Politics vs economics - politics takes centre stage

The Government are set to make a dash for political capital as they reorientate their strategy away from an economic and rhetorical focus on growth at all costs and towards traditional vote-winning policies, such as investment in health and defence.

In pursuit of appeasing some of the Government’s most vehement detractors, nine million pensioners in England and Wales will benefit from the Chancellor’s U-turn on winter fuel payments that reinstates the payment for any pensioner with an income under £35,000 a year. This represents £1.25bn of extra government spending that will have to be paid for.

This is unlikely to be the last U-turn from the Government. There are rising expectations that more is on the way in relation to Personal Independence Payments and the two-child benefit cap, following widespread backlash from the Labour Party’s Left. Another olive branch has been extended to the Left in the form of real-terms budget increases for the health service, expected to account for around 60% of the total increase to day-to-day spending in this review.

Encouraged by the moderate jump in Prime Minister Starmer’s approval ratings following his handling of Ukraine peace talks in March, the expected real-terms increase to the defence budget could boost his popularity with the public as much as it does with the international community.

Firstly, she will need to balance the books by making cuts to unprotected department budgets — this could include areas such as the Home Office, Transport, Local Authorities, the Police, or Prisons.

In the long-term, stronger economic growth would solve this dilemma — yet an economic policy based on hoping for growth will not instil confidence in the financial markets that everything is under control.