RACHEL Reeves has set out further cuts to social security benefits as she confirmed the UK’s growth forecast for this year has been halved.
The Chancellor said that a package of reforms unveiled by the Department for Work and Pensions (DWP) last week would not save as much as expected and that the Government wanted to go further, a move predicted to plunge hundreds of thousands of people into poverty.
In her Spring Statement in the House of Commons on Wednesday, Reeves also confirmed to MPs that the Office for Budget Responsibility (OBR) had cut its growth forecast for this year in half from 2% to just 1%.
The Chancellor said she was “not satisfied with these numbers” and outlined steps, including planning reforms and building a third runway at Heathrow Airport, which she said would boost growth.
The OBR has however revised up future growth forecasts, peaking at 1.9% in 2026, before falling to a low of 1.7% the following year and reaching 1.8% in 2029.
Inflation is also set to pile more pressure on consumers, the Chancellor confirmed with price increases set to average 3.2% this year. The OBR projects that inflation will meet the Bank of England’s 2% target from 2027 onwards, she added.
While Reeves insisted that day-to-day government spending would increase in every year of the OBR’s forecast and that capital investment in infrastructure would go up by “an average of £2 billion per year”, benefits would still be cut to meet her self-imposed fiscal rules.
While the Universal Credit standard allowance would increase to £106 per week by 2029-30, the health element for new claimants would be cut and then frozen.
When the Government’s £1bn investment in job seeker schemes was taken into account, the Chancellor said the cuts would save a total of £3.4bn over the next five years, bringing down welfare spending as a percentage of GDP from 2026 onwards.
She said: “We are reforming our welfare system, making it more sustainable, protecting the most vulnerable and supporting more people back into work.”
The UK Government’s impact assessment, published on the same day as the Spring Statement, estimated that the cuts would plunge 50,000 more children in Great Britain into relative poverty and another 50,000 into absolute poverty by 2030.
It also forecast that 250,000 adults would be in relative poverty in five years’ time and 150,000 in absolute poverty over the same period.
The Chancellor has a target of getting the budget into a £9.9bn surplus by 2030, which the OBR has said Wednesday’s £14bn package of cuts would help her meet, after this was predicted to be missed by £4.1bn if no action had been taken.
Reeves has blamed a range of factors including the ongoing impact of the war on Ukraine and said the rules which she set herself were “non-negotiable”.
These require the Government to have debt falling as a percentage of gross domestic product and for day-to-day spending to be covered by tax revenues.
But she also highlighted the major cost of government debt, with interest payments standing at £105.2bn this financial year, blaming “heightened uncertainty in financial markets”.
Elsewhere, civil servants will face redundancies, with Reeves (above) outlining plans for £3.5bn “to make Government leaner”.
The Ministry of Defence (MoD) is getting a major funding injection, as the Chancellor pledged an extra £2.2bn for the military as part of Labour’s efforts to meet American demands for higher defence spending.
The Government will also mandate that 10% of the MoD’s equipment budget is spent on “novel technologies” like artificial intelligence-enabled technology and drones, with the Chancellor saying this would drive “forward advanced manufacturing production in places like Glasgow, Derby and Newport, creating demand for highly-skilled engineers and scientists, and delivering new business opportunities for UK tech firms and start-ups”.
Some £2bn has also been put aside for UK Export finance to facilitate loans for foreign buyers of British-made weapons and military kit, Reeves said.
The OBR has forecast that people will be “on average over £500 a year better off under this Labour Government” Reeves said as she highlighted figures from the forecaster which showed that her policies would result in an extra £3.4bn being made available for public spending by 2030.
SNP Westminster leader Stephen Flynn accused Labour of ushering in “a new era of austerity cuts”, adding: “They promised to protect people but are today punching down on the poorest. They promised to be different from the Tories but are today repeating all the same mistakes of the past.”
