Rachel Reeves Announces £14 Billion Plan to Stabilise UK Public Finances

In her Spring Statement, Rachel Reeves, the UK’s finance minister, unveiled a £14 billion package designed to address a significant hole in the UK’s public finances. This action was prompted by weak economic growth and elevated borrowing costs. Reeves attributed the necessity of these measures to “global uncertainty”.

Key Measures

Spending Cuts: Reeves announced considerable spending cuts, including reductions to welfare and Whitehall. Specifically, she detailed reductions to the welfare budget that were more substantial than initially anticipated. These cuts included changes to Personal Independence Payments (PIP) and Universal Credit, along with additional cuts to incapacity benefits. The universal credit standard allowance will increase from £92 per week in 2025-26 to £106 per week by 2029-30 . Health-related entitlements linked to universal credit will be cut by 50% and then frozen. Additionally, a reduction in the civil service headcount is expected to save £3.5 billion by 2029-30.

Defense Spending: The plan includes increased funding for defense, with spending set to increase to 2.5% of GDP by 2027, financed partly by a cut in overseas aid.
Tackling Tax Avoidance: The government aims to increase the number of fraudster charges every year by 20%, raising £1 billion.
Housebuilding: Planning reforms are projected to facilitate the building of 1.3 million new homes by the end of the parliament.

Economic Forecast and Fiscal Rules

The Office for Budget Responsibility (OBR) has halved the UK’s growth forecast for 2025, from 2% to 1%. Reeves emphasized her commitment to fiscal rules, viewing them as essential for economic stability. She aims to turn a predicted £4.1 billion deficit into a £9.9 billion surplus within five years.

Reactions and Analysis

The announcement has elicited varied responses . Some analysts have pointed out that the statement may lead to tax rises in the autumn. Shadow Chancellor Mel Stride criticised the measures, while Labour MPs have condemned the welfare cuts .

Conclusion

Reeves’s Spring Statement reflects an effort to maintain fiscal discipline amidst economic uncertainty. The plan involves a combination of spending cuts, increased investment in certain areas, and measures to boost economic growth. The success of this plan will depend on various factors, including the performance of the UK economy and the impact of global economic trends.