Chancellor Rachel Reeves is set to address Parliament today amid mounting economic concerns, as the Office for Budget Responsibility (OBR) prepares to deliver a downbeat assessment of the UK’s financial prospects. Reeves is expected to acknowledge the need to go “further and faster” in driving economic growth while scrambling to find savings without increasing taxes.
The OBR is widely expected to downgrade its growth forecast, reflecting similar moves by the Bank of England and the Organisation for Economic Co-operation and Development (OECD). Meanwhile, media reports suggest that recent welfare cuts have fallen short of expectations, leaving the Treasury with a £1.6 billion shortfall.
With the cost of government borrowing rising and economic growth stalling, the Chancellor faces significant pressure to balance the books while maintaining her commitment to fiscal responsibility.
Mounting challenges for Reeves
Reeves has made it a cornerstone of her economic policy that day-to-day government spending must be covered by tax receipts rather than additional borrowing. However, the latest OBR analysis suggests that lower-than-expected growth will result in lower tax revenues, putting that target at risk.
In October, the OBR forecasted that the UK’s gross domestic product (GDP) would grow by 2% in 2025 and 1.8% in 2026. But more recent estimates paint a far bleaker picture:
- The Bank of England slashed its 2025 growth forecast to just 0.75%.
- The OECD revised its projection for 2025 down to 1.4% from 1.7%.
- February’s borrowing figures were £4.2 billion higher than previously anticipated.
This combination of slower growth and rising borrowing costs threatens to erode the £9.9 billion fiscal headroom Reeves was expected to maintain under the OBR’s October assessment.
Welfare savings fall short
One of the most pressing issues facing the Chancellor is the shortfall in expected welfare savings. Ministers had anticipated that recent welfare reforms would save £5 billion, but reports indicate that the real figure may be closer to £3.4 billion. This leaves Reeves and Work and Pensions Secretary Liz Kendall with an unexpected £1.6 billion gap.
To plug this hole, further cuts to universal credit and a freeze on incapacity benefits are being considered—measures that have already sparked backlash from public health experts.
Professor Gerry McCartney from the University of Glasgow warned in the British Medical Journal that these policies could have dire consequences:
“There is now substantial evidence that cuts to social security since 2010 have fundamentally harmed the health of the UK population. Implementing yet more cuts will therefore result in more premature deaths.”
Government’s response and defence spending boost
Despite these financial challenges, Reeves remains adamant that tax rises are not on the table for the spring statement. Instead, she has announced a range of cost-cutting and investment measures, including:
- A 15% reduction in Whitehall administrative budgets, projected to save £2.2 billion annually by 2029-30.
- £2 billion in funding for social and affordable housing to help address the housing crisis.
- A major expansion of training for construction workers, aimed at delivering 1.5 million new homes before the next election.
In addition to economic measures, Reeves will use her statement to reinforce the Government’s commitment to national security. She is expected to confirm an increase in defence spending by £2.2 billion from April, as part of a historic boost in military funding.
“This moment demands an active government stepping up to secure Britain’s future,” Reeves will tell MPs. “A government on the side of working people.”
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Political and public reaction
Reeves’ speech comes amid increasing pressure from both Labour MPs and opposition parties. While Prime Minister Sir Keir Starmer has defended plans to reform welfare, calling the current system “morally indefensible”, some Labour backbenchers have raised concerns about the impact of further cuts.
Critics argue that Labour risks alienating its core voters by pursuing aggressive spending reductions, particularly in welfare. Meanwhile, the Conservatives have seized on the economic turmoil, accusing the Government of failing to deliver on its promises of higher growth and economic stability.
As Reeves prepares to deliver her statement, she will be keenly aware that her ability to reassure both Parliament and the public will be crucial. With a weaker-than-expected economy, rising borrowing costs, and growing discontent over welfare cuts, her reputation for fiscal prudence faces its toughest test yet.
