appears to be much more continuity than change, embracing short-termist and fiscally conservative priorities that critics have long suggested are at odds with the need for a radical reset to address the UK’s productivity problem.

The Spring Statement reveals the extent to which the Chancellor has been boxed in to accepting traditional Treasury fiscal conservatism expressed through significant cuts to current expenditure.

Of Labour government’s much heralded five missions, delivering economic growth has been the priority, driven by a focus on state-led investment, a modern industrial strategy and devolution of governance, It has staked its governing credibility on being able to  break with the sluggish economic underperformance of the UK in recent decades. 

The Chancellor’s capacity to deliver on this bold plan, given the poor economic headwinds the Government inherited was always going to be a challenge. The Spring Statement  reveals not only the scale of that on-going challenge, but the extent to which the Chancellor has been boxed in to accepting traditional Treasury fiscal conservatism expressed through significant cuts to current expenditure.

Short-term manoeuvring at the expense of the future

In some respects, the Spring Statement is a product of the Chancellor’s own decisions. The Autumn Budget left Reeves with limited fiscal headroom. In it wake, bond market activism and lowered growth forecasts eliminated this headroom, prompting this round of short-term cuts to welfare, departmental spending and civil service numbers. Critics unsurprisingly declared it a return to austerity, creating significant unease within Labour’s ranks and  resignations by some councillors.  

A strategy predicated on deferred gratification is high risk, as there are no guarantees the short-term pain introduced in this Spring Statement will enable the delivery of benefits in the future.

Defending her approach, Reeves framed the Spring Statement as making difficult decisions in the context of a much-changed global context. The narrative suggests that whilst good things are still to come (in the form of capital spending and future growth spurred on by house building), this can only be achieved through short-term pain. Yet a strategy predicated on deferred gratification is high risk, as there are no guarantees the short-term pain introduced in this Spring Statement will enable the delivery of benefits in the future.

The temporal trade-offs contained in the Spring Statement suggest a return to fiscal conservatism in the hope that resources might be made available for future growth, and that the Labour Government is betting its chips on the long-run credibility of its fiscal rules against the sectional interests of its own voters and MPs. By reversing the oft-encountered tendency of governments to raid capital expenditure to avoid breaches in fiscal rules, Reeves risks damaging the credibility of the Labour government at the expense of promises about future growth. With public finances tight, the cost of borrowing high and economic growth elusive, Reeves’s unpopular measures may have brought her mere months of headroom.  

The Treasury’s dominance over government

How is it that a Labour government, ostensibly committed to delivering fundamental change to the way the UK is governed, is now returning to the age-old strategy of cutting welfare to make savings?

It is impossible to comprehend this without acknowledging the Treasury’s continued powerful reach over Whitehall. The Treasury’s dual role as both a finance ministry – concerned with tight control of public expenditure – and as an economics department – tasked with the implementation of policy to achieve sustainable economic growth – has drawn considerable criticism. It is argued that, when the chips are down, HMT will always pursue fiscal consolidation at the expense of growth initiatives, demonstrating a blindness to the dynamic effects of short-run decisions such as cutting welfare spending.  

The Chancellor – rather than committing to a long-term vision for the economy – is now making short-termist decisions predicated wholly on what the OBR suggests as necessary. 

The fiscal conservatism of the Treasury is not confined to it as a department. The Office for Budget Responsibility (OBR) – staffed by ex-Treasury people – also exerts substantive influence on government policy. Designed to prevent governments from fiddling the figures, the OBR provides its own forecasts which can change drastically within any given year. The downgrading of growth for 2025-2026 from 2 per cent to 1 per cent in advance of the Spring Statement, for instance, created a scenario wherein the Chancellor needed to make last minute adjustments to welfare cuts to ensure that fiscal rules which commit the government to ensuring current government spending is paid for without borrowing and reducing public debt by 2029/30 would be adhered to. In effect, the Chancellor – rather than committing to a long-term vision for the economy – is now making short-termist decisions predicated wholly on what the OBR suggests as necessary. 

As such, both the Treasury and the OBR exert considerable pressure on the Chancellor. There is no meaningful ballast to this Treasury dominance. Starmer has still not appointed his own Chief Economic Adviser, reflecting a weakness in No.10, and appears willing to delegate economic policy to the Chancellor. An isolated and unpopular Chancellor, facing the prospect of not only anaemic growth, but also a breach in her own fiscal rules, would no doubt be swayed by the OBR’s forecasts and readily amenable to the Treasury’s classical solutions. 

Labour lacks vision

For all the gloom, there are some green shoots for Labour. Longer-term growth forecasts have been upgraded. Furthermore, the Spring statement provides additional support for a consistent area of focus of this government: artificial intelligence. The Chancellor should be applauded for announcing a new £3.25bn transformation fund to drive digital reform and AI proliferation across the public sector, though the UK still lags behind others in the current AI-driven digitisation arms race. Reeves also doubled down on commitments to an ambitious package of infrastructure spending in the statement, and complimented this with a new commitment of £600mn to train construction workers.

But despite these glimpses of positivity, overall, the picture is of a Chancellor already under incredible pressure less than one year on from taking office. Labour appear increasingly reactive to short-term pressures and their market credibility appears shaky. In the face of this, they have reverted to an orthodox, though highly questionable, fiscally conservative belt-tightening exercise. An approach to economic policy Reeves herself previously criticised.

From the off, Starmer and Reeves have been perceived to have an ideological quiet-ism. They have been reluctant to talk in terms of the principles which underlie their programme, preferring instead to speak in terms of more practical “missions”.

Collectively, this speaks to a major problem at the heart of the Labour administration: a lack of an overarching and coherent economic vision. From the off, Starmer and Reeves have been perceived to have an ideological quiet-ism. They have been reluctant to talk in terms of the principles which underlie their programme, preferring instead to speak in terms of more practical “missions”. In recent interviews, Starmer suggested that the key difference between his government and the Conservatives was simply a belief in an active state. This is hardly enough to define an economic programme and political strategy.

Labour have shown a willingness to take bolder action on some issues, such as the healthcare reform with abolition of NHS England. What they lack, however, is a clear and coherent vision on Britain’s political economy. Both in terms of an overarching, novel vision of how growth and productivity gains can be achieved, and regarding reforming the economic policy architecture within the state. Without this, the pressures mounting on Labour will only lead to more short-termism and a return to tried and failed economic orthodoxy, not meaningful change.

David Richards and Sam Warner receive funding from two projects related to this article: 1. “Public Expenditure, Planning and Control in Complex Times”—Nuffield Foundation, and 2. “The UK Productivity-Governance Puzzle: Are UK’s Governing Institutions Fit for Purpose in the 21st Century?”—The ESRC Productivity Institute

Nathan Critch and Darcy Luke receive funding from  “The UK Productivity-Governance Puzzle: Are UK’s Governing Institutions Fit for Purpose in the 21st Century? – The ESRC Productivity Institute

All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science.

Image credit: House of Commons in Flickr

Enjoyed this post? Then sign up to our newsletter and receive a weekly roundup of all our articles.