Chancellor urged to bend fiscal rules instead of cutting welfare

Leading economists are urging Rachel Reeves to bend her fiscal rules or raise taxes instead of cutting welfare when she responds to growing spending pressures in her spring statement later this month.

- Heather Stewart

The independent Office for Budget Responsibility is expected to downgrade its forecasts for the UK when they are published on 26 March, wiping out the headroom to meet the chancellor's self-imposed rules.

Treasury sources say Reeves is determined to respond with spending cuts, including to welfare, despite opposition from within her own party after raising taxes by £40bn in her October budget.

Her fiscal rules allow the government to borrow to invest but oblige her to balance day-to-day spending against tax receipts. A separate rule calls for public debt to be falling by the end of the forecast period - with Reeves adopting a looser definition of debt than her predecessors that increases her latitude to borrow to fund long-term infrastructure.

Reeves said yesterday that the government would "get a grip" on welfare spending. "We need to spend more on national defence, but we need to reform our public services and we need to reform our broken welfare system," she told broadcasters.