Rachel Reeves’s latest announcement is financially illiterate: cutting benefits will harm the economy, not help it.
Think about it for a moment. Her Budget last October has been criticised because businesses say they will have to cut jobs so they can afford to pay remaining employees. This means the people losing their jobs will have less money to spend into the economy, so the economy will suffer – even if she doesn’t cut the benefits budget.
Cutting the money available for benefits is ridiculous because people on benefits spend the largest amount of the money available to them into the economy. They have to – they already receive less than is needed to survive comfortably in the UK, where the cost of living is now very high indeed, and many already face the impossible choice between heating and eating during our cold winters.
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Additionally, if Reeves starves benefit claimants she will increase illness – both physical and mental, as people struggle to make ends meet and find they are in an impossible, insoluble situation. This will increase the burden on the National Health Service.
Some may resort to crime – we have recently learned that shoplifting has increased by 50 per cent in the last two years. Home Secretary Yvette Cooper’s answer was to end a moratorium on investigating crimes worth less than £200, in a move that will stuff our already-overcrowded prisons to breaking-point.
Some may become homeless, creating more problems for police and the health service.
The amount of harm Reeves will do by cutting benefits is incalculable, because the knock-on effects will be so enormous. She simply does not understand what she is doing.
And she should know better because she has lived through 15 years of watching the Conservatives bungle the economy in the same way.
Because, make no mistake: This is just more Tory austerity. It will shrink the economy, not grow it, and it will increase the national debt, not reduce it.
We know this because, during their 15 years in power, Tory austerity killed hundreds of thousands of people – if not millions – in order to reduce the national debt – and instead it rose from £1.03 trillion to £2.77 trillion. That’s a 169 per cent increase. As a percentage of gross domestic product (GDP), it’s a rise from 64.7 per cent in 2010 to 99.4 per cent in July 2024.
Sources near Reeves say her latest wave of austerity is necessary because “the world has changed”, wiping out the £9.9 billion financial “buffer” she tried to create for herself in her Budget last October, and this is true. Increased borrowing costs in the UK, trade tariffs between foreign countries that cause inflation, and the continued war in Ukraine that is draining UK budgets to boost defence are creating burdens for the Treasury.
And she will say it is necessary in order to adhere to her self-imposed fiscal rules – to reduce debt as a percentage of GDP during the course of the current Parliament, and to borrow only to fund investment, not day-to-day spending.
But “the world has changed”. In order to adapt to those changes, it is clear that her fiscal rules must change as well.
She won’t reduce debt as a percentage of GDP by imposing austerity – that is a simple fact and we have recent history to prove it. Without other means of supporting extra spending, she would be much wiser to kill her other fiscal rule as well and adopt a Keynesian approach – borrowing to ensure that the millions of people her policies are already impoverishing will be able to survive and, by so doing, make it possible for the economy to grow.
Keynes would likely support higher government spending on defence if it were necessary for national security. However, he would emphasize deficit financing—borrowing to fund spending—during a downturn, with the expectation of repaying it during better economic times. He would also stress the multiplier effect, arguing that defence spending could create jobs and stimulate demand across industries.
Keynes recognized the importance of international trade but also advocated for national economic self-sufficiency in some cases. If foreign tariffs harmed domestic industries and caused inflation, he might support:
- Selective subsidies or investment in domestic production to offset trade losses.
- Managed exchange rates or capital controls to stabilize prices.
- Diplomatic or trade agreements to mitigate the worst tariff effects.
Higher interest rates make borrowing more expensive, which can discourage investment. Keynes would likely propose:
- Targeted government borrowing rather than austerity—prioritizing high-return public investments in infrastructure, education, and technology.
- Central Bank coordination, urging policymakers to avoid excessive interest rate hikes that could worsen unemployment.
- Encouraging long-term, low-interest debt issuance to finance critical spending.
Keynes’ central idea was that government must step in when private employment demand is weak. He would likely advocate:
- Large-scale public works programs (e.g., infrastructure, green energy) to create jobs and boost demand.
- Direct financial support (e.g., increased benefits, tax cuts for lower-income households) to maintain spending power.
- Targeted wage support or job guarantees to prevent long-term scarring from unemployment.
The short-term increase in debt would be justifiable, provided that growth resumes and allows for repayment in the long run.
If Rachel Reeves cannot see that, then she will fail – taking millions of us down with her.
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Cutting benefits will harm the economy – not help it
Rachel Reeves’s latest announcement is financially illiterate: cutting benefits will harm the economy, not help it.
Think about it for a moment. Her Budget last October has been criticised because businesses say they will have to cut jobs so they can afford to pay remaining employees. This means the people losing their jobs will have less money to spend into the economy, so the economy will suffer – even if she doesn’t cut the benefits budget.
Cutting the money available for benefits is ridiculous because people on benefits spend the largest amount of the money available to them into the economy. They have to – they already receive less than is needed to survive comfortably in the UK, where the cost of living is now very high indeed, and many already face the impossible choice between heating and eating during our cold winters.
Buy Cruel Britannia in print here. Buy the Cruel Britannia ebook here. Or just click on the image!
Additionally, if Reeves starves benefit claimants she will increase illness – both physical and mental, as people struggle to make ends meet and find they are in an impossible, insoluble situation. This will increase the burden on the National Health Service.
Some may resort to crime – we have recently learned that shoplifting has increased by 50 per cent in the last two years. Home Secretary Yvette Cooper’s answer was to end a moratorium on investigating crimes worth less than £200, in a move that will stuff our already-overcrowded prisons to breaking-point.
Some may become homeless, creating more problems for police and the health service.
The amount of harm Reeves will do by cutting benefits is incalculable, because the knock-on effects will be so enormous. She simply does not understand what she is doing.
And she should know better because she has lived through 15 years of watching the Conservatives bungle the economy in the same way.
Because, make no mistake: This is just more Tory austerity. It will shrink the economy, not grow it, and it will increase the national debt, not reduce it.
We know this because, during their 15 years in power, Tory austerity killed hundreds of thousands of people – if not millions – in order to reduce the national debt – and instead it rose from £1.03 trillion to £2.77 trillion. That’s a 169 per cent increase. As a percentage of gross domestic product (GDP), it’s a rise from 64.7 per cent in 2010 to 99.4 per cent in July 2024.
Sources near Reeves say her latest wave of austerity is necessary because “the world has changed”, wiping out the £9.9 billion financial “buffer” she tried to create for herself in her Budget last October, and this is true. Increased borrowing costs in the UK, trade tariffs between foreign countries that cause inflation, and the continued war in Ukraine that is draining UK budgets to boost defence are creating burdens for the Treasury.
And she will say it is necessary in order to adhere to her self-imposed fiscal rules – to reduce debt as a percentage of GDP during the course of the current Parliament, and to borrow only to fund investment, not day-to-day spending.
But “the world has changed”. In order to adapt to those changes, it is clear that her fiscal rules must change as well.
She won’t reduce debt as a percentage of GDP by imposing austerity – that is a simple fact and we have recent history to prove it. Without other means of supporting extra spending, she would be much wiser to kill her other fiscal rule as well and adopt a Keynesian approach – borrowing to ensure that the millions of people her policies are already impoverishing will be able to survive and, by so doing, make it possible for the economy to grow.
Keynes would likely support higher government spending on defence if it were necessary for national security. However, he would emphasize deficit financing—borrowing to fund spending—during a downturn, with the expectation of repaying it during better economic times. He would also stress the multiplier effect, arguing that defence spending could create jobs and stimulate demand across industries.
Keynes recognized the importance of international trade but also advocated for national economic self-sufficiency in some cases. If foreign tariffs harmed domestic industries and caused inflation, he might support:
Higher interest rates make borrowing more expensive, which can discourage investment. Keynes would likely propose:
Keynes’ central idea was that government must step in when private employment demand is weak. He would likely advocate:
The short-term increase in debt would be justifiable, provided that growth resumes and allows for repayment in the long run.
If Rachel Reeves cannot see that, then she will fail – taking millions of us down with her.
Vox Political needs your help!
If you want to support this site
(but don’t want to give your money to advertisers)
you can make a one-off donation here:
Be among the first to know what’s going on! Here are the ways to manage it:
1) Register with us by clicking on ‘Subscribe’ (bottom right of the home page). You can then receive notifications of every new article that is posted here.
2) Follow VP on Twitter @VoxPolitical
3) Like the Facebook page at https://www.facebook.com/VoxPolitical/
Join the Vox Political Facebook page.
4) You could even make Vox Political your homepage at http://voxpoliticalonline.com
5) Follow Vox Political writer Mike Sivier on BlueSky
6) Join the MeWe page at https://mewe.com/p-front/voxpolitical
7) Feel free to comment!
And do share with your family and friends – so they don’t miss out!
If you have appreciated this article, don’t forget to share it using the buttons at the bottom of this page. Politics is about everybody – so let’s try to get everybody involved!
Buy Vox Political books so we can continue
fighting for the facts.
Cruel Britannia is available
in either print or eBook format here:
The Livingstone Presumption is available
in either print or eBook format here:
Health Warning: Government! is now available
in either print or eBook format here:
The first collection, Strong Words and Hard Times,
is still available in either print or eBook format here:
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