Rachel Reeves has outlined a fresh set of cuts to government spending without raising taxes, blaming a dramatic slowdown in growth.
The chancellor faced a major setback in the hours before delivering her spring statement when the government’s official spending watchdog rejected its forecasts for how much its welfare cuts would save. That prompted the Office for Budget Responsibility (OBR) to slash its economic growth forecast for this year from 2 per cent to 1 per cent.
Having been forced to go further than expected to fall back within her self-imposed borrowing rules, Ms Reeves set out fresh measures to cut the government welfare bill.
She promised changes were consistent with plans to cut the benefit bill announced last week, despite admitting the government was forced to make “final adjustments to the overall package”.
The Independent looks at the key takeaways from what was meant to be a minor financial update, but turned into a major spring statement.
Benefit cuts
Ms Reeves and work and pensions secretary Liz Kendall had just about seen off a Labour rebellion despite unveiling billions of pounds worth of benefit cuts.
But the pair’s plans were thrown into last-minute jeopardy when the OBR refused to accept that the measures would save the £5bn the Department for Work and Pensions (DWP) said they would.
Instead, the OBR said they would likely save just £3.4bn, taking extra spending elsewhere into account, with the chancellor and Ms Kendall being forced to find a slew of extra welfare cuts at the last minute – and forcing extra spending cuts elsewhere. Anger among Labour MPs at the unforced error is palpable.
Changes set out by the chancellor to previously announced welfare reforms will see the health element of universal credit cut in half for new claimants and then frozen. Elsewhere, the universal credit standard allowance will increase from £92 per week in 2025-26, to £106 per week by 2029-30. It had previously been expected to rise to £107 per week by that year.
But this will come alongside a £1bn investment in helping people back into work, while the DWP will spend £400m ensuring the changes are delivered effectively.
And the sense that Ms Reeves has ridden out a potential rebellion has been thrown into doubt.
Civil service job losses
The chancellor repeated her promise to slash £2bn per year from the administrative budgets of government departments by the end of the decade.
There is still no formal target for the number of civil servants who will be cut, but Ms Reeves has previously said 10,000 jobs are at risk.
It is believed the cuts will focus mainly on HR and other administrative roles, with the chancellor keen to ensure more civil servants are working on frontline services.
Other reports have suggested as many as 50,000 public sector jobs could be at risk due to the chancellor’s cost-cutting plans.
Housebuilding boost – but Labour to miss its own target
To sweeten the pill for Labour MPs, the chancellor promised thousands of new social and affordable homes will be built with a £2bn grant.
Ms Reeves vowed 18,000 new homes will be built, describing it as the biggest boost to social and affordable housebuilding in a generation.
But she accepted that Labour is likely to miss its manifesto pledge to build 1.5 million homes by the next general election.
The chancellor said the government will oversee 1.3 million new homes being built in the next five years, “within touching distance” of the election pledge.
The boost means there will be 305,000 homes a year by the end of the decade, the OBR said.
Defence boost
In another bid to keep backbenchers onside amid a spending shake-up, Ms Reeves also promised an extra £2.2bn will be spent on the UK’s defence over the next year.
Taking defence spending closer to the government’s new target of 2.5 per cent of GDP, the measure of how well an economy is performing, the chancellor said the boost will help pay for new technologies, such as long-range laser weapons – collectively known as directed energy weapons – which will be fitted to warships.
Homes for military families will, meanwhile, be refurbished, including the 36,000 recently brought back into public ownership from the private rented sector.
HM Naval Base Portsmouth will also be upgraded with the extra cash, the Treasury said.
Construction worker recruitment
One of the main reasons Ms Reeves has been forced into a corner ahead of the spring statement is because the economy has stagnated since Labour came into government.
In a bid to kickstart economic growth, the chancellor ploughed £600m into training up to 60,000 bricklayers, electricians, engineers and carpenters over the next four years.
The move is designed to help fill 35,000 job vacancies in construction after warnings revealed by The Independent that the government’s flagship scheme is unachievable due to a shortage of workers.
Tax avoidance crackdown
The chancellor also unveiled plans that she said will help her claw back an extra £1bn per year from tax dodgers, with investments in “cutting edge technology” to crack down on avoidance.
She said this would increase the number of tax fraudsters charged each year by 20 per cent.
Departmental spending cuts
Overall, day-to-day spending was set to increase by an average of 1.3 per cent per year above inflation. Ms Reeves confirmed on Wednesday it will now rise by 1.2 per cent instead.
Due to the nature of some departments, spending cuts will fall on those outside of health, defence and education, whose departmental spending is not “protected”.
It will become clear at the government’s spending review in June where the squeeze on departmental spending will fall, with ministers looking from top to bottom at where costs can be cut.
