LABOUR CHANCELLOR Rachel Reeves made further cuts to welfare benefits and government departments in her Spring Statement yesterday.
The government announced big welfare spending reductions last week, but yesterday a desperate Chancellor expanded the cuts after being told that her reforms to the system would save less than was planned.
The Office for Budget Responsibility (OBR) has assessed that slashing benefits will save £3.4bn in 2029/30 rather than the £5bn claimed by ministers.
The chancellor faces pressure over the performance of the crisis ridden British economy, with growth sluggish, but yesterday Rachel Reeves argued that the UK must ‘move quickly in a changing world’ as she confirmed a £2.2bn increase in defence spending to £5.1bn this year.
The chancellor set out her latest plans for the UK economy in her Spring Statement at 12:30 GMT, and cited the uncertainty surrounding the Ukraine war and, US tariffs, as threats to upend global trade.
Reeves, who ruled out tax rises in the statement, has already announced several spending cuts. On Tuesday evening, it emerged that she would widen her cuts to welfare after the Office for Budget Responsibility, which monitors the government’s spending plans, estimated the already-announced welfare system reforms would not save the £5bn that Reeves had planned.
The reforms include stricter tests for personal independence (Pip) payments. These will affect hundreds of thousands of claimants.
It is claimed that the OBR assessed that many claimants facing losing health-related benefit payments would instead claim for more severe conditions.
The government did not deny reports, first carried by The Times that the Chancellor would make further cuts to try to make up some of the shortfall.
In her Spring Statement, Reeves said she is ‘proud’ of what Labour has delivered in its nine months in power.
She attempted to put ‘national security’ at the heart of her plan to ‘kickstart economic growth’, saying the increase in defence spending is ‘not just about increasing our national security but increasing our economic security, too’.
She said: ‘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.’
The increased funding will be invested in advanced technologies, including new energy weapons on Royal Navy ships in preparation for more military action against Russia. The funding will also be used to provide better homes for military families by refurbishing the defence estate, and help fund upgrades to infrastructure at Naval Base Portsmouth.
The government announced earlier this month that it would cut the foreign aid budget to increase military spending to 2.5% of national income by 2027.
‘As defence spending rises, I want the whole country to feel the benefits,’ the chancellor said.
However a number of economists have argued the increase in defence spending will have a limited impact on economic growth.
Low economic growth and higher interest rates on government borrowing in recent months have made it harder for Reeves to stick to her self-imposed and ‘non-negotiable’ rules on borrowing and debt.
These rules are not to borrow to fund day-to-day public spending, and to get government debt falling as a share of national income by the end of this parliament.
Helen Miller, the deputy director of the Institute for Fiscal Studies (IFS) said that Reeves had left ‘a tiny margin’ in the Budget. ‘At that point in time, you could have said “don’t do that – give yourself a bigger margin” would have been a sensible thing to do,’ Miller said.
‘Now she’s done it and, having put so much emphasis on the rules being non-negotiable, I think it would be very difficult for her to come back and say “actually, at the first time of being tested, I’m going to let my fiscal rules be broken”.’
The OBR published a new economic forecast after the Spring Statement, where it will blame international factors for the British crisis!