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Politics latest: Chancellor declines to rule out 5% council tax rises after spending review

Rachel Reeves has told Sky News her spending plans are "fully funded" but declined to rule out tax rises. She also admitted the latest GDP figures are "disappointing". Watch and follow live coverage throughout the day in the Politics Hub.

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Did ChatGPT get the spending review right? Darren Jones gives his verdict

The chief secretary to the Treasury has called the Sky News-Chat GPT spending review projection "pretty good" and scored it 70%.

Darren Jones compared the real spending review, delivered by Rachel Reeves on Wednesday, and the Sky News AI (artificial intelligence) projection last week.

Sky News took the Treasury's spring statement, past spending reviews, the 'main estimates' from the Treasury website, and the Institute for Fiscal Studies' projections, and put them into ChatGPT, asking it to calculate the winners and losers in the spending review.

This was done 10 days ahead of the review - before several departments had agreed their budgets with the Treasury - on the basis of projections based on those public documents. 

It also comes amid a big debate kicked off by Sky News about the level of error of AI.

The Sky News-AI projection correctly put defence and health as the biggest winners, the Foreign Office as the biggest loser, and identified many departments would lose out in real terms overall.

It suggested the education budget would be smaller than it turned out, but correctly highlighted the challenges for departments like the Home Office and environment.

The dashboard is flashing warning signs, but Reeves has few places to go

By Gurpreet Narwan, business and economics correspondent

Economists suspected the comfortable growth enjoyed at the beginning of the year might prove to be short-lived, and they appear to be right.

After expanding by 0.7% in the first quarter of the year, output struggled at the start of the second quarter, shrinking by 0.3% in April. The damp performance is likely to continue, with economists expecting a 0.1% decline over the second quarter.

The dashboard is flashing warning signs. The economic data for the start of the year was flattered by people bringing forward house purchases to beat the stamp duty holiday deadline, as well as businesses racing to get orders out of the door to beat possible US tariffs.

Now that those temporary factors have faded away, we can better gauge the state of the economy. It makes for unpleasant reading. We are still being hobbled by low growth and high taxes and the two are re-enforcing each other.

Consumers have less space than usual to absorb price rises, with utility bills on the up and general inflation proving persistent. 

Taxes are already at a generational high, and they could go higher if the economy disappoints. The chancellor鈥檚 headroom against her fiscal rule is tight, with debt interest payments on the country鈥檚 debt eating into her room for manoeuvre.

Chancellor could be forced to hike taxes if things go south

The chancellor today pointed to factors outside of her control, hinting towards President Trump鈥檚 tariffs policy. 

Most of Britain鈥檚 problems are domestic ones - high government borrowing costs, rising cost of living pressures and higher taxation, but geopolitical forces have also conspired against us.

All this matters for a chancellor with an historically small fiscal headroom. Even small changes in the growth outlooks could derail her plans, forcing further tax rises to pay for her spending plans.

She is betting big on investment in infrastructure - trains, nuclear power, social housing- but it could take many years for that to pay dividends, if it pays dividends at all. 

In the meantime, the debt continues to grow as she borrows to fund those projects, putting further pressure on her budget to cover the interest payments alone.

It鈥檚 a painful feedback loop for the economy.

'Continued uncertainty will hamper investment', warns business body following fall in GDP

"Continued uncertainty will hamper investment decisions", a key business organisation has warned. 

It follows data out this morning showing the UK economy shrunk in April.

The British Chambers of Commerce said "businesses will be keen to see further action from the government", following the figures and the chancellor's spending review.

Stuart Morrison, the group's research manager, said: "The UK's partial trade deal with the US has offered some relief, but the lowering of tariffs on steel, aluminium and automotives is not yet fully assured.

"This continued uncertainty will inevitably hamper firms' investment decisions and long-term growth prospects."

Morrison said their own research has found more than four-in-five of businesses surveyed say the government's hike to employer national insurance contributions (NICs) will impact their operations.

He called for "a clear tax roadmap, covering national insurance and business rates" as this would give businesses "some certainty to plan for the future".

Morrison concluded: "Additionally, a timeline for when they might see practical changes to UK-EU trading arrangements would also be very welcome by firms navigating ongoing trade uncertainties."

Politics at Sam and Anne's: Economy shock overshadows Reeves鈥� big day

Thursday's episode of has now dropped.

Rachel Reeves has this morning said that the UK's shock economic shrink is 'disappointing'. How much will this overshadow yesterday's major spending announcement?

The chancellor has now planted Labour's fiscal flag in the sand - and spending mistakes from here on in certainly cannot be blamed on their predecessors. 

How will Labour react to a potential internal revolt over disability benefit cuts? And how will the party manage the politics around expected tax rises in the autumn?

You can listen to the full episode below or wherever you get your podcasts.

Shrinking economy is due to the 'mismanagement of the economy', Stride says

 The economy shrinking in April "speaks to the mismanagement of the economy", the shadow chancellor says. 

Mel Stride tells Sky News that Labour are "building a very fragile economy" and that this is the "root of the problem".

He says GDP falling by 0.3% in April - more than economists expected - is "very disappointing".

Stride adds: "The government has come in, put a lot of taxes on businesses, which has destroyed growth, gone out, spent a lot of money which has been inflationary.

"We've seen interest rates higher for longer. And of course, it's all adding to this national debt, upon which the servicing costs alone are 拢100 billion a year."

He points out that this is twice what the UK spends on defence.

Stride also reflects that the OBR has halved its forecast for growth this year. 

"That, as I say, is driven by the choices that this government has made to tax businesses, tax jobs, wealth creation, the things that expand the economy and to focus on spending and borrowing a lot of money", he says.

Stride believes the UK economy is now "in a very precarious situation" and thinks the government "should not be adding fuel to the fire with massive borrowing".

Reeves' big three mistakes

He says that he thinks the government has made three key mistakes.

The shadow chancellor says the chancellor "shouldn't have loaded up taxes on businesses and gone on a borrowing and spending splurge".

His second issue is that he believes the government should have "concentrated on productivity", setting efficiency targets when they gave pay rises to workers. 

"Thirdly, they should have gripped welfare spending. And that's what they've singularly failed to do", he added.

Shrinking economy 'should be a wake-up call' for Rachel Reeves, say Lib Dems

The Liberal Democrats have said GDP shrinking more than expected in April shows the government needs to "listen" and change course.

Reacting to the data, Daisy Cooper said: "Today's figures should be a wake-up call for the government which has so far refused to listen to the small businesses struggling to cope with the jobs tax, worried that our high streets will be completely hollowed out and that our hospitality sector is hanging by a thread."

The jobs tax refers to the chancellor's decision to hike employer national insurance contributions (NICs).

Reeves has called the 0.3% fall in GDP "disappointing", though she conceded she wasn't entirely surprised by the decrease because of global uncertainty, such as the imposition of tariffs by the US.

Cooper, who is the party's Treasury spokesperson, added that the government "must stop cowering in the corner" due to the tariffs, and should instead create "an economic coalition of the willing" with European and Commonwealth nations.

She also repeated the Lib Dems calls for the hike to NICs to be reversed and for a bespoke EU-UK customs union.

Reeves says further spending may be funded by rises in council tax

The chancellor says further spending could be funded by increases to council tax, but that "councils don't have to".

Sky News' Wilfred Frost asks if councils will have to hike taxes by the maximum amount for the next three years following the chancellor's spending review. 

Reeves responds that: "The previous government had a policy of increasing or having a maximum increase in council tax of 5% a year. 

"Councils don't have to increase that council tax by 5% a year. But that was a cap that the previous government put in. And it's one that we've stuck to. So we haven't changed that policy."

She reiterates that "this government is not increasing taxes on working people".

"People have been through a lot these last few years and that's why it's really important for me to honour that commitment to not increase those key taxes that government levies on ordinary working people", she concludes.

Chancellor declines to rule out further taxes but says spending review was 'fully funded'

Rachel Reeves says that she "recognises not everybody in all parts of the country" are feeling the economic benefits of the Labour government yet. 

It follows the chancellor being asked when people can expect to feel better off, following her spending review. 

She responds that the economy has grown by 0.7% over the last three months.  

Sky News' Wilfred Frost then asks if she will have to raise taxes to meet targets she set out in the spending review, such as raising defence spending to 2.6% by April 2027. 

She says that: "Everything that I set out yesterday was fully costed and fully funded."

Reeves explains that the "envelope" for public spending was set in her budget last autumn and that she hasn't "spent a penny more or penny less than I said I was going to".

She adds: "That envelope was set, and what I did yesterday was allocate that with a real focus on the priorities of the British people, on health, security and economic growth."

Chancellor says the world is 'uncertain' and declines to rule out further tax rises

Addressing suggestions that she may have to raise tax directly, the chancellor says: "I'm not going to write another four years worth of budgets before we've even got through the first year of this government."

She adds: "There was nothing that I did in the spending review yesterday that required further taxes, because everything that I set out yesterday was fully costed and fully funded."

But crucially, the chancellor does not rule out raising taxes in the future. 

Reeves says that "the world is very uncertain at the moment" and reiterates that she will not "write budgets for the future".

The chancellor also tries to draw a line under Labour's first year in government, saying that she took "difficult decisions" but now the economy is more stable, the government can focus on growth.

Shrinking economy is 'disappointing', admits chancellor

Rachel Reeves is on Sky News facing questions from Wilfred Frost after unveiling her spending plans yesterday.

In a blow to the chancellor this morning a day after she pledged to boost growth, the ONS published data showing GDP shrank by 0.3% in April, more than economists expected. 

Rachel Reeves says the fall is "disappointing", but adds they are "perhaps not entirely unexpected".

The chancellor said April was a "challenging month" due to "huge uncertainty about tariffs" imposed by Donald Trump.

Pushed if the fall in GDP is partly due to the tax hikes she introduced in April, Reeves says she didn't put taxes up "on ordinary working people".

The chancellor says: "Everyone knew that those tax changes were coming in April.

"But April was a difficult month and, since then, of course, we've managed to secure three trade deals with the US, with India, with the EU. And that is all part of this government's plan, to support our economy, to support businesses exporting and to create more good jobs, paying decent wages in all parts of the country."

She says she also "spread" investment across the country in her spending review.

Reeves adds: "I know that growth has been a problem for a long time. And now, the last decade or so, we have had sluggish growth. It's not possible to turn things around straightaway."

Watch live: Rachel Reeves speaking to Sky News

The chancellor is speaking to Sky News following the unveiling of her spending review. 

Rachel Reeves is in Derby, where she is visiting a hospital with the Health Secretary, Wes Streeting.

The chancellor made health the crown jewel of her spending review, announcing 拢29bn per year in extra cash for the NHS - she is now hoping to capitalise on that.

Watch and follow live in the stream above, and we'll bring you her comments right here on the Politics Hub.