‘Time for radical thinking’: What’s the bigger picture behind Reeves’ dramatic benefit cuts?

Rachel Reeves’ spring statement was meant to be a small deal. It wasn’t.

Some 250,000 people, including 50,000 children, will be plunged into poverty by benefits cuts, with one in five families where somebody is disabled set to miss out. The growth forecast for the coming year has been cut in half to 1%, but slightly upgraded thereafter. The OBR is promising families will be £500 a year better off. As things stand, the government is falling short of its target of building 1.5 million new homes.

Beyond the raw numbers affected by benefits cuts, the spring statement could have a profound effect, from those in debt to military assets and the narrow choices faced by the chancellor. What are you supposed to make of it the bigger picture? Big Issue has been asking experts from a range of fields for their breakdown.

• Could Rachel Reeves have introduced a wealth tax instead of benefit cuts? Economists say yes
• DWP ordered to correct ‘entirely misleading’ claim about universal credit claimants looking for work
• Doubt cast on Rachel Reeves’ claim Labour will be in ‘touching distance’ of building 1.5 million homes

Despite dire official forecasts, the full Impact of the planned cuts to benefits is yet to be fully figured out. “The OBR has been unable to fully certify the impact the proposed welfare cuts will have on reducing spending and getting people back to work, but the verdicts of those groups representing disabled people are clear about the substantial impact on living standards they are likely to have on some of the most vulnerable people in society,” said Ben Harrison, director of the Work Foundation at Lancaster University.

“Cuts that heighten anxiety for disabled people – or end up pushing them into unsuitable work – are unlikely to lead to an increase in sustained employment and support economic growth.”

The benefits cuts could drive more people to reliance on credit, said Simon Dukes, CEO of Fair for You, which runs Iceland’s interest-free Food Club loan scheme. “Welfare payments already leave claimants with no financial buffer if they have to replace an essential household item or even put food on the table. Any decrease in real-terms will put some people in an unfair and devastating situation,” said Dukes.

Benefits cuts are intended to be offset, in some part, by economic growth. But those gains won’t be evenly distributed, economists warned. “Recent wage increases have largely loaded on to the top three-tenth of the income distribution, leaving working households in the bottom half of the population significantly worse off compared with affluent households,” said professor Arnab Bhattacharjee, research lead for regional modelling and microsimulation at the National Institute of Economic and Social Research. “With no substantial initiatives targeting low-income households, the living standards and living conditions of the working poor will continue to stagnate.”

The £4.8bn in welfare savings were announced at the same time as a £2.2bn increase to military spending, with Reeves saying Labour wants to make the UK a “defence industrial superpower”.

But making these cuts while leaving global military assets untouched, including a £9bn base on the Chagos Islands, shows Reeves is “building an iron kingdom to posture as a global military power while cutting support for families and the disabled”, said Khem Rogaly, senior research fellow at Common Wealth. “The chancellor has shown today that there is a Treasury reserve to solve fiscal problems of her own making. Instead of using the reserve to safeguard social security, the government has decided that exceptions only apply to defence contractors.”

What’s the bigger economic picture? Faced with fiscal rules and increased borrowing costs, the government has three choices, said UCL professor of economics Morten Ravn: issue debt, reduce spending, or increase tax revenues. He warned that savings on their own would be unlikely to work, unless the UK’s growth rapidly improves.

Reeves has promised the economy will stay within the fiscal rules she’s set herself, which means twice-yearly adjustments to fit the OBR’s updated forecasts.

Ravn said: “Now might be the time for more radical thinking. What parts of public spending should be prioritized if difficult decisions have to be made in the autumn? Might there be room for promoting growth and tax revenues by reconsidering trading relationships with Europe? If taxes need to be increased, are there ways of doing this without hampering growth even further?”

What is being left alone also speaks volumes, said Liz Emerson, director of the Intergenerational Foundation. “For all the chancellor’s talk of ‘national renewal’ she is choosing to continue to ghost the young instead of acknowledging the economic and emotional damage wrought by Brexit, the Covid-19 lockdowns and the cost of living crisis,” Emerson said.

“The generation game remains with the triple lock protected for the old but the welfare safety net further removed from the young.”

“The chancellor’s message seems to be clear: don’t be young, ill and under 22 years of age now that they can no longer claim the incapacity benefit top-up to universal credit.”

Do you have a story to tell or opinions to share about this? Get in touch and tell us more. Big Issue exists to give homeless and marginalised people the opportunity to earn an income. To support our work buy a copy of the magazine or get the app from the App Store or Google Play.