London Daily

Focus on the big picture.
Monday, Jul 14, 2025

Economists Urge Policy Shift Ahead of UK Spring Statement

Economists Urge Policy Shift Ahead of UK Spring Statement

Calls for flexibility in fiscal rules as the UK faces mounting spending pressures and geopolitical changes.
Leading economists are advocating for a reconsideration of fiscal policies by UK Chancellor Rachel Reeves ahead of her anticipated spring statement, scheduled for release on March 26. They suggest that bending existing fiscal rules or raising taxes might be necessary alternatives to cutting welfare in response to increasing spending pressures.

The independent Office for Budget Responsibility (OBR) is expected to revise its economic forecasts for the UK, likely eliminating any financial buffer available to meet the chancellor's fiscal criteria.

Treasury sources indicate that Reeves intends to implement spending cuts, including reductions to welfare, despite internal opposition within her party, following significant tax increases totaling £40 billion in her previous budget issued in October.

Reeves's fiscal framework permits government borrowing to fund investments; however, it mandates balancing day-to-day expenditures against tax revenues.

Additionally, a stipulation requires public debt to decline by the end of the forecast period, allowing her greater flexibility regarding borrowing for long-term infrastructure projects, compared to previous administrations.

In a recent statement, the chancellor emphasized the need to manage welfare expenditures alongside increasing national defense funding, stating the imperative to reform public services and the welfare system.

Economists have expressed the need for alternative strategies that do not alarm the financial markets.

David Blanchflower, a professor of economics at Dartmouth College and a former policymaker at the Bank of England, argued for a relaxation of fiscal constraints amidst an environment characterized by fluctuating exchange rates and geopolitical uncertainty.

Michael Jacobs, of the University of Sheffield, highlighted the necessity for Reeves to adapt her fiscal approach given the dramatic shifts in global politics, particularly the perceived reduction in U.S. support for European defense.

He mentioned that the current economic calculations indicate that fiscal rules must become more flexible, particularly considering national security priorities.

Recent announcements from Keir Starmer, leader of the Labour Party, included plans to increase defense spending to 2.5% of the UK's GDP by 2027, which may be funded by substantial budget cuts to overseas aid.

Following the resignation of development minister Anneliese Dodds in protest, she noted her expectation for the government to reassess its fiscal policies in light of the changing global landscape.

Starmer also pledged to increase defense expenditure further to 3% of GDP, although he did not specify a timeline for this goal.

Many economists contend that such spending increases could not be reconciled with Reeves's current fiscal parameters without heavy cuts to other budget areas.

Jacobs suggested that it might become necessary for the government to exclude defense spending from the fiscal framework, as Germany is considering, or to introduce 'security bonds' to allow public investment in defense.

Benjamin Caswell from the National Institute of Economic and Social Research agreed that excluding defense from the fiscal rules might gain acceptance among investors, especially in light of altered geopolitical realities.

He asserted that this context would differentiate contemporary spending from previous fiscal expansions that failed to reassure market confidence.

Danny Sriskandarajah of the New Economics Foundation opined that while the existing fiscal rules could be seen as arbitrary and subject to change, there would inevitably be a need for tax increases to accommodate both defense spending and the responsibilities associated with an aging population.

He called for a broader societal discourse regarding the desired scope and function of government.

Alfie Stirling, chief economist at the Joseph Rowntree Foundation, concurred on the critical need for change, indicating that demographic pressures on public services will continue to escalate, complicating future electoral dynamics.

Jo Michell from the University of the West of England posited that tax increases seem unavoidable, warning of a precarious fiscal status that could result in a gradual accumulation of pressures.

Conversely, Paul Johnson, director of the Institute for Fiscal Studies, cautioned against overestimating the room for adjustment in Reeves's forthcoming fiscal statement, suggesting that current rules are already quite permissive.

He observed rising government debt yields since the October budget, reflecting market apprehension over fiscal stability.
Newsletter

Related Articles

0:00
0:00
Close
Bal des Pompiers: A Celebration of Community and Firefighter Culture in France
FBI Chief Kash Patel Denies Resignation Speculations Amid Epstein List Controversy
Air India Pilot’s Mental Health Records Under Scrutiny
Google Secures Windsurf AI Coding Team in $2.4 Billion Licence Deal
Jamie Dimon Warns Europe Is Losing Global Competitiveness and Flags Market Complacency
South African Police Minister Suspended Amid Organised Crime Allegations
Nvidia CEO Claims Chinese Military Reluctance to Use US AI Technology
Hong Kong Advances Digital Asset Strategy to Address Economic Challenges
Australia Rules Out Pre‑commitment of Troops, Reinforces Defence Posture Amid US‑China Tensions
Martha Wells Says Humanity Still Far from True Artificial Intelligence
Nvidia Becomes World’s First Four‑Trillion‑Dollar Company Amid AI Boom
U.S. Resumes Deportations to Third Countries After Supreme Court Ruling
Excavation Begins at Site of Mass Grave for Children at Former Irish Institution
Iranian President Reportedly Injured During Israeli Strike on Secret Facility
EU Delays Retaliatory Tariffs Amid New U.S. Threats on Imports
Trump Defends Attorney General Pam Bondi Amid Epstein Memo Backlash
Renault Shares Drop as CEO Luca de Meo Announces Departure Amid Reports of Move to Kering
Senior Aides for King Charles and Prince Harry Hold Secret Peace Summit
Anti‑Semitism ‘Normalised’ in Middle‑Class Britain, Says Commission Co‑Chair
King Charles Meets David Beckham at Chelsea Flower Show
If the Department is Really About Justice: Ghislaine Maxwell Should Be Freed Now
NYC Candidate Zohran Mamdani’s ‘Antifada’ Remarks Spark National Debate on Political Language and Economic Policy
President Trump Visits Flood-Ravaged Texas, Praises Community Strength and First Responders
From Mystery to Meltdown, Crisis Within the Trump Administration: Epstein Files Ignite A Deepening Rift at the Highest Levels of Government Reveals Chaos, Leaks, and Growing MAGA Backlash
Trump Slams Putin Over War Death Toll, Teases Major Russia Announcement
Reparations argument crushed
Rainmaker CEO Says Cloud Seeding Paused Before Deadly Texas Floods
A 92-year-old woman, who felt she doesn't belong in a nursing home, escaped the death-camp by climbing a gate nearly 8 ft tall
French Journalist Acquitted in Controversial Case Involving Brigitte Macron
Elon Musk’s xAI Targets $200 Billion Valuation in New Fundraising Round
Kraft Heinz Considers Splitting Off Grocery Division Amid Strategic Review
Trump Proposes Supplying Arms to Ukraine Through NATO Allies
EU Proposes New Tax on Large Companies to Boost Budget
Trump Imposes 35% Tariffs on Canadian Imports Amid Trade Tensions
Junior Doctors in the UK Prepare for Five-Day Strike Over Pay Disputes
US Opens First Rare Earth Mine in Over 70 Years in Wyoming
Kurdistan Workers Party Takes Symbolic Step Towards Peace in Northern Iraq
Bitcoin Reaches New Milestone of $116,000
Biden’s Doctor Pleads the Fifth to Avoid Self-Incrimination on President’s Medical Fitness
Grok Chatbot Faces International Backlash for Antisemitic Content
Severe Heatwave Claims 2,300 Lives Across Europe
NVIDIA Achieves Historic Milestone as First Company Valued at $4 Trillion
Declining Beer Consumption Signals Cultural Shift in Germany
Linda Yaccarino Steps Down as CEO of X After Two Years
US Imposes New Tariffs on Brazilian Exports Amid Political Tensions
Azerbaijan and Armenia are on the brink of a historic peace deal.
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Weinstein Victim’s Lawyer Says MeToo Movement Still Strong
×