Chancellor Rachel Reeves has adhered to her fiscal rules, which mandate that the budget for day-to-day spending must balance by the 2029-30 financial year and that government debt must fall as a percentage of GDP (gross domestic product) by 2027.
Despite the challenging economic environment, she has maintained these rules by implementing strategic spending cuts and avoiding further tax increases or additional borrowing. Her commitment to these rules is evident in the Spring Statement, which confirmed the £5 billion in welfare cuts announced last week, alongside other efficiency savings to ensure fiscal discipline.
Welfare system reforms: The government is reforming the welfare system to make it more sustainable and support people back into work. The Universal Credit standard allowance will increase from £92 per week in 2025-26 to £106 per week by 2029-30. However, the Universal Credit Health element will be cut by 50% and then frozen for new claimants.
Tax evasion crackdown: The government is investing in cutting-edge technology and increasing HMRC's capacity to crack down on tax avoidance. This initiative aims to raise an additional £1 billion, bringing the total revenue from reducing tax evasion to £7.5 billion
Defence spending: The government is increasing defence spending, with an additional £2.2 billion allocated next year. This is part of a broader plan to spend 2.5% of GDP on defence by 2027. The investment is intended to boost both national and economic security
Economic growth initiatives: The government is prioritising economic growth by speeding up infrastructure approvals, building more homes, and reducing administrative costs for businesses.
The Office for Budget Responsibility (OBR) has revised its growth forecast for 2025, halving it from 2% to 1%. This downgrade reflects the deteriorating economic outlook and rising borrowing costs. The OBR's forecast highlights the challenges facing the UK economy, including lower-than-expected growth and higher debt repayment costs.
Although economic growth is expected to halve this year, it is projected to increase over the next couple of years. Growth is forecast to reach 1.9% in 2026 and 1.8% in 2027, providing stability and a more positive outlook for the future.
