As part of her Spring Statement, Rachel Reeves has revealed the OBR has downgraded the growth forecast for this year from 2% to 1%Welfare will be cut, with changes to Pip and universal credit confirmed, along with £500 million of extra cuts to incapacity benefit Defence spending will increase to 2.5% of GDP by 2027 , paid for by a cut in overseas aid.It will then rise to 3% in the next parliamentPublic spending has been tightened , with departmental budgets going down from a 1.3% increase above inflation to 1.2%.It’s not as much of a decrease as had been expected, but the OBR say it will mean “significant pressures” on departmentsChancellor Rachel Reeves has gone further with cuts to welfare in her long-awaited Spring Statement, cutting the universal credit health element and freezing it until 2030.The changes came as the Office for Budget Responsibility (OBR) found the package of benefit cuts announced last week would not raise as much money as the government hoped.In her statement on changes to the public finances, Reeves announced significant cuts in spending but confirmed there will be no tax rises.In a blow to the government’s plan for growth, the OBR’s growth forecast has also been halved from 2% down to 1% for 2025.”I am not satisfied with these numbers,” Reeves told MPs.Watch Reeves’ full statement here: Despite the downgrade for 2025, Reeves told MPs the OBR forecasts for 2026 and beyond have risen, which means “people will be on average over £500 a year better off under this Labour government”.A difficult economic climate, combined with the fact that Reeves didn’t leave herself much headroom in her Autumn Budget, has left the chancellor in a tight spot.In order to honour a pledge not to break her self-imposed fiscal rules, she’s set to find extra money through cuts.The speech is not a Budget, but became a more significant event than the “update” it was initially billed as by the Treasury.Responding to the statement, Shadow Chancellor Mel Stride called Reeves “reckless,” accusing her of leaving herself a “slither of headroom against her fiddled targets”.“She borrowed and spent and taxed like it was the 1970s, little wonder that the chancellor has tanked the economy,” he said.Paul Johnson, Director of the Institute for Fiscal Studies said “I don’t think this statement will make anyone feel better off”, warning it “risks setting up more tax rises in the Autumn”.In an interview with ITV News Digital Westminster Reporter Lewis Denison, the c hancellor denied cuts in her statement amounted to “austerity 2.0″.”This is a far cry from what we saw in the Conservative years,” she said.Benefits Last week the government announced huge cuts to the benefits system, saying they would save £5 billion by 2030, but now the chancellor has gone further.Reeves announced a freeze on the health element of universal credit for new claimants until 2030, after an initial cut of 50%.The chancellor revealed the OBR’s assessment of the sums means she had to make some “final adjustments” to the package to find more savings.The OBR found her package would only save £3.4 billion, rather than the £5 billion the government hoped, but after the further cuts, the forecaster said savings will now be £4.8 billion.Reeves also announced the universal credit standard allowance will now increase from £92 per week in 2025-26, to £106 per week by 2029-30.
“Overall, these plans mean that welfare spending as a share of GDP will fall between 2026-27 and the end of the forecast period,” she told MPs.The other changes announced last week include tightening the eligibility criteria for Personal Independence Payments (Pip) and scrapping the controversial work capability assessment.The government has also published its own impact assessment on how many people will be affected by the benefits cuts, after resisting publishing them until Wednesday.The assessment says 800,000 people will be impacted by the changes to Pip eligibility, losing an average of £4,500 a year.That includes 370,000 current Pip recipients affected and 430,000 future recipients.The government’s own estimates show there will be an additional 25,000 people in relative poverty as a result of the changes, including 50,000 children.When pressed about the number of people that could fall into poverty, Reeves said she’s “confident” the changes to the benefits package will get more people into work and “lift families out of poverty.”Have you heard our podcast Talking Politics? Tom, Robert and Anushka dig into the biggest issues dominating the political agenda in every episode… The cuts sparked significant backlash among many Labour MPs and reportedly even some cabinet ministers.The government say the plans are part of efforts to get people back to work, but some backbench Labour MPs have accused Reeves of using the cuts to “balance the books on the backs of disabled people”.Spending cuts The chancellor confirmed that government departments will have their budgets tightened.Overall day-to-day spending across government will be cut by £6.1 billion in 2029-30 based on what was previously expected.Government spending will now grow by an average of 1.2% a year above inflation, compared with 1.3% in the autumn.The chancellor insisted that “day-to-day spending will increase in real terms above inflation,” and has been “fully protected,” aside from the cut to overseas aid.Despite Reeves’ promise that day-to-day spending will be protected, the OBR say there will be “significant pressures on unprotected departments, whose day-to-day budgets may need to be cut by 0.8% a year in real terms from 2026-27 to accommodate assumed commitments in other areas.”Capital spending on major projects will, however, not be cut, the chancellor said, claiming the previous government had “choked off growth” by doing so.The government will make the state “leaner and more agile,” Reeves said, as she announced a new “Transformation Fund” to reshape the public sector.Defence While much of the focus will be on the cuts announced in Reeves’ speech, what she wants to highlight is the boost the government is giving to defence spending.Last month, Prime Minister Keir Starmer committed to increasing defence spending to 2.5% of national income by 2030, paid for by a controversial cut in overseas aid funding.The chancellor promised to “secure Britain’s future and deliver prosperity for working people,” announcing an additional £2.2 billion of funding for defence.The Treasury insists this increase will not require additional borrowing and will “maintain the Chancellor’s ironclad fiscal rule”.That’s because some of the spending is going on capital projects, which aren’t scored by the OBR.Reeves blames “a world that is changing before our eyes”, as Donald Trump’s interventions in the Ukraine war have sparked concern about Europe’s ability to defend itself without US support.There’s also a lot of uncertainty around whether the government will be hit by Trump’s tariffs and the impact that could have on our economy.Starmer is desperately seeking to negotiate a trade deal with the US to avoid the tariffs.Reeves told MPs: “Now our task is to secure Britain’s future in a world that is changing before our eyes.“This moment demands an active government stepping up to secure Britain’s future.
A government on the side of working people.”Civil Service At the weekend, the chancellor announced she will cut Civil Service running costs by 15% , cutting jobs by 10,000.The move is expected to save £2.2 billion a year by 2029-30, scrapping some jobs described by Reeves as “back office,” like communications and HR.The FDA union, which represents civil servants, warned that the move “is going to affect public services”.Tax avoidance Reeves says she will raise money by cracking down on people who avoid taxes.She promised that investment in technology will allow the number of fraudsters charged every year to rise by 20%, raising £1bn.On top of other messages to tackle tax avoidance, Reeves says she will raise a total of £7.5bn.Housebuilding Planning reforms and other growth policies will generate an extra “£3.4 billion to support our public finances and our public services” by 2029-30, the chancellor told MPs.Reeves said the OBR believes housebuilding will rise to its highest in 40 years as a result of the government’s reforms to planning, helping them to move towards their target of building 1.5 million new homes by 2030.Want a quick and expert briefing on the biggest news stories? Listen to our latest podcasts to find out What You Need To Know….
