Chancellor Rachel Reeves has already firmly committed to avoid raising any taxes in her upcoming detailed Spring Statement. Reeves is going to be forced to make a wave of painful spending reductions. This squeezes the £5 billion public sector welfare reduction, clearly the largest single cut imposed in a decade, with a £2.2 billion increase in defence spending. The news comes at a dire moment of historic economic malaise. Global uncertainties — including the impact of the ongoing Ukraine conflict and rising US tariffs — hang heavy in the air. On 10 January 2025, the Office for National Statistics announced that the UK economy grew by only 0.1% from October to December 2024. In January, it decreased once more – this time by 0.1%.
Reeves will argue the need for the UK to "move quickly in a changing world," emphasizing the importance of adapting to shifting global dynamics. She credits the further deterioration of the public finances to rising international borrowing costs. Furthermore, businesses are set to face greater costs as of April owing both to escalating levels of minimum wage rates and surging National Insurance contributions. We expect the Chancellor to set out a clear plan to support them through these stormy waters.
So far, the Chancellor has announced £24bn in spending cuts as a first step towards rebalancing the nation’s finances. Further specifics of these reductions, especially the £5 billion in welfare cuts, will be unveiled in the Spring Statement. This fiscal tightening is just one element of a robust series of measures to rein in public expenditure all while looking to avoid tax increases.
The UK's sluggish economic performance is anticipated to reflect in the Office for Budget Responsibility's (OBR) revised growth expectations. The OBR is set to publish its latest official economic forecast following the Spring Statement, providing further insights into the economic outlook.
Reeves’ strategy includes major investments in defense and affordable housing. The UK government recently announced £2 billion to build more affordable homes in England. This strategic investment will adopt cutting-edge technologies, including artificial intelligence, demonstrating their foresight in supporting innovation-led economic growth. The £2.2 billion increase in defense spending will bring energy weapons unthinkably advanced to Royal Navy ships. This plan is a substantial investment in realizing our national security.
"This moment demands an active government stepping up to secure Britain's future… we need to go further and faster to kickstart growth, protect national security and make people better off through our plan for change," stated Chancellor Rachel Reeves.
Reeves’ plan focuses just as much on national security as on improving economic security. Given current international pressures and economic storms on the horizon, she highlights the need for a nimble and anticipatory government reaction.
"It's not just about increasing our national security but increasing our economic security, too," said Chancellor Rachel Reeves.
The Chancellor’s announcement comes at an important time, as the UK faces several intersecting economic crises. The Spring Statement – due tomorrow – will be the first test of the government’s commitment to addressing them. All the while, it will look to preserve fiscal order.