Report on the UK Chancellor’s Spring Statement

Chancellor Rachel Reeves presented the UK Spring Statement in the House of Commons, outlining her economic plans amidst global uncertainties. The statement focused on economic growth, fiscal responsibility, welfare reforms, public spending, and defence investments. The Office for Budget Responsibility (OBR) provided updated economic forecasts, shaping the Government’s approach to financial stability and growth.

Economic forecasts and growth

The Office for Budget Responsibility (OBR) has significantly downgraded the UK’s growth forecast for 2025, cutting its previous estimate from 2% to just 1%. Shadow Chancellor Rachel Reeves expressed dissatisfaction with this revision, stating that more needs to be done to stimulate economic growth. Despite this setback, the OBR remains optimistic about longer-term prospects, predicting consistent GDP growth year-on-year until at least 2029/30. The latest forecasts anticipate GDP rising by 1.9% in 2026, 1.8% in 2027, 1.7% in 2028, and 1.8% in 2029. Inflation is expected to average 3.2% in 2025 before declining to 2.1% in 2026, aligning with the Government’s 2% target by 2027.

Fiscal policy and deficit management

The Chancellor highlighted efforts to restore fiscal headroom. The current budget was projected to be in deficit by £4.1 billion by 2029-30, following economic downturns. However, Reeves confirmed a shift towards a surplus of £9.9 billion by 2029-30 through stringent fiscal measures, including a reduction in the deficit from £36.1 billion in 2025-26 to £6.0 billion in 2027-28.

Welfare reforms

A significant aspect of the Spring Statement focused on welfare cuts and reforms to save £4.8 billion. Reeves stated that if you can work, you should – and if you can’t, you should be supported.

Key changes include:

• The Universal Credit Standard Allowance will increase from £92 per week in 2025-26 to £106 per week by 2029-30.
• The Universal Credit Health Element will be reduced by 50% and frozen for new claimants.
• A stricter eligibility test for Personal Independence Payments (PIPs) will be introduced in November 2026.
• Incapacity benefits will be halved and frozen in cash terms at £97 per week for existing claimants, with top-up payments only for those with severe conditions.
• The incapacity benefit top-up for Universal Credit will be removed for claimants under 22.

Cost of living and household income

The Chancellor addressed the cost-of-living crisis, claiming that households will be on average £500 better off under current government policies. The OBR reported that Real Household Disposable Income would grow at almost double the rate forecast in the autumn, with living standards improving at twice the rate of the previous parliamentary term.

Housing and infrastructure

The Government plans to increase housebuilding to a 40-year high of 305,000 homes per year by 2029-30. Planning reforms, including the use of “grey belt” land and mandatory housing targets, are expected to boost real GDP by 0.2%, adding £6.8 billion to the economy.

Reeves says that earlier this week the education secretary announced more than £600m to train up to 60,000 more construction workers, and to provide 10 new technical excellence colleges across every region of the country.

Defence spending

Given global security concerns, the Chancellor announced an additional £2.2 billion for the Ministry of Defence next year. This will contribute to the goal of raising defence spending to 2.5% of GDP by April 2027. The increase will be partly funded by reducing overseas aid from 0.5% to 0.3% of Gross National Income by 2027.

Government efficiency and tax avoidance

Reeves outlined measures to cut government administrative costs by 15% by 2030, with around 10,000 civil service jobs expected to be cut. Additionally, the Government aims to generate £1 billion through enhanced tax enforcement, leveraging advanced technology to combat fraud and tax avoidance.

Fiscal rules and commitments

The Chancellor reaffirmed her commitment to two key fiscal rules:

1. Ensuring that day-to-day government spending is met by tax receipts by 2029-30, preventing reliance on borrowing.

2. Reducing net financial debt by the end of the forecast period in 2029-30. These rules are designed to maintain economic stability and prevent excessive public borrowing.

The Spring Statement reflects the Government’s strategy to balance economic growth with fiscal discipline. With upgraded growth forecasts, targeted welfare reforms, increased defence spending, and investments in infrastructure, the Government aims to foster financial stability while addressing cost-of-living concerns. However, significant cuts in public services and welfare benefits may raise concerns about the social impact of these measures. The coming years will determine the effectiveness of the Chancellor’s policies in achieving long-term economic security and growth.