Hello and welcome to this special live edition of The Forecast after Rachel Reid's spring statement. And it's painful medicine for an ailing economy. Growth this year is halved. Inflation will tick up. There's £5 billion of welfare cuts targeted at disability payments affecting over 3 million people. The impact assessment says 1/4 of a million people will be pushed into relative poverty, including 50,000 children.
And it's almost as painful for Labour MPs who didn't come into politics to take money from poor people. But the world has changed, says the government, refusing to say exactly why, even though it is Trump who has forced defense spending to rise and started a global trade war.
To analyze what's happened, I'm joined from Leeds by our economics correspondent Helia Ebrahimi and from Westminster by our senior political correspondent Paul McNamara, who's just come out of Rachel Reeves press conference. Helia, I mean, a whole world of pain in the cuts, but for what? What? What has she done this for? Is it credibility? I mean, it's all about being the Iron Chancellor. She's got her fiscal rules and
they are non negotiable. She wants to make sure that she absolutely sticks to those rules. Today was a fiscal patchwork. She, you know, they were, they had 9.9 billion of headroom in autumn that disappeared, not just disappeared, but they went 4 billion into deficit. And today she outlined that she would take the political pain in order to make sure that she stays on course.
But don't forget, Krish, that this is a tiny, tiny bit of headroom for a huge amount of different risk, you know, and I think that's worth remembering. So yes, the markets are calm. There was a bit of a spike in the gilt market, but they seem to have calmed down. But there is a lot of pain still
to come. Of the reports that go along this from the Office of Budget Responsibility say that it could all be wiped out very quickly and very easily if Donald Trump sparks his trade war, if the global tariffs kick in. We'll, we'll analyze all of that in a moment. But, but Paul, I mean this, the pain which is being felt in welfare cuts is, I'm guessing, reflected in the pain at
Westminster amongst Labour MPs. Yeah, I think you can always gauge just how miserable people are by how quickly they respond to your text messages or how quickly your inbox is filling up. They're responding very quickly today. There are a lot of messages when these welfare cuts get to a vote in front of the House. This is not going to be a nice experience for the government. Now, look, truth is, they've got a whopping great big majority. They don't really, really need to worry about that.
But red on red attacks are not going to be a great look for the next couple of months, and that's what you can expect. I'm I'm guessing a lot of them are wondering if this is what they came into politics for. Oh my goodness. Look, so firstly, you know, you get lots of text messages from people, backbenchers saying, yeah, this is what I think, don't use it on the record. But actually now we're just getting statements that come out posted to Twitter.
So this one, Kim Johnson, the first, she's an MP from Liverpool. The very first line, Austerity 2.0 is here. That is very definitely not the line that number 11 wants to be selling. And then this one here who really caught me. This assault on disabled people and those in need of support is nothing short of sadistically cruel. That's one of their own MPs. Right.
Hell yeah. So to the question of whether this is austerity or not, I mean, how how does this compare to where we were in the Cameron, Osborne years of austerity? And and can we say it is or it isn't? Well, I think you have to separate all the protected departments from the unprotected departments and overall I think it's not the same as 2008. What we're talking about is cutting about 3 to £4 billion from department spending.
That's, you know, far cry from what happened in the Osborne year in 2010, but it's less generous than we thought back in autumn. And today the government said look, we're, we're only cutting spending, you know, from 1.3% for the overall envelope down to 1.2%. Don't worry, don't worry, don't worry. And of course if you're in defence, if you're in the NHS,
sure you might not worry. But if you are in the court system, if you are the Home Office where you have had sustained kind of cutbacks and sustained problems with your funding packages over a decade and a half, really then I think anything less than the generosity that was promised, where they thought they're going to give this big fiscal boost, there's, you know, basically lots of cash in the first two
years. Inflation has eaten into a bit of that and now it's going to be even less generous than they thought. So in real terms, those unprotected departments, the IFS says face cuts of about, you know, you know, real terms, it's only rises of 0.8%. So that's a real term cut. So it's not austerity as we knew it, but I mean, the government has been sticking to this line since well before the election. I've grilled Rachel Rees and Keir Starmer about this so many times.
And, and the chief secretary to the Treasury, Darren Jones, that they, they keep saying, you know, overall spending is up and it continues to rise, But that's because there are some departments getting more than others. And in some departments, it's going to feel very much like a cut. Look, their whole shtick is we, we came into government and what we announced was a funding package that was so much more generous than what the Tories
had in mind. And, and that is true, they had, they increased spending, you know, in the last year by £50 billion. So it is more generous. What's happening now is that they are whining, finding some of that down. Now people like the Resolution Foundation say, hang on a moment, You said you wanted to rebuild public services. You say that you want to get people back into work. And you've done all of these cuts really just to make the maths work, just to fall back
into your fiscal headroom. And, you know, there's lots of suspicion that she had fiscal headroom of, you know, £9.9 billion back in autumn and all of the policy measures equal, you know, give her that exact same number again. So or, you know, to Paul's point that, you know, all of these welfare cuts have political ramifications, not to mention
the real world ramifications. You know, the complaint is it's being rushed through, and it's being rushed through only to meet the Treasury's kind of wonk desire to make the numbers work. Yeah. I mean, Paul, that the argument is going to be that they they say that this is all about getting people back into work and that this is a philosophical change that they had been working on for months before the
election. But but my goodness, isn't this an astonishing coincidence that the numbers end up the same in terms of sort of the headroom that the money that they got to play with at the end? And that quite that. That leaves a big question mark over whether this is really driven by the numbers or some, you know, deep seated idea or philosophy around getting people back into work. No, I think Rachael has announced her her stringent fiscal rules, you know, ages ago come hell or high water.
She is not moving away from them. Of course they want to get people back to work. Well they were given a little bit of cover actually on that whole thing of austerity. 2 point O Paul Johnson, the old boss of the IFS turn around last last yesterday, put out this. Not old boss. Yeah, Paul. Oh, not old boss. Yeah, so God, I've already. I've already got him out the door.
My sincerest apologies both Elliot and Paul Johnson, but like, you know, he puts out this graph saying look, it's not, there's nothing like austerity that gave Labour a good bit of cover. Darren Jones first sector to Treasury when he was in Downing St. yesterday, bringing all the members of government saying look, this is what we've got planned. First of all, he didn't mention the extra half a billion pounds worth of cuts to welfare that
came overnight. So quite a few people in the government payroll are annoyed about that. But he was making the point it's not austerity 2.0. The truth is though, you can bang on about that all you want. If local MPs are getting people turning up to their surgery saying wait a second, you've cut all of my benefits, I am now significantly worse off and there will be vast amounts of people who are significantly worse off. It doesn't matter the messaging, it's what people really feel.
Yeah, and what we got since the statements in the House of Commons, Paul, is the DWP impact assessment, which has some very stark numbers. I mean, you look at the and you wonder how they managed to go ahead with a policy that results in 250,000 more people being pushed into relative poverty, 50,000 of which will be children. So that is that is an increase in child poverty as a result of Labour policies that. Now Rachel Rees was just asked about this in a press conference.
Has she got an answer? Yeah, I'll, I'll, I'll, I'll do, I'll do the bit of balance here. I'll play the role of labour. They're lying. And you can expect to hear they've been trotted out time and time again over the next couple of months. Those figures, they Labour turn around and say actually look, but what we did do is we said that we put in a billion pound of support to get people into it
and none of these are but. By the way, that that that, that billion pounds that they're, they're basically adding a billion pounds for coaches. They got a bit of a wrap on the knuckles from the OBR this afternoon because the OBR, who obviously Labour have lauded, much to their chagrin, because they now keep being told off by the OBR. But they were saying there's no evidence, there's no detail of
all of these coaches. So yeah, they've they've said they're going to add these a billion pounds to bring coaches into the world to, you know, job centres to bring people back into employment. But actually that doesn't yet seem to be much detail about it. I love this. It's all in the messaging earlier the OBR say that and then Labour use it in terror and say Oh no actually, but OBR haven't been able to assess the impact of that billion pounds. So really people are probably going to be fine.
But actually on the stuff that we do have, the things that we do have numbers for, the things that they have been able to run assessments for, we've got quarter of a million people, additional people in in relative poverty, including 50,000 kids, 3.2 million people will be worse off. Those are those are tough numbers to to swallow. So their messages of those 250,000 people, some may end up not being in relative poverty because they might go back to
work. But this is all amorphous, you know, unworked out and a bit of a guess. And they are, they are quite clearly not saying that we'll wipe it out. They are admitting that there will be people no matter how many we end up with being pushed more into poverty. But. Which is exactly what is an ambiguity. There is a there is an economic problem that is going on that underpins this. I mean, forget about Rachel Reed's trying to make sure that she meets her kind of fiscal
rules. We have a problem with inactivity in this country. It was something that economies around the world faced but have seemed to recover from after COVID. We haven't in this country. And the numbers are quite stark. You know you've got 2.8 million people who are long term sick. You know that's a third of all people who are inactive. And without people re entering the labor market, all of our issues around growth, around productivity are not really going to be fixed.
And in terms of the cost, if I just talk to you about that, back in 2010 it cost £28 billion. Before COVID it cost £37 billion. Currently for that health segment of Universal Credit, we're paying almost £50 billion. So you can see that there is a a problem that needs to be solved. I think everyone is on board with that. Everyone accepts that we need
reform in the welfare market. I mean it's simply not sustainable long term because if the new claimant count continues at the same pace then it's going to dwarf all of our departmental spending and all of our budget will be eaten up by it. But it's how the government want to go ahead ahead and get across. And if you talk to people from, you know, Resolution Foundation for example, they say this is all being rushed through. Look at the personal
independence payments. That's not even work dependent and you've got a whole lot of cuts that just mean that people will not qualify. I think 800,000 people will now not qualify for those pit payments. That's not anything to do with getting people back into the labour market, but. It's it's just that rush.
I think that has got a political impact that they, they haven't perhaps foreseen because what you would normally do, I think around, around quite a big reform such as this, because after all, what they've, what they've sort of done through the back door is reintroduce this idea of deserving and undeserving, you know, welfare recipients. They are basically suggesting there are a load of people who are getting these welfare payments who shouldn't be
getting them. Now they're dressing that up as saying we don't want to write people off. We don't, we know we don't want to, we don't want to sort of, you know, sort of push people onto a, a scrap heap under which they will never work. But they but the sort of the coded messages, they don't really deserve these payments. And that's why we're stopping them to get the public to a place where they will agree with that normally would take quite a
long time. And they haven't really Have you done that job of work politically, have they, Paul? There so much of this has been rushed even in the last 48 hours to try and get. So for those who who don't know. So last last week a holiday welfare reforms renounce was meant to save £5 billion. Turns out they're not going to save £5 billion, they might save about 2.9 billion. Well, now all of a sudden the Treasury had to find an extra 1
1/2, two £2 billion. So overnight we get 5500 million more in cuts to the welfare bill. That's happened at lightspeed. Not even the welfare cuts the DWP has been working to for ages, The 500 million we've seen just overnight. Then there were more cuts that were had to be found. So all the legwork that you would need to do, bringing people on a journey with you, bringing your backbenches on a journey with you, they haven't been able to do whatsoever. Heavier.
Let's talk a little bit about why we're in this mess. I mean, growth cut from 2% to 1%. The Chancellor talking about the world is changing but not spelling it out. Why nobody's actually nailing Donald Trump for any of the changes that he's forced on Britain, you know, which is increased defence spending. That's a whole load of money away from the poorest people in the world in the development budget into defence and the, you know, the start of a global trade war, which could get
worse. So it's what Why are we in this mess, for a start this year? And what does the uncertainty, ongoing uncertainty, around Trump mean for the next few months and next year? First of all, to Why are we in this mess? Why did her headroom disappear?
Why did it vanish? Well, it disappeared because borrowing costs went up and that is to a large degree outside of the chances, outside of the government's control, driven by what happened with the US, but also now latterly because of the bond markets, understanding that Europe will need to spend so much more on defence. Now today the Chancellor was presenting defence as a kind of platform for industrial
renaissance. But when the bond market looks at it, they think, hang on a moment, you are going to need to borrow a hell of a lot more money Europe. And therefore it adds to the cost of borrowing for European countries, including the UK. But a lot of that is driven by the USI think to your opening, to your opening remarks, Krish, you know, this is all on a coin toss. That's what the OBR said. This whole forecast is about 54% chance of actually surviving contact with oxygen.
I mean, that is extraordinary. You know, you've got this, as I was saying, this tiny incy wincy bit of headroom. You know, it's really waffle thin and you've got huge amounts of uncertainty and that huge amount of uncertainty is because of trade. And that could all come to a head next week. I mean, literally one week from now, all of this might be completely irrelevant if we
have, yeah, tariffs day. You know, we'll, if, if, if Donald Trump up ends the global economy, if we, the UK doesn't necessarily get this deal that we think we're going to get by giving, you know, tax relief to the likes of Meta and Google, then then it's going to spell real problems for the UK economy and the global economy. And, and the OBR are saying there's a huge chance that will happen. But it's not just that, it's also productivity.
We have an issue. It's a kind of nerdy thing to talk about, but basically economists have struggled to describe why the UK is no longer as productive. And the OBR has been way more optimistic than other economists. And now they're saying, look, if productivity doesn't recover, if we don't get back, not just to, you know, we're not talking about the, you know, house in days of the last Labour government into 2007. I'm talking about just a 2010. We don't get back to that.
Then we have another real problem. And, and, and so in a way, yes, she's managed to get through today. She, she, she's, you know, the chancellor's great at fighting. She's great at saying I am absolutely determined. I've made all the right decisions. And she, she believes that that's what she says. She says everything that happened in autumn, despite what all these businesses say about Nick's, everything I did was right. But actually a lot of the hard work is only going to start now.
Yes. And. We're going to spend the next six months speculating about which taxes she's going to have to raise in the autumn or which spending cuts are going to have to be made as well. And, and, and that again, Paul seems to be an, I mean, quite striking failure of today that it hasn't hasn't stopped or scotched anything. It is actually, if anything fired the starting gun on the next round of debates. And that's not the press being troublemaking.
That's that's just looking at the economic reality. Oh, yeah, Like I sat there in the chamber, which was going through everything and you talk about the numbers, Helia bringing up their excellent Monty Python reference for the Waffa Thin head headroom. You know, there is there is no way that we're not going to be spending the next six months talking about what she's going to have to do when it comes to
an actual budget. And in fact, you know, there was a briefing afterwards with, with Rachel Reeves officials where we're all going through this quite hearty document and like picking out all the things that the OBR that basically picks apart her numbers and goes, OK, well, if there's trade war with Donald Trump, your surplus has gone. OK, well, productivity falls, everything goes.
And like just sort of nailed down everything because it's very, very unlikely that we're going to get to her actual budget. And, and all of this is, is going to be intact. So you're sitting there listening to all of this. My goodness, there is going to have to be something that happens between now and then. And the line that I keep hearing from Labour MPs, and this isn't just from. And the ones on the left that are kicking off about everything that number 10 does, it's a lot
of these are centrist ones. They're saying at the moment, my God, if we're already having to cut the welfare budget by this much and this quickly, what on earth are we going to have to do when it turns out we've got no money in six months time? Well, if the economic growth isn't delivered, what on earth are you going to have to cut then?
Yes. And the other thing that came up in the press conference was the whole question of this digital services tax and whether there is some secret deal being done to offer tax relief to the tech Bros in return for a deal on tariffs. Now, again, I mean, is the government really going to go to the country and say while delivering these welfare cuts, it's going to give a tax cut to the handful of richest people in the world? It's only a handful of people who actually pay this tax.
The verbal gymnastics that go on whenever you're one of those press conferences because no one wants to call out Donald Trump. No one wants to pin their thing on him. When when Rachel Reeves was asked a specific question about Donald Trump, the answer, the answer, go back and fair play to her researchers. They've done their work. They've got a whole load of stats. Here you go. Just just say this. She was able to run. Look under the last Trump presidency. He loves us.
Actually, the amount of trade that we did went up. And they find every argument they can. You can carry on doing that all you want, but in a week's time, Donald Trump talking about Liberation Day. If that comes, then all bets are off. And yes, you're right on that tax for for tech Bros. My goodness, that will go down badly. Yeah, there's a risk crush that we're just allowing the US to pick our pockets here. You know, we're we're bending over backwards to make it happen.
I just wanted to go back to growth because I do think that is a big deal because this year, don't forget, one of the big pieces that came out from today is that, you know, when Labour came into power, they said growth is their number one mission. In fact, they said we're going to grow faster than any other G7 country. That quickly became the. Sort of ditch that, haven't they? We're not really quite clear whether they still pretend that to be the case or not.
Yeah, they just ditched that, but they replaced that with living standards. They said, OK, well we're not going to grow faster than everyone else. Fair enough, fair cop, but we will improve living standards. And there was a lot made I think today by Rachel Reeves that living standards are going to go up by the end of this Parliament. She made a big deal of the fact that households at the end of Parliament would be 500 lbs better off. And let's have a listen in on
how that that sounded. This isn't just about lines on a graph, it's about improving people's lives. Real household disposable income will now grow this year at almost twice the rate expected in the autumn. The OBR say today that people will be on average over £500 a year better off under this Labour government. It's so amazing, Lots of cheers, lots of cheers, lots of applause. And it's all because of Labour.
Except is it really? Because when you look at the numbers it, a lot of that is driven by the simple arithmetic of pay going up faster than inflation. And most of that actually happened not now, not in the future under this Labour government, but last year. So that big uptick in incomes happened. Well, it's already happened. It's very. Unclear whether she's misspoken there as well.
Isn't it because she said £500 a year better off and it's not clear whether she means 500 lbs every year or £500 by the end of this party? By the end of the Parliament, I think by the end of this Parliament and you get this and you I mean there is an improvement. But as the point I wanted to make was that a lot of that improvement is because it's from a much higher start.
The OBRS forecast today says that actually incomes last year were much higher than they had accounted for even in October 2024. So a lot of the heavy lifting has been done already and the problem you face then is that going forwards or incomes going to be rising at a kind of rate of not well, I'm afraid no, they're not Chris. And if it's if. It's £500 / 200 weeks. I don't think many people are going to be very impressed by
that. I also earlier how many times in your reporting career have you listened to a chancellor or a or a Prime Minister say you're going to be X amount £100 better off in a few years time? Just just one other thing to mention though, which is very awkward, I think, for the government today, which is that the OBR have made clear that the rise in National Insurance at the last budget was in fact a tax on working people. Yeah, I think that's absolutely
right. I mean, this is one of the things that there's a slight mismatch between how the government described their interaction. Whenever you talk to businesses, from all the surveys, from the kind of sentiment amongst the business community, they complain about that £40 billion tax hike that we had last October, most of that driven by the increase in employer NICs. Now Reg Reeves says I was absolutely right to do that, there's no problem with that. That gave us the position to
continue to grow from. But the OBR again, as you said, Chris said today that 76% of the cost of that would be passed on to employees through lower incomes. So going back to that household income thing, where are we going to be richer? Well, going forward, companies are going to feel squeezed because from next week these and I increases come into effect and who's going to pay for that? Well, you and me, the employees of the of the country. Right, let's finally talk about Rachel Reeves.
There are still still whispers on there around whether she's going to stay the course. Paul, do you think people in the Labour Party are considering whether she should be swapped out? I think name any chancellor and I've heard rumors that they're going to be swapped out. That's kind of an eternal thing that that happens around here. I think the bigger worry that they've got is a mass rebellion when it comes to a vote on on the welfare cuts.
But if it gets to, if you make a rule which you say, I'm going to live and die by these these fiscal rules and I'm and I'm going to pay for everything by growth. If we get to six months from now and there isn't growth and you're still with these fiscal rules. So you're either going to have to raise taxes massively or you're going to have to slash spending massively, a mixture of the both massively. Then yeah, there are going to be people who are going to be bang for your head.
Do the do the financiers and city people, Helia talk about this? I mean, do they think she's she's the one for the full term or do they want Pat McFadden or somebody else? No, I listen. I think, you know, department politicians, you know, secretary of states will always be against Treasury because Treasury is the one that holds the purse strings. So I don't think chancellors necessarily have a popular ride. I mean, particularly Rachel Reeves, but I think she likes
fighting. And I think despite the fact that businesses are very upset because they feel like she let them down when it came to the tax rises last year, there's a lot of hope. When you talk to people within the market and when you talk to, you know, companies about their investment plans, don't forget, I mean, to give them the credit, you know, they were talking about, you know, raising, they've just had a bill, you know, of reforms for house building. And you see that the OBR has
actually scored that today. So the, the government has said we're going to build 1.5 million homes. Most builders say that's not possible, but the OBR today say, well, actually we think, yeah, you might, you might just under that, you know, 1.3. But that's a lot of improvement
from the last government. And so there's a lot of hope, I think, from companies that the kind of reforms to planning, the kind of changes to infrastructure will start to materialize, the kind of changes to the the national wealth fund, all of these pieces of reform will add up to something. But of course that's all all dependent on, you know, don't come back in autumn and ask for more tax. So she's safe for now, Paul. You reckon she's? Safe for now, but six months from now, that's when.
That's when if they. Have to break their manifesto. Yeah, you know, and it's not just going to be MPs are going to talk about it, headline writers are going to be full of it. If you get 6 months from now and a certain section of the press thinks that she's doing an even worse job than they already feel that she's doing. Because a certain section of the press are always going to be anti Labour government. But those headlines are going to ratchet up and ratchet up and ratchet up.
And it's when the it's when the gossip on the WhatsApp group started ratcheting up, ratcheting up and inevitably starts to leak. And that's when you know, things are in real trouble. We started getting leaks out of cabinet or six months ago, we definitely weren't getting that. They were rigid as hell. Now we started getting the odd leak from what's happening in the WhatsApp groups. Again, six months ago, that wasn't.
Happening, but that's because we've got a spending review coming up. I think some of that is just the normal, you know, class of yeah, exactly, exactly. And I'm, I mean, I think a. Bit I think a bit of it is that, but you know, you know, these are the guys that have been fighting for years to turn everything around, turn the perception of them around and talking to the special advisor,
to some, to a cabinet member. One of the one of the things they said to me two weeks ago was first of all, we're talking about the relationship. This is the special from from the unprotected department. They were talking about the relationship with the Treasury. They were saying that Rachel's never been stronger. They're feeling really weak. And the, and the line that kept that got me was I thought the bonds of friendship would have extended further into government
than this. So it wasn't just about spending review. You can start, you can really start feeling the fractures between some of the people that have been, you know, fighting for this for years together. We better leave it there. This is great. I like we should have correspondents arguing on Channel 4 News more. It's like a sort of a peek into our morning meeting. But I've got to get down to Westminster for Channel 4 News at 7:00. Can't. Wait to see.
Chris for this edition of the Forecast. Until next time, bye bye.