Rachel Reeves Faces Triple Threat in Budget Plan

As the UK prepares for the budget announcement, familiar debates are taking shape. Should Chancellor Rachel Reeves cut welfare spending? Or reform the "triple lock" on state pensions?

Other debates focus on revenue: how should she raise money without breaking Labour's manifesto promise not to increase taxes on working people? But these discussions are being held in a strange vacuum, where the three enormous expenditures that led the UK to this point are not mentioned.

COVID debt, energy support schemes and Brexit have fundamentally shaped the UK's financial woes . Yet voters and politicians alike seem determined not to talk about them. Instead, they're treated as shocks imposed on the country, although they involved hugely consequential political choices.

Gloomy vibes accompany this Advent budget, and Britain's awkward collective amnesia is preventing the country from learning the lessons needed for future crises and from talking honestly about the best route forward.

The ghost of COVID past

The COVID pandemic required unprecedented government intervention . Between 2020 and 2022, the UK's spending watchdog, the Office for Budget Responsibility estimates, support measures totalled £169 billion or 7% of UK GDP. Most of it (£100 billion) went on direct support for things like the furlough scheme.

In hindsight, the vaccine roll-out was one key moment when the country showed its ability to deliver on a massive scale. Some other decisions were less glorious.

There was a general lack of transparency in the purchase of health equipment during the first wave of the pandemic, and the Eat Out to Help Out scheme to support hospitality led to a further increase in infections. .

But there is very little discussion of the most important, unanswered questions. Despite a long inquiry examining government failings, there has been no debate about how much risk we as a country are willing to take , and how much we are willing to pay in order to reduce that risk.

COVID support schemes increased public debt from 80.4% of GDP in 2018 to 107.4% in 2021. The government paid close to zero interest on the debt at the time.

But now, higher interest rates make it a huge burden on taxpayers. Debt interest spending is higher than the budget for education , more than twice as big as it was in 2018 . This is why Reeves now appears so determined to bring down UK debt levels.

We also know the cost lockdowns put on schoolchildren . But we know very little about the cost of doing less , or the current choice to stop vaccinating people .

Perhaps the main hit on UK budget capacity comes from a global pandemic, something that will happen again in the future . The focus is on putting the finances back on track without discussing how to manage similar trade-offs next time.

The ghost of our present energy transition

When Russia invaded Ukraine and energy prices spiked, the UK faced a choice: reduce demand or subsidise consumption. It chose the latter. The government stepped in with massive support packages to pay people's energy bills. This cost £78.2 billion , or more than 4% of GDP (compared to less than 3% on average in Europe).

There were strong arguments for this approach. Allowing fuel poverty to spike during a cost-of-living crisis would have been terrible, and there was little time to target the policy. But to be clear about what happened: the public was given huge handouts to avoid having to change lifestyles, technology or consumption patterns.

This happened in the middle of an energy transition . The goal, ostensibly, is to decarbonise, reduce dependence to fossil fuels from dictators, and to modernise infrastructure.

These are complex decisions that require public support, some level of sacrifice, but also a clear collective commitment that change is inescapable. But this is not how the country is approaching these challenges, having just demonstrated that when energy costs rise the government will step in .

Just like COVID debt, UK taxpayers carry the cost of energy support debt while sweeping the decisions that caused it under the rug.

The ghost of Brexit yet to be

The UK's relationship to Brexit appears more confused than ever. Only 11% of British adults think Brexit is more a success than a failure, and 56% would vote to rejoin the EU. Yet many tout Reform UK leader Nigel Farage as the frontrunner to be the next prime minister while also blaming him (among others) for Brexit's failures .

This may be because Brexit has largely disappeared from the public's radar, as Prime Minister Keir Starmer starts to move towards more integration with the EU.

Conversations on the topic tend to do everything to avoid reopening old wounds. But economists are slowly realising the full extent of the damage caused to the economy. An unprecedented comprehensive study relying on comparisons with other nations and also on detailed data from Bank of England business surveys estimates that Brexit has reduced UK GDP by 6% to 8%. These figures were at the most pessimistic end of the estimates at the time of the referendum.

To put this into perspective, with UK tax receipts at 40% of GDP , a GDP that was 7% higher would give £77 billion extra a year to the chancellor. This is more than half of the 2024-25 budget deficit of £137 billion.

Yet, there has been no massive trade deal with the US and no attempt to replace the EU in any major way . The UK is paying a hefty price for having chosen one of the hardest possible versions of Brexit , but is yet to define what economic gain this could bring.

COVID debt, energy support and the Brexit deficit are the three ghosts that will haunt this budget - ghosts that no one wants to face. The UK cannot prepare for future pandemics without learning from how it handled COVID.

It will not complete its energy transition without confronting the choices made about who bears the costs of energy security. And it will not develop a coherent economic strategy without assessing what to do with Brexit. Until the UK faces up to these issues, it will be left discussing minor austerity measures and hoping for a Christmas miracle.

Renaud Foucart does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.