Rachel Reeves is set to reveal additional welfare cuts in her spring statement after being informed that the reforms announced last week will result in less savings than initially anticipated, according to Sky News. The Office for Budget Responsibility (OBR) has dismissed the government’s estimate that the set of measures, which includes narrowing the eligibility criteria for personal independence payments (PIP), would save £5 billion. The fiscal watchdog has calculated the value of the cuts to be £3.4 billion, prompting ministers to scramble for additional savings.
Ms. Reeves is now expected to declare that universal credit (UC) incapacity benefits for new claimants, previously halved under the original plan, will be frozen until 2030 instead of rising in line with inflation. As per The Times, there will also be a slight reduction in the basic rate of UC in 2029, with the new measures projected to generate £500 million in revenue. A source from Whitehall informed Sky’s political editor Beth Rigby that it is uncertain how Members of Parliament will respond to the news, given that while fewer individuals will be affected by the PIP changes than anticipated, they may be displeased by the chaotic nature of the situation.
The government opted not to release an impact assessment of the crackdown on benefits announced last week, stating that it will be presented alongside the spring statement on Wednesday. Numerous Labour MPs criticized the measures for pushing more sick and disabled individuals into poverty, with former Labour leader Jeremy Corbyn denouncing the package as a «disgrace» and accusing the government of enforcing austerity on the nation.
Spending cuts are anticipated, with Ms. Reeves expected to announce a significant package of departmental spending reductions when she provides an update on the economy on Wednesday, potentially putting her at odds with her own MPs. Originally intended to be a low-key event, the spring statement has gained significance due to the turbulent economic conditions since October, which are expected to lead to a downgrade in the UK’s growth forecasts by the OBR. This has eliminated the £9.9 billion gap in fiscal headroom that Ms. Reeves had left herself in her budget last year, necessitating the need for additional funds to comply with her self-imposed fiscal rule that day-to-day spending must be covered by tax receipts rather than debt by 2029-30.
The chancellor has attributed the economic challenges to global factors, while the Conservatives attribute them to measures such as the national insurance tax hike on employers, which they claim is stifling business. Shadow chancellor Mel Stride called on Ms. Reeves to rectify her mistakes and end Labour’s war on enterprise, emphasizing the need to utilize the emergency budget for this purpose. Ms. Reeves, on the other hand, will defend her administration’s achievements in her first nine months in office in the spring statement, asserting her pride in Labour’s accomplishments.
Despite Ms. Reeves’ assurance that there will be no tax increases, public sentiment remains pessimistic about the future. More in Common found that half of the population believes the cost of living crisis will never end, while YouGov discovered that three-quarters of people prefer to see a tax on the wealthiest rather than spending cuts. The public is not expecting any tax hikes from Ms. Reeves, as she stated that her tax-raising budget in October was a one-off event.
In an effort to counter criticism, Ms. Reeves will also announce an additional £2.2 billion in defense spending over the next year to provide security for working people. This funding is part of the government’s goal to increase defense spending to 2.5% of the UK’s economic output by 2027, up from the current 2.3%. Ms. Reeves will argue that this decision, outlined by the prime minister in February, is the right one given the global instability, and will inject an additional £6.4 billion into the defense budget by 2027. The funding is sourced from reductions to the international aid budget and Treasury reserves, and will be utilized for investments in new technology, housing refurbishments for military families, and upgrades to HM Naval Base Portsmouth.
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