OPINION
Chancellor of the Exchequer Rachel Reeves now faces the reality that cuts need to be made (Image: PA)
At long last, reality has caught up with Westminster. After years of pretending the nation’s purse strings were elastic, the Treasury has finally been forced to admit that Britain simply cannot afford to keep living beyond its means.
Chancellor Rachel Reeves is now preparing billions of pounds worth of welfare and departmental spending cuts ahead of the Spring Statement. The once-vaunted financial buffer of ￡10billion has evaporated, and Labour now faces the stark reality that urgent action is needed to shake-up Britain's broken welfare system.
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Frankly, it’s about time.
Whether there was fiscal headroom or not, it should never have taken recent economic shocks for our politicians to wake up to the mess they were presiding over. Welfare spending, particularly on health-related benefits, has ballooned beyond recognition.
Last year, the Government spent a staggering ￡65billion on sickness benefits alone – a 25% increase compared to pre-pandemic levels. That figure is projected to soar to ￡100billion before the next general election. And it is simply not sustainable.
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A significant portion of this is the legacy from Covid but, let’s be honest, there are perverse incentives in the system that have made it too easy for people to opt out of work. The numbers speak for themselves: far too many young people are neither in work, education, or training. This is both morally indefensible and economically unsustainable.
Justice Secretary Shabana Mahmood hit the nail on the head this week when she argued there is a moral duty to ensure that those who can work, do work. The Chancellor will now argue that fixing welfare is not just about cutting costs – it’s about getting people back to work and saving the NHS.
While some will, of course, cry foul, the numbers tell a brutal truth: Britain has been sleepwalking into economic stagnation. The idea we can keep borrowing and spending indefinitely has now been exposed for the fantasy it always was.
Even Italy, which carries a much heavier debt burden relative to its GDP, can borrow at a cheaper rate than the UK. Why? Because international lenders – and, frankly, everyone else – can see what too many in Westminster have refused to acknowledge: Britain’s economic model is fundamentally broken.
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Let’s not forget global factors either. Donald Trump’s recent outbursts have forced Europe to promise more defence spending while pushing towards an endgame in Ukraine. It may not have been a pretty sight, but if this is what it takes for politicians to wake up, so be it.
While much of the world is adjusting to America stepping back from its global policing role, Britain must do the same. That cannot happen if we are shackled by unaffordable welfare costs.
The Treasury has blamed global economic policy and geopolitical uncertainty for the rise in government borrowing costs. It’s a convenient excuse, but only half the story. The world has changed significantly since Rachel Reeves’ October Budget, when the Office for Budget Responsibility (OBR) indicated she had ￡9.9billion to work with. Thanks to trade tariffs, rising inflation, and higher borrowing costs, that headroom has vanished.
The response? The Government is launching an efficiency drive to rein in spending across various departments. Cabinet Office Minister Pat McFadden and Health Secretary Wes Streeting will outline plans to cut civil service headcount and streamline costs.
Labour appears to be waking up to the reality Britain must tighten its belt. The question is whether they have the political courage to see it through. Rachel Reeves has pledged “fundamental” reform of the welfare system, and Liz Kendall will soon outline plans to tackle the explosion in health-related benefits.
But pledging reform and delivering it are very different things. Labour has long hesitated to alienate certain voter bases, but with the fiscal situation deteriorating, they can no longer afford to kick the can down the road.
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Welfare reform is not just about cutting costs, it’s about making the economy functional. Right now, too many people are trapped in a system that rewards economic inactivity. Universal Credit recipients must show evidence of job applications or face sanctions, yet those receiving sickness benefits often are not required to seek work.
Britain does not have a productivity problem because of a lack of workers. It has a productivity problem because too many people are discouraged from working. This is why the coming welfare cuts are so crucial.
The money squandered on keeping people economically inactive could be redirected to more pressing needs – such as infrastructure investment, defence, or the justice system. A productive economy isn’t built on welfare dependency. The road ahead won’t be easy, and there will be political fallout. But Labour must now prove that it is serious about making Britain’s economy work again.