The Chancellor is expected to make sweeping cuts to welfare in a bid to bring down Britain’s benefits bill amid warnings over trade tariffs, higher inflation and borrowing costs in the UK.
Rachel Reeves will slash public spending by billions of pounds in her spring statement on March 26 in response to the latest forecasts from the Budget watchdog, it has been reported.
Increased borrowing costs and weak economic growth mean she is likely to require significant spending cuts in order to meet her commitments on managing the public finances.
The Treasury is putting its plans to the Office for Budget Responsibility (OBR) on Wednesday as part of the watchdog's forecast process, according to the BBC.
Cutting benefits and pushing for greater efficiency across Government departments is expected to contribute the bulk of the savings.
Justice Secretary Shabana Mahmood defended the moves.
"There is a moral case here for making sure that people who can work are able to work and there's a practical point here as well, because our current situation is unsustainable,” she told BBC Radio 4's Today on Wednesday.
A leaked early draft of the forecast indicated the OBR is cutting its forecast for economic growth and the cost of Government borrowing will have been impacted by the turbulence in the bond markets in January.
At the time of the Budget in October, the watchdog said the Chancellor had £9.9billion of headroom against her self-imposed rule to fund day-to-day spending through tax revenues rather than more borrowing.
But global factors such as higher inflation and borrowing costs is likely to significantly diminish that space for movement. There are also questions over trade tariffs which might be imposed by US President Donald Trump and how they may hit the British economy.
"Clearly the world has changed a lot since the autumn Budget. People are watching that change happen before their eyes,” a Government source told the BBC.
"The Office for Budget Responsibility will reflect that changing world in its forecasts later this month and a changing world will be a core feature of the Chancellor's response later this month."
Ms Mahmood said: "We know that there are many people who are currently receiving state support for being out of work who want to be in work.
“We know that we have too many of our young people currently out of work, not in education, employment or training."
Work and Pensions Secretary Liz Kendall is expected to set out reforms within weeks.
She told Cabinet colleagues on Tuesday that there are 2.8 million people not in work due to ill-health and one in eight young people not in education, training or employment.
This is "holding back the economy" and is "bad for people's wellbeing and health", she argued as the sickness and disability bill for working age people has risen by £20billion since the pandemic and forecast to hit £70 billion over the next five years.
A Health and Disability Green Paper will set out plans to supports those who can work back into jobs, rather than write them off, she said.
Cabinet Office minister Pat McFadden and Health Secretary Wes Streeting are also expected to set out an efficiency drive, which will reduce the number of civil servants and cut costs, in the run-up to the statement, the BBC said.
