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U.K.’s Chancellor of the Exchequer, Rachel Reeves. File
| Photo Credit: Reuters
The U.K.’s Chancellor of the Exchequer, Rachel Reeves, announced that she would deepen previously announced cuts to disability and sickness benefits as part of a £14 billion package to fix the country’s public finances.
The Chancellor, who emphasized higher borrowing costs and greater trade uncertainties in the world, also confirmed a previously announced increase in arms expenditures as part of the U.K. increasing its contributions to the defence of Ukraine and Europe.
“The increased global uncertainty has had two consequences, first on our public finances, and second, on our economy,” Ms. Reeves said as she unveiled her ‘Spring Statement’ . The speech came on the same day the U.K.’s independent fiscal watchdog, the Office for Budget Responsibility (OBR) halved the U.K.’s growth rate for 2025, from 2% to 1%, but upgraded growth over the next few years.
In the face of opposition from its own party, the government had announced welfare cuts last week, which it claimed would result in savings of £5 bn. OBR had rejected these numbers, estimating instead that the resulting savings would fall short by £ 1.4 bn, necessitating further welfare cuts and setting the government and the OBR on a collision course. Ms Reeve confirmed on Wednesday that the additional welfare cuts would save £ 4.8 bn.
“If you can work, you should work; but if you can’t work, you should be properly supported,” the chancellor said, suggesting that too many people were qualifying for ‘Personal Independence Payments ( PiP)’ each day. The government has announced that it will reform PiP, which is not a means-tested benefit, in addition to reforming elements of the ‘Universal Credit‘ scheme, a means-tested benefit.
Ms Reeves said she was keeping to a commitment to not raise taxes right now, but she said she would crack down on tax evasion. The chancellor announced investments to combat evasion, expected to raise £ 1 bn. She also announced that planning and other reforms would save another £ 3.4 bn by 2029-30.
Ms Reeves also confirmed an increase in defence spending of half a percentage point of GDP to 2.5% in 2027 and a “downpayment “ of £2.2 bn in the next fiscal year, funded by cuts to foreign aid.
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The chancellor touted the increased defence spending as a catalyst for jobs in the defence sector. The increase in defence spending was first announced by U.K. Prime Minister Keir Starmer, in February, in response to pressure from U.S. President Donald Trump on European countries, to increase their defence expenditure and to fill funding gaps for Ukraine’s defence as the U.S. steps back from assisting Kyiv financially and militarily.
Mr Trump’s America First policy cast a long shadow on the interim budget.
“We have had disturbing reports that the government is considering scrapping the digital services tax and watering down Britain’s online safety legislation to appease President Trump and his co-President Elon Musk,” leader of the Liberal Democrats Ed Davey said in the House of Commons during Prime Minister’s Questions, just prior to Ms Reeve’s statement. Mr Davey asked if the Britian’s tax and digital laws would be written in the House of Commons and not the White House.
The OBR forecasted a possible 1 percentage point drop in the peak GDP of the U.K. (upto 2029) if the U.S. were to impose an additional 20% tariff on the rest of the world. The U.K. and the U.S. are currently in the process of discussing a trade deal.
Published – March 26, 2025 10:09 pm IST
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U.K. Chancellor announces welfare cuts, increased defence expenditure to fix public finances
