Michelle ThompsonThe Chancellor is set to propose significant spending cuts to welfare and other government departments ahead of the Spring Statement. The Treasury will present these proposed cuts to the Office for Budget Responsibility (OBR) on Wednesday, with expectations that the Chancellor’s financial buffer has been depleted. Sources noted that the financial situation has shifted since last October’s budget, when the OBR indicated a £9.9bn surplus under Rachel Reeves’s borrowing rules. Global factors like trade tariffs, inflation, and rising borrowing costs are expected to erase this surplus.
The Treasury will outline its “major measures,” which include changes to tax and spending, to align with the Chancellor’s self-imposed borrowing rules. These rules, designed to maintain market credibility, mandate that the government reduce debt as a share of the economy and only borrow for investment, not daily expenses. Reeves has firmly stated that these rules are “non-negotiable.”
The proposed cuts aim to address the emerging financial gap, with the OBR’s updated forecast expected later this month. The government attributes the rise in borrowing costs to global factors, such as the war in Ukraine and trade tariffs. Insiders anticipate “politically painful” welfare cuts, particularly targeting the growth of health-related benefits, which will be addressed by Work and Pensions Secretary Liz Kendall in a forthcoming speech.
“Significant increase in welfare spending.”
When asked on Wednesday if welfare cuts were the right solution, Justice Secretary Shabana Mahmood stated on BBC Radio 4’s Today programme that there has been a “huge rise in the welfare budget” and that too many young people are not engaged in work, education, or training. She emphasized that there is a moral obligation to ensure people who can work are able to do so, alongside the practical necessity of addressing the unsustainable current situation.
Rachel Reeves has previously committed to “fundamental” reforms of the welfare system, citing concerns over rising spending on health-related benefits. Last year, the government spent £65bn on sickness benefits, a 25% increase compared to the period before the Covid pandemic. This amount is expected to rise to about £100bn before the next general election. While some of this increase is attributed to the Covid legacy, ministers have raised concerns about system incentives that may encourage misuse.
Under Universal Credit, individuals must prove they are actively job-seeking, or risk sanctions. However, those receiving sickness benefits are not necessarily required to seek employment, despite receiving higher payments.
Steve Wright, General Secretary of the Fire Brigades Union, argued that any welfare cuts would be an “outrageous attack on the poorest and most vulnerable.”
The Chancellor will assert that her plans remain unchanged, emphasizing that the government has always intended to “reform welfare to get people back to work” and to “improve NHS productivity.” An insider told the BBC that despite the financial challenges, the Chancellor is committed to pushing through necessary changes to make Britain more secure and prosperous, with the entire government rallying behind this message in the coming weeks.
Meanwhile, US President Donald Trump recently imposed tariffs on the UK’s three biggest trading partners: Canada, Mexico, and China. Trump has suggested that the UK might avoid border taxes, but Rachel Reeves warned the BBC that, even if the UK is not directly affected by tariffs, a global trade war would still lower growth and increase inflation.
The ongoing uncertainty surrounding the war in Ukraine has led the UK to boost defense spending by reducing international aid. In preparation for the Spring Statement, Cabinet Office Minister Pat McFadden and Health Secretary Wes Streeting will unveil a major efficiency initiative within the civil service, aiming to achieve significant cost and headcount reductions.
The OBR’s forecast has been impacted by factors such as stagnation in the euro area economy and weaker UK productivity numbers. There are also concerns about the impact of Reeves’s previously announced tax increases on businesses, which are set to take effect in April, and their potential effect on the UK economy.
Additionally, inflation is expected to rise in the coming months, with households facing higher costs for energy, water, and council tax bills.
