How did Rachel Reeves do with the UK Budget? The simple answer is not very well

So how did she do? The more you dig into the detail, the more the answer would appear to be – not very well.

Starting with her ambitions to get Britain growing again. The main driver here was to increase public investment. This has been achieved to some degree, with the capital budget rising by almost 10 per cent in real, i.e. inflation adjusted, terms next year. But then it flattens off before starting to fall in the final two years of the Office for Budget Responsibility’s (OBR) forecast.

Overall, the OBR states Budget policies, including this investment boost, leave economic growth (GDP) largely unchanged in five years’ time, although noting that if the increased level of public investment were sustained it would have a significant impact. However, that sustained rise is already planned to fall away.

Chancellor of the Exchequer Rachel Reeves leaves 11 Downing Street, London, with her ministerial red box and the Treasury team before delivering her Budget in the Houses of Parliament. Picture: PA

The same, weak, game-changing performance can be seen in other crucial measures, like productivity growth (i.e. output per worker), which is also little changed from what was forecast last March.

There was never going to be an easy escape route from the low growth-low productivity trap the UK has been in since the financial crisis around 2008. There are three good reasons to doubt much of a growth spurt anytime soon.

First, each of the ‘investments for growth’ are unproven, in that most have been tried already in the past few decades without overwhelming results. Second, they are also rather underwhelming in scale, relative to past boosts, for example in the first decade of New Labour. Third, green energy and transport infrastructure projects will be a long time coming, and as HS2 and new nuclear power plants have shown, such long-term plans can be easily blown off course.

As a result, none of this comes as a surprise. The OBR was never going to revolutionise its assumptions based on a few tweaks to spending and policies. But it is important, as the Labour Party’s future hopes for raising spending on public services is very much reliant on the return of higher economic growth.

On the second ambition, avoiding a return to austerity, we have seen a big jump in spending for this year and next, inevitable given some of the public sector wage settlements. However, thereafter – post 2025/26 – the OBR forecast that ‘unprotected’ budgets will see their resource (day-to-day spending) budgets fall on average by between 1 per cent and 3.5 per cent a year for the following four years. This may well feel like a return to austerity in areas like local government, justice and a host of smaller Departments.

So the OBR’s judgement on the impact of the Budget’s policies in these two key target areas is pretty damning – a continuing sluggish economy and tough times for most spending departments.

Of course, confirmation of the big picture – in terms of public service priorities at least – will not arrive until the Spending Review due in the spring of 2025. But a lot of the work has been done in the Budget, in terms of setting the overall spending envelope.

Maybe local government will do better, but it will be at the expense of, for example, the health or education budget. Without some miracle turn-around in economic prospects by next spring, there won’t be enough to pay for the backlog of funding shortfalls relating to: schools; courts; prisons; infrastructure; reaching zero carbon targets; defence; higher education; overseas aid; water and sewerage; housebuilding; public sector pay; as well as significant ones-offs for the likes of the Infected Blood and Post Office compensation pay outs.

All of these areas have fairly urgent spending needs to get back on course, or to stop being put further into crisis mode, but not all of them can be addressed in a meaningful way. Hard choices need to be made. Trade-offs are inevitable.

In Scotland, there are some welcome Barnett consequentials, in particular the extra £3.4 billion for next year, but thereafter nothing like enough to avoid more tough decisions.

Questions over further rises in devolved taxes will again come to the fore. The Scottish Government’s own spending priorities badly need revisiting and sharpening up.

For example, in health, the situation in Scotland is a mess. At least the UK government has a long-term NHS Workforce Plan. Scotland does not, so the chances of waiting lists improving faster than in England are remote.

National Care Service be damned, start addressing the basics, like staff level requirements.

In its first Budget in almost 15, as years might be expected, a new Labour government is ‘going for growth’ in the long term, while being ‘prudent’ in the short term.

However, if that growth does not appear, and the odds must be against, then we will soon return to the sobering reality of historically high tax and debt levels alongside struggling, underfunded, public services.

Those with the broadest shoulders are too few in numbers to get us out of this. The burden needs to spread wider.

The ever narrowing routes to dealing with this – no rise in income tax or VAT, no end to the triple lock or to the freezing of fuel duty – can’t continue, or if they do then they will perpetuate the bad decisions already being made, due to the lack of the full gamut of tax and spend options being available.

The centre has shifted. Something has to give.

- John McLaren is a political economist who has worked in the Treasury, the Scottish Office and for a variety of economic think-tanks.