The Guardian view on Rachel Reeves’s spring statement: stability cannot mean sacrificing living standards | Editorial

The Guardian view on Rachel Reeves’s spring statement: stability cannot mean sacrificing living standards Editorial An energy shock from war in the Gulf will expose the limits of rigid fiscal rules. The real question is who absorbs the loss: the state, firms or households? T he war in the Middle East has sent oil and gas prices soaring – and Britain remains deeply exposed to global energy markets. If the shocks persist they will feed directly into household bills, business costs and inflation. On Tuesday, the Office for Budget Responsibility released projections that were finalised before the US-Israeli strikes began. Rachel Reeves was right to warn that household bills might rise. But she gave no clue as to whether her policy would be flexible enough to respond if they did. In her spring statement the chancellor argued for fiscal discipline. That’s understandable. The OBR says borrowing will fall and that the “headroom” against her self-imposed rules has increased. Her message was that Britain needed “ stability ”. The logic is that discipline reassures markets, and that keeps borrowing affordable. But markets constrain the UK only insofar as its institutions let them. If energy prices spike, the economy suffers a drop in real income. The question is: who soaks up that loss? Households, firms or the state, via higher deficits? Privileging fiscal credibility might signal that she prefers households to absorb the shock rather than the state. The OBR’s projected decline in borrowing relies on taxes climbing to a post-second world war high by 2030-31 and departmental spending shrinking as a share of GDP after 2027-28. That means real pressure on household budgets and public services unless growth outperforms expectations. Hardly a vote winner. It also means that if nothing is done to cushion the blow of sustained higher energy prices, economic growth will likely weaken or inflation will rise. Given the geopolitical turmoil, it’s hardly surprising that the OBR warns tha...