ANDREW NEIL: How Rachel Reeves led to tax rises and MUCH worse after Spring Statement

A government that was elected last July with a self-styled core mission to boost Britain’s economic growth was yesterday forced to announce that the official Whitehall number cruncher had slashed its growth forecast in half for this year.

In her Spring Statement, Chancellor Rachel Reeves tried, with her familiar mixture of bluster and hyperbole, to mask this inconvenient fact with multiple promises of a better tomorrow.

But no amount of soft soap could wash away the humiliation.

And there could be more to come – for yesterday was far from the end of the story: more tax rises beckon from a Chancellor who has already raised them by £40billion.

Only last October – and even after it had taken into account the growth- destroying potential of Reeves’ first Budget – the Office for Budget Responsibility (OBR) still predicted 2 per cent growth in 2025.

That looked toppy then – and so it has proved. The OBR now forecasts we’ll grow by only 1 per cent this year.

Even that could prove optimistic: the Bank of England thinks we’ll be lucky to see 0.7 per cent. Reeves attempted to hide her embarrassment by claiming the OBR had upgraded its growth forecasts for the years to come.

Up to a point, Chancellor.

In not one year of what’s left of this decade does the OBR think we’ll reach the 2 per cent it recently predicted for 2025. We are destined to trundle along, growing at an annual average of 1.75 per cent – if that – for the foreseeable future.

As the OBR downgraded this year’s growth projection, it upgraded its estimate for inflation. Six months ago it expected prices to rise by 2.6 per cent this year. Now it’s 3.2 per cent.

Slower growth, higher inflation – the fatal ingredients for a bout of stagflation, our likely fate for this year and perhaps beyond.

It hasn’t taken long for Reeves’ reputation for fiscal prudence to be wrecked. Slower growth means lower government tax revenues. Rising inflation means higher interest rates, which increase the cost of servicing the government’s enormous debt pile.

The Chancellor claimed she’d put the nation’s finances on a firm footing. Nothing could be further from the truth – for if they were so sound there would have been no need for a Spring Statement.

A year ago, the OBR forecast that we’d borrow £87billion this financial year (2024/25). By last October, after taking Reeves’ spending splurge into account, it increased borrowing to £127billion. Even that turned out to be an underestimate, for it looks as if the 2024/25 budget deficit will be £137billion – a massive £50billion more than expected last March.

Next year, the OBR thinks we’ll need to borrow another £117billion – and just short of a further £100billion the year after that.

We remain hooked on deficits into the next decade.

The knock-on effect hits Reeves’ fiscal sums for six (so much for ‘fixing the foundations’, a phrase she repeated no fewer than four times in her first speech as Chancellor of the Exchequer).

Last October she promised a budget surplus of almost £10billion in day-to-day spending by 2029/30, giving her some headroom to meet her fiscal rule that, before the decade is out, current spending should be matched by tax revenues, borrowing only to invest.

A mere six months later that headroom hasn’t just disappeared – it’s now a £4billion deficit. Hence the scramble to come up with £14billion of spending cuts (she ruled out further tax rises because she didn’t want yesterday to look like another Budget).

It’s a messy business.

When the OBR ‘scored’ the impact of the government’s recently-announced welfare reforms it turned out they cut spending by nothing like the amount ministers were claiming.

So yesterday Reeves had to squeeze welfare spending more. Even then the net saving is only £3.4billion by 2030 – a pittance when you realise the cost of sickness and disability benefits alone will be £100billion by then.

Reeves also resorted to that old favourite of Chancellors desperate for cash – tax avoidance and evasion. Even though she had banked an extra £6.5billion from that source in her October Budget, she conveniently decided there was another billion of easy pickings to come. We’ll see.

Such measures are always problematic, especially when HMRC’s own figures show the biggest loss of tax is not from billionaires salting away their money in tax havens but small British businesses working for cash and avoiding VAT.

Reeves also reiterated plans to save £2billion in the running costs of government – let me know when that happens – and a continued squeeze on the budgets of ‘unprotected’ Whitehall departments, which is just about every one, bar Health and Defence. Their budgets were already generally regarded as tight.

We’ll see if the government sticks to its guns when public sector unions and the rest of the Labour tribe start to squeal – or strike.

The upshot of all this is that Reeves supposedly manages to restore her £10billion fiscal headroom and hence, she thinks, her fiscal credibility.

But it’s a flaky way of doing it and a lot could go wrong.

Not all these savings are bankable. At best it’s a temporary fix. The OBR rightly sees £10billion as a very small margin of comfort by 2029/30 for an economy which, by then, will have a GDP of £3.5trillion.

It’s a huge risk and she could even be scrabbling around for more cash as soon as this summer – in which case more tax rises (which she managed to eschew this time round) are inevitable in the Autumn Budget.

The OBR admits it’s not been able to score all Labour’s policies in time for yesterday’s reforecast because ministers couldn’t provide ‘sufficient details or clarity’.

Some, like Angela Rayner’s labour market reforms, are expensive growth-destroyers, which is why the official growth forecasts are likely optimistic – and that’s before you even contemplate the consequences of Donald Trump’s tariff madness.

Even more important, the OBR bases its forecasts for economic growth on productivity growth averaging 1 per cent a year, whereas recent trend productivity has been only 0.3 per cent.

If that sluggish growth persists, Reeves will quickly discover a real ‘black hole’ in the national accounts, and to fill that she will have to conjure up tens of billions of pounds.

Tax rises would be inevitable, even though the tax burden is already set to hit a record 38 per cent of GDP within two years.

Reeves implied at one stage yesterday that defence spending could be the magic elixir to boost the economy.

She even spoke of Britain becoming a ‘defence industry superpower’, thereby joining a long line of British politicians whose absurdly grandiose posturing makes them look foolish.

This became apparent when Reeves implied this could happen merely by bringing forward £2billion for the Ministry of Defence from the extra £6billion it is expecting by 2027.

She announced a new Defence Growth Board (so much for Labour’s bonfire of the quangos) to achieve superpower status.

It was hard not to laugh. The only consolation was that she made no mention of green investment in the zealous pursuit of net zero being a path to growth.

Perhaps Energy Secretary Ed Miliband’s days are numbered.

Of course, the proper rearmament of Britain could indeed spur growth. But that is not on the Chancellor’s radar.

She is no fan of defence spending and is anyway too busy trying to climb out of the pit into which she jumped with her October Budget. The Spring Statement was one small step in that endeavour. It is not clear she made any progress. Indeed, she may have made things worse.

It was much ado about nothing, which in its way is a blessed respite, but for the fact that much worse in terms of tax and spend will soon be on its way.

Enjoy the brief interlude.