Rachel Reeves is set to outline more than £10bn of spending cuts in next week’s Spring Statement in a bid to fill a fiscal hole caused by sluggish growth and higher borrowing costs.
People briefed on the chancellor’s speech next Wednesday said the moves — which include a crackdown of more than £5bn on departmental spending growth as well as recently announced welfare cuts of £5bn — will help her meet her fiscal rule to balance the budget by 2029-30.
They add that Reeves’ statement, which blames her problems on a “changing world”, will make dismal reading.
The independent Office for Budget Responsibility (OBR) is expected to roughly halve its 2 per cent growth forecast for 2025.
Treasury officials add that the UK’s fiscal position could deteriorate further if US President Donald Trump’s global trade war escalates and forces Reeves to make further cuts and raise taxes in this year’s autumn Budget.
“All our plans could be knocked off course,” admitted one of the chancellor’s allies.
But Reeves, in a House of Commons statement expected to last up to half an hour, will claim that Britain is “uniquely well placed” to weather global storms, according to the people briefed on her speech.
She will argue that Sir Keir Starmer, prime minister, has built close ties with Trump that ministers hope will shield Britain from the harshest US tariffs, while also mending fences with the EU.
The chancellor will emphasise the need for solid public finances, public service reform and a need to go “further and faster” to boost growth.
Anticipating claims that Reeves is imposing austerity, one ally said: “If we are going to have world-class public services you can only do it if you run the public finances in the responsible, sustainable way.”
The OBR forecast in October that Reeves would meet her key fiscal rule — requiring her to balance the current budget, which excludes investment spending — by just £9.9bn.
That slim headroom has since been erased because of flatlining growth, higher-than-expected borrowing figures and higher interest rates, the OBR found when it presented preliminary forecasts to the Treasury last month.
Since then the Treasury has been working on measures to pull headroom roughly back to where it stood in October, according to people briefed on the preparations.
It hopes to do so by achieving overall fiscal consolidation of around £10bn-£15bn by the end of the parliament.
The government hopes its efforts to bear down on day-to-day departmental spending growth will save more than £5bn by the end of the parliament.
But many independent analysts have criticised the current spending plans, which Labour inherited from the Conservatives last year, as unrealistically tight.
A further part of the fiscal consolidation effort will be the £5bn of welfare cuts announced this week as part of a package to reform disability and sickness benefits.
The impact of those reforms on growth and employment will be laid out in the OBR’s official forecast on Wednesday. An impact assessment of how the cuts will hit claimants will also be published and is likely to be highly politically sensitive.
Reeves will make “security” the theme of her speech, highlighting a £6bn increase in defence spending funded by cuts to the overseas aid budget.
That switch will generate savings of around £2bn because a share of the funds to be deployed in defence will be used as capital investment, which does not score against the current Budget rule.
The government hopes that a crackdown on tax non-compliance will also help fill the fiscal gap.
Reeves is not planning to raise tax rates as she sticks with pledges not to hold two Budgets a year.
But the need for fiscal consolidation was underscored by official data on Friday showing that borrowing in February was £10.7bn last month, compared with a forecast of £6.5bn from the OBR.
In the fiscal year to date, borrowing has been more than £20bn above OBR forecasts released as recently as October.
Reeves will be anxious to present some good news in her statement and has been looking for announcements to raise the spirits of Labour MPs.
She has been rushing to finalise a financial package to secure the construction near Bedford of Europe’s biggest theme park, as she looks for good news to announce in next week’s Spring Statement.
People briefed on negotiations between the Treasury and Universal Destinations & Experiences, owned by the US media group Comcast, say the discussions are “progressing well”.
But other government officials cautioned that the deal had not been nailed down and was unlikely to be ready by next Wednesday.
The Treasury said: “The OBR’s next forecast will be presented to Parliament on 26 March alongside a statement from the chancellor. We do not comment on speculation around OBR forecasts.”
