Chancellor Rachel Reeves’ Spring Statement was never meant to be an “emergency Budget” – and it wasn’t. She acknowledged global uncertainty but reaffirmed Labour’s commitment to fiscal responsibility, economic stability, and prioritising working people.
Last October, the Chancellor clarified that her annual autumn Budget would include any tax measures, while the Spring Statement would serve to update the nation on the economy, public finances, and progress toward the Government’s economic goals. Here are some key points from her statement.
Welfare spending
On March 18, the Government announced plans to cut welfare spending by £5 billion annually, targeting Personal Independence Payments and incapacity benefits. However, the Office for Budget Responsibility (OBR) questioned whether these savings were realistic. To bridge the gap, the Chancellor today confirmed additional measures, including reductions to the health element of Universal Credit and a freeze on that support for new claimants.
Government running costs
As part of a commitment to cutting Government running costs, the Chancellor confirmed plans to reduce Civil Service numbers – expanded significantly during the COVID pandemic – by up to 10,000 jobs. She emphasised the goal of making the state “leaner and more agile.”
However, one exception to these cuts is HMRC, where staff numbers will actually increase. To close the tax gap – the shortfall between owed and collected tax – the Treasury will recruit more compliance and investigation officers. Additionally, new measures to combat tax evasion and avoidance, along with consultations on expanding HMRC’s reach, were announced. Strengthening tax compliance remains a key priority for this Government.
Defence spending
Referencing the widely acknowledged reality that “the world has changed” – and noting the shifting global perspective under the current U.S. administration – the Government has committed to increasing defence spending by £2.2 billion, funded by cuts to the foreign aid budget.
Reaffirming that growth is central to the Government’s economic strategy, Ms. Reeves emphasised her ambition to make defence a key driver of the UK’s industrial and manufacturing revival. With the urgency she outlined, engineering and IT contractors may find opportunities emerging in this sector sooner rather than later.
What will the future hold?
The Chancellor highlighted that the OBR has revised its growth forecast to 1.9% for 2026, with the 2025 forecast now reduced to just 1%. This is notably lower than her initial expectations, and growth is predicted to stay under 2% through 2029. A key factor in this growth was expected to be driven by the Government’s planning reforms and a hoped-for building boom. If this doesn’t come to fruition, could it prompt reconsideration of potential tax hikes, despite the promises made before the election?
June’s Spending Review will closely assess which Government departments might see funding cuts in the future. Although the defence and health budgets are already safeguarded, efforts to improve efficiency in these areas will likely continue. Ministers from other, lower-profile departments are probably facing the summer with some concern!
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