Beautiful Virgin Islands

Friday, May 09, 2025

Economists Advocate for Flexible Fiscal Policies Amid Rising Spending Pressures

Economists Advocate for Flexible Fiscal Policies Amid Rising Spending Pressures

Calls grow for Chancellor Rachel Reeves to adjust fiscal rules rather than implement welfare cuts in response to economic challenges.
Leading economists are calling on Chancellor Rachel Reeves to reconsider her fiscal policies as she prepares to address increasing spending pressures in her upcoming spring statement, scheduled for later this month.

These recommendations come in light of anticipated downward revisions to the UK’s economic forecasts by the independent Office for Budget Responsibility (OBR), expected to be released on 26 March, which may eliminate the budgetary leeway that Reeves has to adhere to her established fiscal rules.

According to Treasury sources, Reeves is resolute in her intention to implement spending reductions, particularly in welfare, despite dissent from within her own party regarding this approach.

This follows her introduction of a £40 billion tax increase in her budget released in October.

Reeves’s fiscal framework permits government borrowing for investment but requires her to align day-to-day expenditures with tax revenues.

Additionally, one rule mandates that public debt must decline by the end of the forecast period.

Reeves has adopted a broader interpretation of 'debt' compared to her predecessors, allowing for greater borrowing potential to finance long-term infrastructure projects.

The Chancellor recently asserted a commitment to controlling welfare expenditure, emphasizing the need for increased investment in national defense and reforms to public services and welfare systems, as stated in comments made to broadcasters.

In contrast, some economists advocate for a different approach.

David Blanchflower, a professor of economics at Dartmouth College and former Bank of England policymaker, has stated that alternatives exist that would not unsettle the financial markets.

He highlighted the current environment of fluctuating exchange rates and unclear tariff rules, suggesting a necessity to prioritize pressing economic issues over stringent adherence to fiscal rules.

Michael Jacobs, a professor at the University of Sheffield, noted that the evolving geopolitical landscape necessitates flexibility in fiscal policy.

He pointed out that Reeves may need to reconsider her fiscal rules in light of altered national security needs, particularly with the US's shifting stance on European defense.

In a recent speech, Labour leader Keir Starmer announced plans to increase defense spending to 2.5% of GDP by 2027, funded by significant reductions in the overseas aid budget.

The resignation of development minister Anneliese Dodds, in protest against these measures, highlighted internal disagreements regarding fiscal strategies related to defense.

Starmer has additionally pledged to further raise defense spending to 3% of GDP, although a timeline for this increase has not been established.

Economists remain skeptical about whether such spending can be accommodated within Reeves’s existing fiscal framework without imposing severe cuts to other areas.

Jacobs proposed that Reeves might need to exempt defense spending from her fiscal rules, similar to approaches taken by Germany, suggesting the introduction of “security bonds” that encourage public investment in national defense.

Economist Benjamin Caswell from the National Institute of Economic and Social Research expressed support for the prospect of excluding defense spending from fiscal constraints, suggesting the current geopolitical context would render such a decision more palatable to investors compared to previous tax cuts.

Danny Sriskandarajah, chief executive of the New Economics Foundation, argued that fiscal rules are often arbitrary and in need of revision, implying that tax increases may become necessary to balance defense needs alongside societal demands stemming from an aging population.

Similar sentiments were echoed by Alfie Stirling, chief economist at the Joseph Rowntree Foundation, who underscored the inevitability of adjustments to fiscal policy in light of demographic pressures on public services.

Jo Michell, a professor at the University of the West of England, voiced concern over prospective tax increases as an eventual outcome of current fiscal challenges.

Conversely, Paul Johnson, director of the Institute for Fiscal Studies, cautioned that the existing fiscal rules may already be operating at the limits of reasonableness, noting rising gilt yields that indicate increased market trepidation regarding government debt.

As Chancellor Reeves approaches her spring statement, the interplay between defense spending, welfare cuts, and overall fiscal strategy continues to present complex challenges.
Newsletter

Related Articles

Beautiful Virgin Islands
0:00
0:00
Close
Historic Papal Conclave Set to Commence in Rome
Huge Copper, Gold, and Silver Discovery in Argentina and Chile — But the Profits Go Abroad
Prince Harry is pleading for reconciliation — but the royals are just as sick of his victimhood as everyone else
The Road to Freedom: She Protested Putin, Escaped House Arrest, and Survived a 2,800-Kilometer Journey
OpenAI's Flip-Flop: No Longer Going Commercial, Back to Nonprofit, After Musk Lawsuit and Backlash
“Trump Supporter” Aims to Bring a MAGA-Style Shift to Romania
First From China: Zhao Xintong Wins the Snooker World Championship
Nvidia Faces Billion-Dollar Losses – Warns: China Is on Its Way to Becoming an AI Superpower
Trump Rules Out Third Term, Names JD Vance and Marco Rubio as Potential Successors
Mexico Says ‘No’ to U.S. Troops: President Sheinbaum Rejects Trump’s Offer to Fight Cartels
Nigel Farage’s Reform UK Storms the Map, Wrecking the Two-Party Monopoly
DOGE: Reimagining Government Operations with AI
Common Sense Returns to Britain's Legal System: UK Supreme Court Declares a Woman Is… a Woman
Beijing Says U.S. Is ‘Reaching Out’ for Tariff Talks Amid Soaring Trade Tensions
U.K. Court Rejects Prince Harry’s Final Appeal Over Police Security
Prince Harry’s Heartfelt Outburst Rocks the Royal Family
Trump Shares AI-Generated Image of Himself as… Pope, Prompting Outrage Reaction
Transgender Swimmer Secures Five Gold Medals at U.S. Masters Championship
Prince Harry: “I Want Reconciliation with My Family”
Germany's Alternative für Deutschland (AfD) party has now been officially labeled “right-wing extremist” by the federal office for the so-called “protection of the constitution.”
Amazon Launches Satellite Internet Service Amidst Competition with SpaceX
Transformative Changes in Women's Wrestling: The Rise of WWE Superstars
The Rush to the White Gold: Global Investment Surge in Natural Hydrogen Exploration
This is a day in Spain without electricity and internet
Reform UK Surprises in British Elections, Challenging Traditional Two-Party System
180-Year-Old Christian University in South Carolina Announces Closure Due to Unmet $6 Million Fundraising Goal
Brazilian Woman Jailed for Fourteen Years for Writing “You Lost, Idiot” on Statue During Protest
Trump Administration Removes National Security Adviser Mike Waltz Amid Signal Chat Controversy
Dutch Politician Eva Vlaardingerbroek Receives Spyware Threat Alert from Apple
Paramount Board Considers Settlement in Trump’s $20 Billion Lawsuit Over "60 Minutes" Interview
U.S. Economy Shrink in Trump’s First Quarter as Tariff Policy Raises Questions
Deadline Looms for RTS Meter Replacement: Hundreds of Thousands at Risk of Heating Disruption
Sweden Grapples with Deadly Gun Violence: Suspect Arrested After Three Young Men Killed in Uppsala Hair Salon
Walz Reveals Why Harris Chose Him as Her Running Mate and Reflects on Democratic Losses
Spain Restores Power After Unprecedented Nationwide Blackout
Carney Secures Liberal Mandate in Canada’s Federal Election
Death Penalty Sought as Luigi Manion Pleads Not Guilty in CEO Murder Case
President Trump contacts Jeff Bezos after reports of Amazon considering listing tariff surcharges; company clarifies no such plan for main platform
Spain and Portugal Recover from Massive Blackout
Liverpool Clinches Record-Equalling 20th English League Title Under Arne Slot
Singapore Politicians Warn Against Foreign Interference in Election
Driver Ploughs into Vancouver Festival Crowd, Killing Nine
Depression, Fear of Defamation, and a Tragic End: New Details on Virginia Giuffre’s Suicide
“Sharia for UK, Allah Akbar!”
Massive Explosion at Iran's Bandar Abbas Port Linked to Suspicious Chemical Shipments
Incident Reflection: A Harsh Reality Check
Pakistani migrants to Danish man: “ “We have 5 children while you have 1 or 2. In 10 years, there will be more Pakistanis than Danes here.“
Clashes Erupt in London as Tensions Rise Between Indian and Pakistani Communities
Specialized anti-drone weapons deployed among security personnel Ahead of Papal Funeral
How do you fix this culture?
×