Delusional Rachel Reeves insisted her 'plan’ is working today despite Brits facing a grim new record tax high – and fears the Middle East war will make things even worse.
The Chancellor has unveiled her Spring Statement, talking up easing inflation and a Left-wing push to boost welfare – including by scrapping the two-child benefit cap.
But Ms Reeves confirmed that theindependent Office for BudgetResponsibility has sharply downgraded growth forecasts for this year from 1.4 per cent to 1.1 per cent.
Unemployment is due to peak at 5.3 per cent in the coming months, worse than previously anticipated and the highest for a decade outside of Covid. Furious businesses have pointed the finger at Ms Reeves’ decision to hike national insurance costs for employers.
While Ms Reeves boasted about an improved outlook in the Government’s books, details in the OBR’s assessment reveal that is driven by higher tax revenues – largely from the recent stock market rally.
That money is seen as offsetting billions of pounds in extra spending, on welfare, SEND funding and U-turns on issues such as business rates.
The watchdog cautioned that a 35 per cent stock market correction would entirely wipe out the Chancellor’s 'headroom’ for hitting her main fiscal targets.
The tax burden is now on track to reach never-before seen mark of 38.5 per cent of GDP in 2030-31, even higher than the 38.3 per cent envisaged before.
The OBR raised concerns the Government is relying on a small base of better-off taxpayers for the bulk of revenues, while the 'stealth raid’ of freezing earnings thresholds is very sensitive to changes in inflation and earnings.
And it gave a brutal insight into the pressures facing Ms Reeves amid the mounting threat from Russia and China, and chaos in the Middle East.
The set-piece comes amid mounting alarm at the developing war in the Middle East, which is already sending oil and gas prices spiralling.
In an interview with Bloomberg on Tuesday night, Ms Reeves said she was monitoring the situation 'very closely’ and will do 'everything in our power to protect businesses and and families in the UK’ from the economic fallout.
’We have to see how things evolve in terms of where oil and gas prices go going forward,’ she said.
The Chancellor also insisted Britain shouldn’t make decisions on the Iran conflictbased on whether it would help UK-US trade ties.
US President Donald Trump has fumed at Prime Minister Sir Keir Starmer for failing to back the American and Israeli action against Tehran, swiping: 'This is not Winston Churchill we are dealing with.’
But Ms Reeves said: 'You can’t make a decision about whether to get British Armed Forces involved in a conflict because it may or may not make it more likely to get a trade deal.
’We judged that there was not a legal basis for offensive action on Iran.’
Concerns were raised today that the energy price cap could see a huge jump in July if the Middle East carnage persists, with the Resolution Foundation suggesting a £500 rise on typical bills and others expect even more. Meanwhile, there are already signs of panic buying at garages.
David Miles, from the OBR’s budget responsibility committee, said its predictions that inflation will fall to target levels early this year have become 'more uncertain’ after jumps in oil and gas prices linked to recent attacks in the Middle East.
’I think what will happen to inflation is particularly uncertain in the past few days.
’As I mentioned earlier and we all know, there have been very large increases in gas prices and oil prices.
’Our central expectation had been that inflation would fall back towards the Bank of England’s 2 per cent target early this year and will be around that level at the end of the year.
’There must be more uncertainty around that right now.’
Even before the latest turbulence official figures were showing Brits actually getting poorer – with GDP per head falling for six months at the end of last year.
Ms Reeves claimed that falling immigration meant that metric would rise by 5.6 per cent over the Parliament – the same as the OBR estimated in November.
With the Government making clear there will be no big moves on tax or spending this afternoon, all eyes were on the forecasts from the OBR.
The Treasury watchdog followed the Bank of England in downgrading growth this year, with global instability and the impact of Labour’s massive tax raids weighing heavily on activity.
But it was still more optimistic than the Bank, which trimmed its estimate for expansion in 2026 to 0.9 per cent from 1.2 per cent, and to 1.5 per cent from 1.6 per cent for 2027.
Ms Reeves said that the OBR had delivered her some solace by nudging up the estimate for 2027 from 1.5 per cent to 1.6 per cent.
The watchdog has forecast 1.6 per cent for 2028 and 2029, marginally above the 1.5 per cent previously pencilled in.
Ms Reeves said: 'With the unfolding conflict in Iran and the Middle East, it is incumbent on me and on this Government to chart a course through that uncertainty, to secure our economy against shocks and protect families from the turbulence that we see beyond our borders.
’I want to express my gratitude to members of our armed forces as they serve across the globe to protect our country.
’And I want to reassure this House that I am in regular contact with the governor of the Bank of England, with my international counterparts, and with key affected industries, including our maritime sector.
’And tomorrow I will meet with our North Sea industry leaders to discuss the implications that they face and work with them to manage this uncertain period.’
The Chancellor’s planned meeting with North Sea chiefs, which it is understood will take place in London, could prompt speculation that their tax burden could be under consideration, amid heavy lobbying from the sector to axe the windfall tax.
Currently set at 38 per cent, the levy was introduced under the previous government in May 2022 after profits rocketed because of a spike in energy prices following Russia’s invasion of Ukraine.
The Government has announced a consultation on plans to replace the tax, due to end in 2030, with a new regime aimed at providing more certainty for the sector while protecting consumers against future shocks.
The OBR pointed to the 'significant risks’ around the forecasts, saying there were 'plausible outcomes both substantially above and below the central projection’.
’Conflict in the Middle East, which escalated as we were finalising this document, could have very significant impacts on the global and UK economies,’ the Spring Statement document said.
’In addition, trade policy developments, the evolution of productivity growth and the labour market, and changes in equity prices and interest rates are key risks within the economy forecast.’
The OBR has been barred from making a formal assessment of whether Ms Reeves is on track to meet her fiscal targets.
But Ms Reeves said the 'headroom’ for hitting her main target had been upgraded from £21.7billion to £23.6billionin 2028-29.
That was largely due to the OBR increasing estimates for the tax take, which reduces projected borrowing by £13billion in 2030-31.
’Around two-thirds of this upward revision is due to higher-than-forecast growth in equity prices since November, which drives higher expected revenues from capital taxes, onshore corporation tax, self-assessed income tax, and interest and dividend receipts,’ the OBR said.
The FTSE 100 has risen by more than a third since September to record highs – but has been losing ground rapidly in recent days on alarm at the Middle East chaos.
The OBR said a 35 per cent fall in stocks this year would add around £26billion to borrowing by 2027-28, wiping out the Chancellor’s headroom.
A more limited 15 per cent correction would cost the Treasury around£15billion.
The OBR said: 'A higher level of the tax take increases the risk that incentives within the tax system distort or constrain economic activity by more than expected. For example, capital taxes are paid by a narrow base of typically higher-income taxpayers and are often very sensitive to behavioural responses to policy changes.
’The yield from the personal tax threshold freezes, which drives much of the forecast increase in the tax take, is very sensitive to future inflation and earnings growth.
’And there are also risks that the tax gap, which is a measure of the degree of tax compliance, does not fall by as much as forecast.’
Hints have been coming out of the Treasury that Ms Reeves is desperately looking for ways to ease the burden come the election.
However, the Iran crisis could blow another huge hole in the Government’s plans.
Former chancellor Jeremy Hunt said the Treasury’s rule of thumb was that a 20 per cent increase in global oil and gas prices would mean a 1 percentage point rise in UK inflation, and 0.5 percentage points off economic growth.
The Government has promised to restrict itself to one 'fiscal event’ a year for tax and spending policies – the Budget in the Autumn.
The Chancellor told MPs this afternoon: 'This Government has the right economic plan for our country… in a world that has become yet more uncertain.
’Stability in the public finances, investment in infrastructure and reform to our economy.
’Building growth not on the contribution of a few people or a few parts of the country, but in every part of Britain with a state that doesn’t stand back, but steps up.’
Ms Reeves added: 'Because of the decisions we have already taken, we have a stronger and more secure economy. Inflation and interest rates falling. And in every part of Britain, working people are better off.’
Despite Ms Reeves’ positive tone, polling for the More in Common think-tank suggested voters remain gloomy about their own economic prospects.
The study found that 58 per cent of voters fear the cost of living crisis may never end, while a further 23 per cent do not think it will end this year.
The poll also found that Labour is losing the support of voters most concerned about the costs of living.
Overall, the party is holding on to 54 per cent of those who backed Labour in 2024. But the figure falls to just 38 per cent who fear the Chancellor will never get to grips with rising prices.
Helen Miller, director of the IFS think-tank, said: 'The economic outlook, and therefore the outlook for borrowing, could shift more materially between now and the Budget in the autumn.
’The conflict in the Middle East is already pushing up oil prices, gas prices and expectations for interest rates. It could yet cause more far-reaching economic disruption.
’Closer to home, some major OBR forecasting judgements will need to be made, under a new Chair, over the coming months.
’The forecast path for net migration will be particularly significant. It was revised downwards today to reflect higher levels of outwards migration by UK nationals; it could shift downwards again if the numbers for inwards migration get revised down.
’That’s entirely possible, not least because bringing down net migration is explicit government policy. On the other hand, the fiscal outlook could improve with stronger productivity and wage growth one potential source of a positive surprise.’
Ruth Curtice, Chief Executive of the Resolution Foundation, said Ms Reeves should have taken more action to tackle youth unemployment.
’The Chancellor may have succeeded in delivering a statement free from news today, but with growth weak, unemployment rising, and the risk of further energy price shocks, the UK’s economic woes demand bolder and swifter action,’ she said.
’The best news from today’s Spring Forecast was an outlook for lower inflation and interest rates, but sadly both already look out of date before the ink is dry on the OBR forecast. If overnight increases to oil and gas prices are sustained, we could see inflation back at 3 per cent by the summer with typical energy bills £500 higher.
’The absence of policy decisions today can’t hide the fact that tough decisions lie ahead. Events in the Middle East have made support for families struggling with the cost of living more urgent. Looking further ahead, the Government still faces the prospect of going into the next election with major tax rises and a fresh squeeze on public services funding.’
John O’Connell, chief executive of the TaxPayers’ Alliance, said: 'The idea that the Chancellor has restored economic stability will sound like a sick joke to taxpayers suffering under this Government.
’Try talking about pathetic growth to the publicans, mechanics, hairdressers and entrepreneurs who keep this country going. To the families struggling to put meals on the table for their children because their pay packets are so meagre, thanks to politicians and bureaucrats handing out their cash to people who refuse to work and many who have no right to be here.
’And for what? Everyone with a pair of eyes can see the services and infrastructure they pay for are crumbling before their eyes, and yet the Chancellor has the cheek to tell them it’s all going marvellously.’
