THE government has driven into a brick wall over the welfare Bill but has stored even further problems ahead. This is because the major fiscal event last month in this country was not the proposal to cut welfare payments to disabled people, as shocking and unjustifiable as that is.

Two other events will have even bigger negative consequences on prosperity and wellbeing, and disabled people will be right in the firing line when further austerity is being imposed as a result.

The first was the Spending Review, which will curb growth. The second is not usually a fiscal event at all, but this Nato summit in The Hague saw a commitment to hugely increase military spending from most member states, including Britain.

Together, they will damage economic growth prospects and lower living standards. Unless there is a complete change of course further austerity is inevitable.

Because of the sums involved, it will be a fierce attack.

The Chancellor’s Budget document in October last year set out the intention to announce large cuts to welfare this year. The total at the time was given at £4.3 billion and that grew to a planned £5bn, before the impact of the rebellions.

Welfare cuts are part of a government plan which is also offering sweeteners to non-doms as well as huge subsidies to both builders of nuclear power plants and the fossil fuel companies.

It is a question of priorities.

The government repeatedly claims that it is focused on growth. As it is very hard to achieve any improvement in living standards without it, sustainable growth is an appropriate aim for all economic policy.  

If the economy were growing strongly and tax revenues rising strongly in tandem, all sorts of beneficial public spending could be increased. Cuts would be completely off the agenda, given the political upheaval they cause.

But that is not the current situation. The current trend growth rate, over several quarters, is for GDP in Britain to grow by little more than 1 per cent a year. In the five and a half years since the pandemic began, the British economy has only grown by a little more than 4 per cent.

Real GDP per person has fallen over that time. It is extremely difficult for living standards to rise in such circumstances.

So, the government focus on growth is a correct one. But it is purely rhetorical.

Subsidies to energy companies and non-doms and deregulation will do nothing to spur growth. The evidence is clear from government finances, which continue to deteriorate.

The Spending Review was supposed to deliver the much-discussed boost to public investment which is a necessary condition for growth. Instead, it delivered a cut.

The fanfare surrounding the review was not matched by the substance: £725bn over 10 years sounds like a substantial amount of money. But this implies an annual average level of public investment of £72.5bn. This is lower than the total of £77.6bn which was reached in 2024.

Even before taking inflation into account this is a very large cut in public-sector investment. Before the end of the period public investment could have fallen as low as £60bn a year, with disastrous consequences even for maintaining current levels of 
infrastructure, housing and transport.

There is no realistic prospect of increasing any of these.

Without growth in the economy, the government is stuck in a doom loop, where services deteriorate, spending is cut further, government debt climbs and there are fewer resources available for useful public spending, which depresses the economy even further.

Overall, the gap between average annual public investment starts at £5.1bn (the difference between £77.6bn and £72.5bn). But the effects of inflation mean that this gap rapidly widens even further, out to £12bn or more per year over the next 10 years.

Yet even this sum is far surpassed by the extraordinary announcement of an extra £32bn a year on the military, which Keir Starmer announced at the Nato summit. This will take total military spending from 2.3 per cent of GDP up to 3.5 per cent.

The target demanded by Trump of 5 per cent of GDP has been fudged, and other spending will be included to reach that total.

We should be clear, this has nothing to do with military threats from Russia or China, real or perceived. As one commentator writing in the Times put it, “the summit shows that the European leaders are more afraid of Donald Trump than they are of Vladimir Putin.”

As the Times writer put it, referring to the European leaders’ real concern that, if they want to confront Russia they will have to pay for it themselves rather than the US paying for it, Trump has other, Chinese priorities. This concern is shared by the British government, which explains the extraordinary spending commitment on the military.

The consequence is that people in this country will be paying an enormous price for this reckless, confrontational approach.

The pledge of £32bn is entirely new money, which has not appeared in recent government fiscal plans.

This waste of government money will not add to prosperity. Even the government admits that this colossal spending will create very few jobs, and that these will be among the most expensive in history.

The end product, planes, bombs and missiles, are not investment at all because they do not add to the means of production. Properly categorised, all military spending belongs to  consumption.

It is important to note the scale of this waste and how it will be funded. We have already seen that the funds allocated to public investment have been set at a lower level.

All other aspects of government spending are consumption. Some of it is useful, like welfare, or the NHS or education. But some if it has no economic or social benefit, such as military spending.

The £32bn unplanned military spending must necessarily be funded by cuts to these other areas. The widespread notion, common in Britain that the government can simply print money, is utterly foolish.

Biden tried that and sparked global inflation. Liz Truss did the same and was in office only long enough to cause a financial market slump.

The funding for the war drive can only be generated by much harsher austerity, harsher even than in 2010. The war drive and austerity are a twin assault, which must be repelled together.