In Westminster today, the Chancellor of the Exchequer, Rachel Reeves, delivered her first Spring Statement. Officially, this wasn’t a Budget. Reeves and the Treasury may have tried rebranding this as a “Spring Forecast” in July, but the title hasn’t stuck.
Whether labelled forecast, statement, or non-budget, today’s announcement carried the weight of a significant fiscal event. And despite the government’s efforts to keep it low-key, it’s unlikely to disappear from the headlines soon.
Economic forecast: The grim reality
The Chancellor’s message had to contend with the Office for Budget Responsibility (OBR) sharply downgrading UK growth for 2025—from 2% to a sobering 1%. The inflation rate may have dropped to 2.8%, but the OBR slashed projected welfare reform savings from £5 billion to £3.4 billion.
Reeves’s challenge is keeping together a government that’s publicly committed to stability while privately wrestling with fiscal reality and growing political friction—even within Labour’s own backbenches.
Welfare reform
The Chancellor confirmed further welfare reform measures, including:
- Freezing the UC incapacity benefit for new claimants until 2030.
- Reducing the UC health element to £50/week from 2026.
- Delaying increases to the standard UC allowance until 2026, rising above inflation from 2029.
While Reeves insists the reforms are part of a “moral mission” to support taxpayers, critics argue this is austerity by another name. Internal dissent is already brewing, with Labour MPs openly expressing discomfort at policies many see as regressive.
To soften the blow, £400 million has been committed to job centres to deliver these reforms more fairly, and over 500 new fraud and error staff will be recruited at the DWP. Still, net savings remain at £3.4 billion—far from the originally trumpeted £5 billion.
Fiscal rules and revenue-raising
Reeves remained firm on Labour’s two core fiscal rules:
- No borrowing for day-to-day spending.
- Debt must fall as a share of GDP by 2029-30.
The OBR now projects a return to fiscal surplus by 2027-28, with Reeves touting headroom of £15.1 billion by the end of the forecast—significantly more than the £6.5 billion she inherited. She pointedly reminded the House that the previous government “doubled the national debt.”
On taxation, Labour’s strategy is clear: target evasion, not working people. HMRC will receive new investment to ramp up fraud prosecutions by 20%, raising a further £1 billion. Four consultations are also launching on further tax enforcement improvements.
Cutting costs
This Statement laid out a sweeping reallocation of government resources:
- A £2.2 billion annual reduction in departmental admin budgets by 2030, likely meaning 10,000 civil service jobs cut.
- Abolishing NHS England, with £3.25 billion redirected into frontline healthcare through a new NHS Transformation Fund.
- Efficiency reforms, including AI in probation services and investment in fostering support.
Reeves assured the House that real-term day-to-day spending would rise by 1.2% above inflation each year—insisting that this is modernised, efficient governance.
Defence and global volatility
Global instability played a starring role in Reeves’ speech. Defence spending will rise to 2.5% of GDP, beginning with an immediate £2.2 billion uplift next year. Plans include:
- Investing in AI-led defence tech.
- A new £400 million innovation fund.
- Refurbishing military housing.
- Establishing a Defence Growth Board to open procurement to SMEs.
This strategic pivot comes amid heightened global tensions—especially with US President Trump’s looming “World Tariff Day” next week, which has already spooked UK growth projections.
Housing and infrastructure
The Chancellor unveiled:
- A fresh £2 billion investment in affordable housing, aiming for 18,000 new homes before the next election.
- A commitment to building 1.3 million homes over five years under a reformed National Planning Policy Framework.
- The 1.5 million home target remains “within touching distance.”
Capital spending will increase by £2 billion annually compared to autumn forecasts, aimed at boosting growth and meeting defence commitments.
Skills and jobs
Investment in skills also featured:
- £100 million for 35,000 new construction skills bootcamps.
- £40 million for 10,000 new construction Foundation Apprenticeship places.
- £165 million boost for provider funding.
- £100 million for 10 new Technical Excellence Colleges across England.
- A new Teacher Industry Exchange scheme to bring experts into further education.
These announcements are both economically and politically savvy. They support a sector crying out for investment and tick boxes for levelling up and job creation.