Rachel Reeves has just unveiled a series of significant public spending decisions in her Spring Statement as she tries to balance the nation’s books.
The announcement was originally intended to be an update on the UK’s finances five months after her October Budget, as the chancellor promised to only deliver one landmark intervention per year to help stabilise the economy.
But despite growth being government’s “number one mission”, the UK’s economy is far from booming.
The lack of growth combined with difficult fiscal forecasts forced the chancellor’s hand, especially as the “headroom”, or spare cash, she thought was in the public coffers has evaporated in the past six months.
The government is also facing international pressure to spend more on defence due to the Ukraine crisis and Donald Trump’s decision to pull back from Europe.
To follow her own self-imposed fiscal rules and avoid borrowing for day-to-day spending, Reeves had to announce further cuts to make ends meet.
Here’s a breakdown of the main announcements from her statement in the Commons today.
1. ‘Increased global uncertainty’
The chancellor began by saying Labour was elected to “bring change to our country, provide security for working people and deliver a decade of national renewal”.
She pointed out that the Bank of England has cut interest rates three times since the government was elected as a sign of the economic stability Labour has brought to the country.
But Reeves also blamed the UK’s rather difficult economic situation on a world which is “changing before our eyes” today – without mentioning her own divisive policies from last autumn, like increasing National Insurance for employers.
While she did not name them, Reeves was most likely hinting at the economic impact of war in Ukraine, the pressures to spend more on defence because of Russian aggression, and Donald Trump’s plan to stick tariffs on all US imports.
2. Unflattering growth predictions
As is customary, Reeves read out the predictions from the independent watchdog, the Office for Budget Responsibility (OBR), during her statement.
She revealed the OBR has reduced its growth forecasts for the UK in 2025 from 2% to 1% and admitted she was “not satisfied with these numbers”.
While inflation has just dropped from 3% to 2.8% today, the OBR thinks it will shoot back up later this year to an average of 3.2% overall.
The OBR predicted declines further down the line though, as the watchdog expects inflation fall to 2.1% in 2026 and to 2% – the Bank of England’s target rate – from 2027.
Reeves also claimed the OBR has now forecast a “larger” economy by the end of the forecast, when compared to the predictions it had after her October Budget.
She noted real household income will grow this year at twice the rate expected in the autumn – meaning people will be £500 a year better off compared to the Tories’ final budget.
3. Spending headroom ‘restored’
After her October Budget, the OBR forecast that Reeves would have £9.9 billion of headroom in 2029.
However, the chancellor said the government was facing a deficit in day-to-spending of £4.1bn amid mounting global turmoil over the past six months.
Government spending cuts mean that headroom has been “restored in full”, according to Reeves.
She said there would be a surplus of £6bn in 2027-28, rising to £9.9bn in 2029-30.
4. Welfare cuts 2.0
Reeves announced she was slashing the welfare bill again today, despite work and pensions secretary Liz Kendall announcing significant cuts just last week.
The government had promised this would save £5 billion – but the OBR found it would actually save just £3.4 billion, so the chancellor was forced to go further today.
By cutting the universal credit health element by 50% and freezing it for new claimants, the OBR has confirmed the cuts will now save £4.8 billion.
Despite reducing the budget, the universal credit standard allowance will increase from £92 in 2025-26 to £106 per week by 2029-30, above inflation.
That is a pound less than was previously expected (£107 per week by the end of the decade).
The government has insisted this is not a return to the austerity years introduced under the Conservative-Lib Dem coalition because the overall amount the government is spending is still going up in real terms every year.
5. Cutbacks on government running costs
The Cabinet Office is looking to cut the cost of running the government by 15% (£2bn) by the end of the decade.
So Reeves announced today that day-to-day spending across government is expected to be cut by £6.1 billion in 2029-30, as it becomes “leaner and more agile”.
It means government spending will now grow by an average of 1.2% above inflation compared to 1.3% in the autumn.
Yet Reeves said she would not cut capital spending on major projects – blaming her predecessors in the Tory government for “choking off growth”.
Instead there will a £3.25 billion “Transformation Fund” for the public sector, which will include voluntary exit schemes will be introduced to cut the civil service and more AI use in Whitehall.
6. Crackdown on tax evasion
While the chancellor did not announce any further tax increases, she said it “cannot be right that others are still evading what they rightly owe in tax”.
The chancellor promised to reduce tax evasion with cutting-edge tech, which she promised would raise ”£7.5 billion per year” – a £1 billion more than previously assumed.
7. Defence boost
Reeves confirmed there will be a £2.2 billion defence spending hike over the next year from April, most of which will go on high-tech weaponry.
The chancellor said this was “fully funded”, pointing to the money the government has taken from the foreign aid budget and the Treasury reserves, and the scarpping of NHS England.
It’s part of Labour’s drive to spend 2.5% of gross domestic product (GDP) on defence by 2027.
8. Housebuilding
Planning reforms will help to generate an extra ”£3.4 billon to support our public finances and public services” by the end of the decade, according to Reeves.
The OBR also predicted that housebuilding will rise to its highest level in 40 years due to Labour’s interventions.
The government promised in its election manifesto to build 1.5 million new homes across this parliament.
Reeves claimed that these planning reform alone will help build more than 1.3 million homes over the next five years.
The chancellor said opposing Labour’s planning reforms would mean “opposing economic growth”.
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