Delivering her speech in the House of Commons, Reeves said that with the war in Ukraine ‘the global economy has become more uncertain’ and that ‘borrowing costs are on the rise for many major economies’. Defence spending will increase by 2.5 per cent.
She said she was providing an update on public finances ahead of a full spending review in June, which will set departmental budgets for 2028-29, she said. She would return in the Autumn to deliver the budget, ‘in line with the Government’s commitment that there would be one fiscal review a year.’
She said that the fiscal rules that she set out in the October budget are ‘non-negotiable’.
They bring ‘stability for our economy and ensure security for working people’, she said,
And referencing Liz Truss’s mini-budget she said that the British people saw what happens ‘when a government borrows beyond its means’, leading to higher bills, rent and mortgages.
OBR forecast
According to the Office for Budget Responsibility's (OBR) forecast, the current budget would have been in deficit by £4.1bn in 2029-30. Last autumn, it was forecast to be in surplus by £9.9bn in the autumn.
The chancellor said that ‘due to her steps today’ she has ‘restored in full our headroom’, against the stability rule, moving from a deficit of £36.1bn in 2025-26 to a surplus £9.9bn by 2029-30 – meeting her rule two years early.
She said that the OBR says she has also met the investment rule two years early.
Net financial debt would be 82.9 per cent of GDP in 25-26 and 83.5 per cent in 26-27 before falling to 82.7 per cent in 2029-30, providing a headroom of £15.1 bn in the final year of the forecast, will be unchanged from the autumn.
She said the last government had ‘doubled the national debt’.
‘The responsible choice is to reduce our levels of debt and borrowing in the years ahead so that we can spend more on the priorities of working people and that is exactly what this government will do.’
While she was not raising taxes, national insurance and VAT, she said she was cracking down on tackling tax avoidance, which she said would raise £7.5bn under this government.
Reeves also said the OBR has downgraded growth in the UK economy for 2025 from 2 per cent in 2025 to 1 per cent today, which Reeves said 'she was not satisfied with'.
However, later in her speech she said the OBR has upgraded its growth forecast next year and ‘every single year thereafter’.
Universal credit
Referring to reforms in the welfare system set out by the Work and Pensions secretary last week, Reeves said, ‘The Labour party is the party of work. We believe that if you can work you should work. We believe that if you can't work, you should work, but if you can't work, you should be properly supported.
‘This government inherited a broken system,' she said. More than 1,000 people every day are qualifying for personal independence payments,’ Reeves said.
‘One in eight young people are not in employment, education or training. If we do nothing, we are writing off an entire generation that cannot be right, and we will not stand for it. It is a waste of their potential, and it is a waste of their futures, and we will change it.’
The OBR has said the reforms are expected to make welfare savings of £4.8 bn by 2029-20. The chancellor added that the Universal Credit standard allowance will increase from £92 per week in the financial year 2025-26 to £106 per week by 2029-30.
The health element of universal credit will be cut for new claimants by 50 per cent and frozen for new claimants.
She said there were also investing £1bn to provide guaranteed, personalised employment support to help people back into work, and £400m pounds to support the Department for Work and Pensions and job centers ‘to deliver these changes effectively and fairly.’
She added, ‘We are reforming our welfare system, making it welfare system, making it more sustainable, protecting the most vulnerable and most importantly, supporting more people back into secure work, lifting them out of poverty.’
Impact of welfare reforms
After the speech, the Department for Work and Pensions released a statement on the impact of the health and disability benefit reforms.
It said, ‘The potential impact of these reforms on poverty projections has been estimated using a static microsimulation model. Using this model, we estimate there will be an additional 250,000 people (including 50,000 children) in relative poverty after housing costs in 2029/30 as a result of modelled changes to social security, compared to the baseline projections.’
However, it added that, ‘This estimate does not include the impact of the £1 billion annual funding, by 2029/30 for measures to support those with disabilities and long-term health conditions into employment, which we expect to mitigate the poverty impact among people it supports into work.’
Overall, it estimates that by 2029/30 there will be 3.2 million families that will lose an average of £1,720 per year once inflation is taken into account.
It suggests however that more people will be better off, with 3.8 million families – some current recipients and some future recipients – set to be on average £420 per year better off, after taking into account the impact of inflation.
