Further Welfare Cuts Expected in Spring Statement
Chancellor Rachel Reeves is set to announce additional welfare cuts and departmental budget reductions in her Spring Statement on Wednesday.
Following last week’s major welfare spending reductions, the government is planning deeper cuts after revised estimates from the Office for Budget Responsibility (OBR) suggested that previous reforms would save only £3.4 billion by 2029/30, instead of the £5 billion originally projected.
Economic Pressures and Defence Spending
With sluggish economic growth, Reeves faces increasing pressure to boost the economy while sticking to Labour’s fiscal rules. However, she will argue that the UK must “move quickly in a changing world” and is expected to confirm a £2.2 billion increase in defence spending.
Her Spring Statement, scheduled for 12:30 GMT, will highlight concerns over economic uncertainty caused by the Ukraine war and US trade tariffs, which could disrupt global markets.
Stricter Welfare Reforms
New welfare reforms will include stricter Personal Independence Payment (PIP) tests, impacting hundreds of thousands of claimants. Reports suggest that many claimants who lose health-related benefit payments may apply for alternative, more severe disability benefits instead.
The Times first reported that Reeves would introduce additional welfare reductions to make up for the shortfall, a claim the government has not denied.
National Security and Economic Growth
In her address, Reeves will emphasize Labour’s achievements over the past nine months in power and position national security as a key driver of economic stability.
“This moment demands an active government stepping up to secure Britain’s future. We need to go further and faster to kickstart growth, protect national security, and make people better off,” Reeves will say.
The additional defence funding will be allocated to advanced military technology, including new energy weapons for the Royal Navy. Some funds will also go toward improving housing for military families and upgrading Naval Base Portsmouth infrastructure.
Fiscal Challenges and Borrowing Costs
Reeves has ruled out tax increases but faces challenges due to low economic growth and rising government borrowing costs.
Labour has pledged not to borrow for day-to-day spending and aims to reduce national debt as a share of GDP by the end of this parliamentary term. However, Helen Miller, deputy director of the Institute for Fiscal Studies (IFS), warned that Reeves has left a “tiny margin” in the Budget, making it difficult to maintain these fiscal commitments.
The OBR’s latest forecast, expected after the Spring Statement, will likely downgrade UK growth expectations.
Economic Outlook: Slow Growth and Rising Interest Rates
Recent official figures show the UK economy grew by just 0.1% in Q4 2024, with a 0.1% contraction in January 2025. A slow economy impacts businesses, jobs, wages, and tax revenues, putting pressure on government finances.
Reeves has blamed the rising cost of government borrowing on global economic uncertainty, including the Ukraine conflict and US trade policies. However, critics argue that Labour’s economic policies are partly responsible for higher borrowing costs, with 10-year UK government bond yields nearing 4.8% on Tuesday.
Stay Updated on the Spring Statement 2025
Follow live updates on Spring Statement 2025 for the latest announcements on welfare, defence, and economic policies.
