Rachel Reeves has used her spring statement to announce a series of public spending cuts in order to balance the books without raising taxes.
The statement to the Commons was not intended to be as significant as a budget, as the Chancellor has promised to only make one major fiscal intervention a year in order to provide stability for businesses and consumers.
But gloomy economic forecasts and slow growth have left Ms Reeves scrambling to address the reduced spending headroom within her self-imposed fiscal rules.
To stick to her commitment to meet day-to-day spending through tax receipts, rather than extra borrowing, Ms Reeves has made moves to reduce spending across Government.
In an era of global change, we will deliver security for working people and renewal for Britain.
— Keir Starmer (@Keir_Starmer) March 26, 2025
She also set out extra funding for the military, as ministers work towards the goal of spending 2.5% of the UK’s economic output on defence by 2027.
Here are the main points from the Chancellor’s spring statement:
– Global events
The Chancellor sought to pin much of the UK’s economic woes on “increased global uncertainty”.
Her warnings about a world “that is changing before our eyes” was largely directed at the economic impact of war in Ukraine, and the West’s ongoing clash with Russia.
However, this warning could also be interpreted as a signal that Donald Trump’s tariffs on all imports to America will hit the British economy.
– The latest growth forecasts
The Office for Budget Responsibility (OBR) has cut growth forecasts for 2025 from 2% to 1%, Ms Reeves said, adding she was “not satisfied with these numbers”.
The watchdog also estimated inflation will average 3.2% this year, before falling to 2.1% in 2026 and then 2% from 2027.
Ms Reeves earlier told the Commons her fiscal rules, including her commitment not to borrow for day-to-day spending and to reduce debt, were “non-negotiable”.
The Chancellor had £9.9 billion headroom of spending power following the budget last year, according to forecasts at the time.
But the latest analysis showed the Government would be in a £4.1 billion deficit by 2029-30 if current spending had continued without changes, Ms Reeves said.
Spending headroom has now been “restored in full” by steps announced on Wednesday, the Chancellor said.
While the short-term growth forecasts appear gloomy, the Chancellor said the OBR predicts the economy will be “larger” by the end of the forecast compared with the time of her first budget as a result of her decisions.
– Welfare
To adhere to her fiscal rules, the Chancellor announced further welfare cuts.
The OBR found that steps to cut welfare spending set out earlier in March would save £4.8 billion after “final adjustments” made by the Government.
This is slightly short of the £5 billion originally envisaged by ministers, and came after the Chancellor confirmed her original cost-cutting plans would have saved just £3.4 billion, as reported by several media outlets overnight.
Among the latest changes to welfare spending, Ms Reeves said the universal credit health element – sometimes called incapacity benefits – would be cut by 50% and frozen for new claimants.
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.
Security for working people and renewal for our country.
— Rachel Reeves (@RachelReevesMP) March 26, 2025
That is our mission.
And in a changing world we will deliver.
– Spending cuts
Government departments will have to cut their running costs, the Chancellor said.
Overall day-to day-spending across Government will be cut by £6.1 billion in 2029-30 based on what was previously expected.
Government spending will now grow by an average of 1.2% a year above inflation, compared with 1.3% in the autumn.
Capital spending on major projects will, however, not be cut, the Chancellor said, claiming the previous government had “choked off growth” by doing so.
The Government will make the state “leaner and more agile”, Ms Reeves said, as she announced a new “Transformation Fund” to reshape the public sector.
The work, carried out by the Cabinet Office aims to reduce the costs of running government by 15%, worth £2 billion, by the end of the decade.
“Voluntary exit schemes to reduce the size of the Civil Service” will be part of the £3.25 billion Transformation Fund, the Chancellor said.
Other work to drive efficiency in the Civil Service will include encouraging the adoption of new AI tools and other technology.
– Tax evasion
The Chancellor also announced steps to crack down on tax evasion, which she said would raise “£6.5 billion per year” for the public purse.
The world is changing.
— HM Treasury (@hmtreasury) March 26, 2025
That's why we are confirming a further £2.2bn defence spending uplift for 2025/2026.
Investing in advanced weaponry for our troops as well as providing better homes for military families. pic.twitter.com/GjMqaCKsBV
– Defence
The Chancellor announced a £2.2 billion defence spending hike over the next year from April.
This will be spent on new high-tech weaponry, upgrading HM Naval Base in Portsmouth, and refurbishing military family homes, among other things.
The commitment is fully funded, with cash coming from Treasury reserves and also from the decision to slash foreign aid funding.
– Housebuilding
Planning reforms and other growth-minded policies will generate an extra “£3.4 billion to support our public finances and our public services” by 2029-30, the Chancellor said.
The OBR believes housebuilding will rise to it highest in 40 years as a result of the reforms ministers are undertaking, Ms Reeves said.
Changes to national planning policy alone will take the Government “within touching distance” of its manifesto promise to build 1.5 million new homes, the Chancellor claimed.
This will “help build over 1.3 million homes in the UK over the next five years”, Ms Reeves said, pointing to OBR analysis.
