Chancellor Rachel Reeves has unveiled a sharply austere Spring Statement, announcing deeper-than-expected cuts to welfare and public spending in a bid to restore fiscal headroom—but economists say tax rises may still be needed later this year.
The Office for Budget Responsibility (OBR) halved its UK growth forecast for 2025 from 2% to 1%, citing global uncertainty and the risk of retaliatory US tariffs under President Donald Trump. Though Reeves was able to meet her self-imposed borrowing rules, she was forced into last-minute adjustments to avoid breaching them, including a further £3.4bn in welfare cuts and £3.5bn in reductions to Whitehall budgets by 2029–30.
Fiscal rules intact—for now
The Chancellor’s two fiscal rules—no borrowing for day-to-day spending and falling debt-to-GDP by the end of the parliament—remain intact, but just barely. Her revised plans restored the £9.9bn buffer against borrowing limits that had evaporated amid rising interest costs. The OBR warned, however, that any global trade shock—such as a 20% US tariff—could wipe out that margin and reduce UK output by 1% next year.
Welfare cuts deepen amid criticism
The most controversial element of the statement was the expansion of cuts to welfare spending. Reeves confirmed a freeze on certain disability-related universal credit entitlements and a halving of some health-linked benefits. These changes follow the OBR’s assessment that ministers had overstated savings from reforms announced by Work and Pensions Secretary Liz Kendall last week.
To soften the blow, Reeves pledged £1bn in new work support and said universal credit’s standard allowance would rise from £92 to £106 per week by 2029–30. Still, critics warned the measures could disproportionately affect the most vulnerable.
Public sector and defence shifts
Reeves also announced plans to cut operational spending across departments by 15%, saving an estimated £2bn, and to reduce overseas aid to 0.3% of gross national income. Meanwhile, defence spending will rise to 2.5% of GDP from April 2027, with £2.2bn in additional funding starting next year.
“This additional investment is not just about increasing our national security, but increasing our economic security too,” Reeves said.
No new taxes—for now
Having raised £40bn in taxes last autumn, Reeves said no further hikes would be included in this Budget. However, £1bn in new anti-avoidance measures brings the total expected from tackling evasion to £7.5bn. Asked if future increases were possible, Reeves insisted, “We’ll never have to do a Budget like that again”—though analysts remain sceptical.
Growth downgraded for 2025, improved later
The OBR expects GDP growth to rise to 1.9% in 2026, 1.8% in 2027, and 1.8% again by 2029, following housebuilding and planning reforms announced last year. The government aims to build 1.5m homes by 2030, with 1.3m forecast under current policies.
The OBR said the reforms would raise GDP by 0.2% by 2030 and contribute £6.8bn to the economy—“the biggest positive growth impact [it] has ever reflected in a forecast for a policy with no fiscal cost,” Reeves claimed.
Inflation and household income
Inflation forecasts were revised up to 3.2% for 2025 but are still expected to fall back to the Bank of England’s 2% target by 2027. Real household disposable income is expected to grow by 0.5% a year, with people £500 better off on average by 2029–30 compared to prior forecasts, Reeves said.
Autumn Budget looms large
Despite managing to balance the books for now, Reeves’s tight margins mean further economic shocks—especially from rising US protectionism—could force policy reversals. With inflation still elevated and growth faltering, analysts expect tax increases to return to the political agenda before year’s end.
