The chancellor’s spring statement arrives with the sombre tone of inevitability. Britain, we’re told, must tighten its belt. Welfare payments for the sick and disabled will be shrunk. Public services from transport to criminal justice face leaner times. The language is that of necessity. There is no money. The choices are hard, but unavoidable. So runs the script.
The idea that painful cuts are inevitable is political theatre. Either Rachel Reeves knows the constraints are self-imposed – or, more troublingly, believes they are real. Last October, she announced £190bn in extra spending, £140bn in additional borrowing and £35bn more in taxes than previously forecast. The Treasury view is “you can’t pour that amount of money into the state and call it austerity”.
Yet you can – if tens of billions are siphoned off in debt interest to uphold economic orthodoxy rather than meet social needs. The UK now spends more than £100bn a year on debt interest – a postwar high – not because it is bankrupt, but to a substantial degree because the Bank of England is offloading vast amounts of gilts, bought during quantitative easing, at a loss. The Treasury must cover those losses, while the flood of gilts drives up interest rates on new borrowing. This is quantitative tightening (QT), with the state left to foot the bill for soaring interest costs and Bank payouts. Yet the Office for Budget Responsibility assumes that it will continue, locking in high costs.
This isn’t prudence – it’s ideology posing as policy. No money for free school meals or youth clubs, ministers warn, yet billions pour into the pockets of bondholders, for the sake of “stability”. Ending QT could redirect that money to public services – a better priority than reassuring markets with symbolic gestures.
If the Bank won’t stop on its own, it must be pushed. Gordon Brown granted it independence in 1998, but included a safeguard: in “extreme economic circumstances” ministers can override the Bank in the public interest. If £100bn in spending isn’t extreme, what is? QT should be paused. The Bank stands alone among G7 peers in actively selling bonds and demanding Treasury cash to cover paper losses. This is self-defeating in a dangerous world. Gilts could be managed strategically. Before New Labour, Kenneth Clarke often ignored the Bank’s advice – and was often right. But such thinking is now heresy in a political culture that treats Bank independence as sacred, even when it deepens public hardship.
Here lies the deeper irony. The chancellor won’t raise taxes on the wealthy, relax her fiscal rules or borrow more. So she claims that there is no alternative to cuts. But these are self-imposed constraints – combined with deference to an unelected monetary authority – that sustain the illusion of necessity. Labour has been here before: Philip Snowden did the same in the 1930s, and nearly destroyed his party.
Ms Reeves’s spring statement is a performance. She asks the public to accept a diminished state as the result of external forces, when it’s the result of internal dogma. Worse, she may believe the script – failing to recall the tools once used to steer interest rates, debt and public investment. Austerity isn’t the price of prudence but the cost of forgetting. The chancellor wears the mask of tough decisions, but on a stage built on myths. The better choice would be to trim the Bank’s power, even if the spotlight has been carefully trained away from its damaging role.
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