Cabinet ministers will this week be told to cut their admin budgets by 15 per cent as Rachel Reeves scrambles to find savings which will stop the nation’s finances slipping in to the red.
The Chancellor has confirmed that she will rely on spending cuts rather than tax rises to avoid breaking her self-imposed borrowing rules in Wednesday’s Spring Statement.
The Office for Budget Responsibility (OBR) is expected to say that as a result of weaker than anticipated economic growth, the state of the public finances has deteriorated since the Budget in October.
Reeves reportedly wants to ensure she still has around £10bn of “headroom” – the difference between the amount the Government is borrowing and the maximum allowed under the fiscal rules – which will mean billions of pounds in cuts.
She told the BBC on Sunday: “We can’t just carry on like we have been spending on the same things that the previous government spent on. People want to know we’re getting value for money, when people are paying more in tax that they’re getting more in return.”
Most of the details of the cuts will not be spelled out until the spending review in June, with the Chancellor confirming the overall path of public spending but not the budget for each department.
But around £2bn of savings a year will come from an order to Whitehall departments to reduce their running costs by 15 per cent between now and 2030, for example by cutting back on HR, policy advisers and communications.
A Cabinet Office source said: “By cutting administrative costs we can target resources at frontline services – with more teachers in classrooms, extra hospital appointments and police back on the beat.” The number of jobs cut is set to exceed 10,000, with compulsory redundancies not being ruled out.
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Pat McFadden, the Chancellor of the Duchy of Lancaster, will write to each Cabinet minister this week demanding their proposals for admin savings by the time of the spending review.
Reeves said: “The size of government increased massively during the Covid pandemic. That was five years ago, but the size of the civil service hasn’t come back during that period. So, we now need to make sure that we do realise those efficiency savings so we can invest in the priorities.”
She told Sky News: “In every single year of this parliament, there will be real-terms increases in government spending. But, of course, as a government we will allocate the money to the areas where we think we can get most bang for the buck, where we can deliver on the priorities of the British people.”
The Spring Statement was originally not intended to be a “fiscal event” but the expected OBR downgrade has forced the Chancellor to act. She will blame geopolitical factors such as the return of Donald Trump to the White House for the change in strategy.
Any suggestion of further government cuts, coming on top of what ministers described as a £5bn package of welfare savings last week, risks angering Labour MPs.
Reeves defended the benefits cuts, saying: “We have got a benefits bill that is going through the roof, where people are locked out of work. I want to change that and give more people the dignity and pride that comes from work through proper support to get there.” She expressed confidence that the reforms would be approved by Parliament.
Deal close to dodge Trump tariffs
Britain and the US could strike an economic deal to avoid Donald Trump’s tariffs within deals, Rachel Reeves has hinted.
Officials have been working on a partnership agreement which would fall far short of a full free-trade deal but would commit the two countries to working more closely together in specific areas.
Ministers hope the deal would see the UK excluded from swingeing tariffs that the President has promised to impose on many of America’s main trading partners from 2 April.
The Chancellor told the BBC’s Sunday with Laura Kuenssberg: “I believe in free and open trade. Last time that Donald Trump was President of the United States, trade and investment flows between our countries grew. And President Trump is rightly concerned about countries that run large and persistent trade surpluses with the US. The UK’s not one of those countries, we have balanced trade between our countries.”
She added: “The President and our Prime Minister agreed to enter into talks about the future trade relationship between our countries. Let’s see how that progresses over the next few days, but I want to see barriers to trade come down, not just with the US, but also for example with our nearest neighbours and trading partners in the European Union.”
Reeves also confirmed that the Government is reviewing the digital services tax, which applies to US tech giants operating in Britain and is hugely unpopular with the Trump administration.
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