Spring Statement: Reeves ‘confident’ civil service could cut 10,000 roles as Blunkett decries fiscal rules

The former Home Secretary David Blunkett has urged the Chancellor Rachel Reeves to loosen Labour’s fiscal rules, as she said she was “confident” the civil service could be cut back by 10,000 jobs and prepared to slash administrative budgets by over £2bn a year this week.

Blunkett called Labour’s current fiscal rules “Treasury orthodoxy and monetarism at its worst”, in a notable intervention from a figure widely seen as on the right of the party.

The New Labour grandee becomes one of the most high-profile party figures to join the chorus of voices urging a shakeup of the self-imposed rules, which set limits on government borrowing to reassure government bondholders.

Blunkett told the BBC’s The Week in Westminster he would “raise the self-imposed rule by at least £10-15bn”.

He said relaxing the rule would allow the goernment to spend more on a “New Deal” for the unemployed, with a drive to get more young people out of work into jobs or training.

It comes only a few weeks after senior minister Anneliese Dodds  expressed her disappointment that the government had not decided to “collectively discuss our fiscal rules and approach to taxation” in her resignation letter over huge cuts to her international aid budget. The pressure from Blunkett and Dodds is striking as many of those publicly backing looser fiscal rules to date have been further to the left of the party.

Reeves is widely expected to slash government spending plans in her Spring Statement to Parliament on Wednesday, with recent welfare cuts forming part of measures designed to get public spending forecasts in line with Labour’s current fiscal rules.

The FT reports cuts could total more than £10bn, with more than half filled by welfare cuts already announced but the rest set to hit other departments. The paper says Reeves’ statement will make “dismal reading” but will blame problems on a “changing world”, emphasise security and say public sector reform is also important.

It cites Treasury officials warning global trade war sparked by Donald Trump could worsen the picture in future further, potentially forcing more cuts and tax hikes.

The Sunday Times reports the welfare cuts alone may cover the amount needed to balance the books, but a Treasury source said she had “taken the choice to restore headroom” to reassure the markets by seeking further savings of around £5 billion.

It has been suggested cuts will average 4.7% to departments, with administrative budgets, which include civil service staffing costs, slashed by 10% or more than £2bn a year.

HR, office management, communications, travel and consultancy spending are among the areas briefed as potentially at risk as the government emphasises its hopes of protecting frontline services, though some will be sceptical about how far savings can be made without worsening outcomes.

The paper suggests as many as one in ten civil service jobs could be at risk, with one union official fearful tens of thousands of roles could face the chop, though Reeves said on Sunday it would be up to departments to identify savings.

It comes after Reeves told the BBC for a forthcoming documentary: “We can’t tax and spend our way to higher living standards and better public services. That’s not available in the world we live in today.”

The Treasury is also thought likely to announce a new crackdown on tax avoidance as well, however, in a move more likely to be welcomed by activists.

A plan to frontload more spending towards the next two years will also delay some of the cuts towards the end of the parliament, though it means they will be even steeper. The Sunday Times reports they will rise at a rate of just 1% by the time of the next election, which may prove challenging for MPs on the doorstep with inflation likely to outstrip spending.

However, the Tories similarly pencilled in steeper cuts towards the end of their borrowing forecasts, and it left many analysts sceptical about whether it would actually proceed with them. The move therefore potentially buys the Treasury time to hope for a better environment or plead changing circumstances in years to come in order to change course closer to the next election.

Reeves: ‘There are no shortcuts’ to turning economy around

Rachel Reeves was out pitch-rolling for the Spring Statement, which accompanies new Office for Budget Responsibility forecasts for the public finances, on the broadcast round on Sunday morning.

She said it was. “not right” to maintain government staffing levels expanded during Covid, and notably told Sky News: “I’m confident that we can reduce civil service numbers by 10,000.”

She added that she had asked every department to rank spending from the most to the least important to work out potential savings, saying such line-by-line spending had not been done for many years.

But she said there would still be spending increases every year, despite the planned savings, and said she rejected the idea – outlined in new Joseph Rowntree Foundation research – that the average family could be £1,400 worse off by the end of the decade. “I’m confident that we will see living standards increase during this parliament.”

On welfare, she told the BBC welfare was “in bad need of reform”, and acknowledged the economy “is not growing fast enough”.

“But we are making the changes that’s necessary to get Britain building again, to bring money into the economy…We’re turning things around, but it takes hard work and there are no shortcuts to getting there.” She denied her past “pessimistic messages” on the economy to date, in the words of presenter Trevor Phillips, had had a negative impact on the economy.

What Labour’s fiscal rules are – and the wider pressure to loosen them

The Chancellor is also expected to “raise the spectre of Liz Truss’ disastrous mini-Budget” in a bid to convince Labour MPs why she cannot further increase borrowing.

Labour’s fiscal rules, based largely on the Conservatives’ similar constraints, include a “stability rule” requiring tax receipts to exceed day-to-day spending by 2029. A further rule requires public sector debt, measured slightly differently as of Labour’s last budget to give slightly more wiggle room,  to fall as a share of GDP in the fifth year of current forecasts. There is also a welfare spending cap.

Other figures calling for them to be loosened include former Bank of England chief economist Andy Haldane, who warned earlier this month: “There is a debate to be had about relaxing the UK’s over-rigid fiscal rules and frameworks to reflect a new world order and to prevent them being counter-productive domestically.”

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