Chancellor Rachel Reeves presented the UK’s Spring Statement before Parliament on Wednesday, unveiling major spending cuts aimed at addressing a widening fiscal gap. High borrowing costs and sluggish economic growth have reduced government revenues, prompting a series of cost-cutting measures.
Welfare Adjustments and Return-to-Work Support
Reeves confirmed that final welfare adjustments will generate £4.8 billion in savings. She stated, “Disability and sickness spending will rise, but welfare’s share of GDP will fall from 2026.” The government also pledged £1.4 billion to help people return to work while implementing further benefit reductions.
Government to Slash Costs and Raise Defence Spending
Reeves outlined plans to cut state operational costs by 15% by 2030, saving £2 billion. Simultaneously, she confirmed an increase in defence spending to 2.5% of GDP from April 2027. Foreign aid will be reduced to 0.3% of gross national income to balance the budget.
“We will save £2.6 billion in 2029–30 to fund capital-heavy defence commitments,” Reeves stated. She also announced £2.2 billion in additional defence funding for next year, emphasizing that the investment enhances both national security and economic stability.
Economic Growth Forecasts Revised Downward
The Office for Budget Responsibility (OBR) cut its 2025 GDP growth forecast from 2% to 1% due to global instability and weak business sentiment. Businesses remain concerned about rising taxes and an upcoming minimum wage increase in April.
The UK’s economy expanded by just 0.1% in Q4 2024, falling short of expectations. Since the 2008 financial crisis, economic growth has remained below long-term averages, posing challenges for the Labour government’s economic priorities.
Criticism Over Fiscal Strategy
Critics argue that Reeves’ economic policies, including tax hikes and spending cuts, have contributed to the UK’s uncertain outlook. They claim that higher business taxes and cautious economic messaging have dampened confidence.
Inflation Moderates but Remains Above Target
Reeves welcomed a slight drop in inflation, as the Office for National Statistics (ONS) reported consumer prices rising by 2.8% in February, down from 3% in January. However, the OBR revised its 2024 inflation projection upward to 3.2%, compared to its previous estimate of 2.6%.
The OBR expects inflation to decline to 2.1% in 2026, with the Bank of England’s 2% target likely to be met by 2027.
Future Growth Projections Remain Modest
The OBR forecasts the following GDP growth rates:
- 1.9% in 2026
- 1.8% in 2027
- 1.7% in 2028
- 1.8% in 2029
Tax Crackdown Instead of New Tax Hikes
Reeves ruled out new tax increases, following last autumn’s £40 billion tax rise. Instead, she introduced anti-tax avoidance measures expected to generate £1 billion, with total tax evasion savings projected at £7.5 billion.
Deficit Reduction and Surplus Forecast
The UK’s fiscal deficit is projected to shrink:
- £36.1 billion in 2025–26
- £13.4 billion in 2026–27
- A budget surplus of £6 billion anticipated by 2027–28
Analysts’ Reactions to the Spring Statement
Lindsay James of Quilter noted, “The statement lacked the deep cuts some feared.” She added, “Real spending rises 1.2% instead of 1.3%, which beats expectations.”
Sarah Coles of Hargreaves Lansdown described the outlook as “less grim than expected,” stating, “Growth was cut this year but raised in other years.” However, she warned that if growth stalls, further tax increases may be introduced in the autumn.