Reeves’s opening remarks
Rachel Reeves says Labour was elected to “bring change to our country, provide security for working people and deliver a decade of national renewal”.
She points to the fact that the Bank of England has cut interest rates three times since the government was elected.
But the chancellor’s room for fiscal manoeuvre has narrowed since October, when she delivered Labour’s first budget in 14 years. Tax receipts have stalled amid weaker-than-expected growth, while Donald Trump’s erratic start to his second term as US president has pushed up borrowing costs.
She says the “global economy has become more uncertain” and that Labour needs to be “active” in order to secure the future and deliver prosperity.
Peter Walker, senior political correspondent: Ministers arriving for this morning’s pre-statement cabinet meeting were largely grim-faced for the cameras, but Reeves begins her speech in a more upbeat way, saying Labour had restored stability to the economy. She then goes on to warn about “uncertain” times ahead due to global events – largely meaning (though this is, as ever, unspoken) by the chaos of the second Trump administration.
Welfare cuts
Reeves confirms huge cuts to the welfare budget, which the Office for Budget Responsibility (OBR) says amount to £4.8bn of savings for the Treasury. More than 3 million families will lose an average of £1,720 a year in real terms as a result of the cuts, according to government analysis, with an extra 250,000 people falling into relative poverty by 2029-30. As a result, the number of people living in relative poverty will rise to nearly 14.5m, including an extra 50,000 children.
“The Labour party is the party” of work, Reeves says. More than 1,000 people a day are qualifying for personal independence payments (Pip), Reeves says. “It is a waste of their potential and a waste of their futures.”
The basic rate of universal credit will rise by £14 a week by 2029-30, while the health element of universal credit will be frozen for existing claimants until 2029-30 and reduced to £50 for new claimants in 2026-27, before being frozen.
Pips will be reviewed. In the meantime, the government will introduce an additional eligibility requirement for the daily living element of the benefit.
There is £1bn for employment support to help people back into work, as well as £400m to support jobcentres.
The OBR estimates that her welfare cuts package will save £4.8bn by 2029-30, with welfare spending falling as a share of GDP from next year.
PW: Reeves is unrepentant in setting out what is the most politically divisive part of her speech, calling the changes – and cuts – to social security and disability payments a necessary change which will help the most vulnerable and help more people into work. Charities, and many Labour MPs, argue vehemently that making very poor people poorer does not help them into work. This could be a real crunch point for Reeves and Keir Starmer, potentially to the point of resignations.
OBR forecasts, fiscal rules and inflation
The OBR has halved its growth forecasts for 2025 from 2% to 1%.
But it has upgraded its growth forecast for next year and every year thereafter. It predicts GDP growth of 1.9% in 2026, 1.8% in 2027, 1.7% in 2028 and 1.8% in 2029.
By the end of the forecast, the economy will be larger compared with the OBR’s forecast at the time of the budget, Reeves says.
Real household income will grow this year at twice the rate expected in autumn. Compared with the Conservatives’ final budget, the OBR says people will be more than £500 a year better off, even factoring in inflation.
Reeves says she will stick to her cast-iron “fiscal rules” and blames the Liz Truss mini-budget for pushing up borrowing rates and harming “ordinary working people” two years on.
The budget would have been in deficit by £4.1bn without the measures she is taking today, Reeves says, adding that she has restored the government’s headroom, to a surplus of £6bn in 2027-28, rising to £9.9bn in 2029-30, compared with the previous government’s £6.5bn.
Public sector net financial liabilities will be 83.5% of GDP in 2026-27, Reeves says, falling thereafter and coming down to 82.7% by 2030.
Inflation fell in February to 2.8% from 3% in January, Wednesday’s data showed. OBR forecasts show consumer price inflation will average 3.2% this year before falling “rapidly” and meeting the Bank of England’s 2% target from 2027 onwards.
PW: As is mandatory for Labour financial statements, Reeves spends time lambasting the impact of Truss’s mini-budget, and then using it as a reason to justify the tough decisions she will announce. “The British people put their trust in this Labour government because they knew that we – I – would never take risks with the public finances,” she says. This is perhaps the central political message of this statement – things are hard, but we have no choice (and it’s not our fault). Will this be enough for wavering Labour MPs? We shall see in the days and weeks ahead.
Update: Later in the speech, Reeves proudly lists the OBR’s “upgraded” forecasts for growth in the next four years … which range between 1.7% and 1.9%. Yes, it’s better than 1%, but probably not what Reeves hoped for when she moved into Downing Street.
Taxes
The statement does not contain any further tax increases. But “it cannot be right that others are still evading what they rightly owe in tax”. Cutting-edge tech will help HMRC crack down on tax avoidance, which will raise a further £1bn, taking the total to £7.5bn.
PW: Tax rises were never on the horizon for this statement, however much the Conservatives tried to label it an “emergency budget”. Will that still be the case by the real budget in autumn? That is a very different matter.
Spending
As trailed, defence spending is to rise to 2.5% by April 2027, funded by international aid cuts and NHS England to be scrapped, with savings to fund patient care directly.
Also trailed, a plan to cut civil service costs by 15%, saving £2.2bn by the end of the decade.
£3.25bn of investment brought forward for a new “transformation fund” to bring down the cost of running government by making public services more efficient.
The first allocation from the fund is for AI tools to “modernise” the state, technology for the probation service and investment to support children into foster care to reduce future cost pressures.
There will be £3.5bn of day-to-day savings on the cost of running government by 2029-30.
But overall, day-to-day government spending will increase above inflation and has been “fully protected”.
On capital spending, Reeves already announced £100bn of investment in her autumn budget. She will increase capital spending by an average of £2bn a year, “to drive growth in our economy”.
PW: This is not austerity, OK? Reeves would like you (and her MPs) to know that, with a real-terms increase to day-to-day and capital spending. While this is a politically key message, spending does seem to have been front-loaded, and later fiscal years are, as it stands, likely to see cuts. As part of this, Reeves bills big changes such as the abolition of NHS England and cuts to the civil service led by Pat McFadden, the chancellor of the duchy of Lancaster, as vital reforms. But it remains very unclear if many jobs really will be cut, or if the much-promised use of innovations such as AI can make officialdom more efficient.
Defence
Following on from the government’s pledge to increase defence spending to 2.5% of GDP, Reeves will provide an extra £2.2bn for the Ministry of Defence in the next financial year to address increasing global uncertainty.
The government will spend a minimum of 10% of the MoD’s equipment budget on tech such as drones and AI, boosting production in places such as Derby, Glasgow and Newport.
There will be a protected budget of £400m within the MoD for UK defence innovation, rising over time.
Reforms to defence procurement will aim to make it quicker and give small businesses better access to MoD contracts.
There will be £200m to support nuclear submarine jobs in Barrow and funds for military homes and naval ports such as Portsmouth and Plymouth.
An extra £2bn to increase the lending capacity of UK Export Finance will aim to help finance overseas purchase of UK defence equipment.
Reeves wants to make the UK a “defence-industrial superpower”, placing defence at the heart of economic growth.
PW: This was well billed in advance, and will not face any dissent from opposition parties. Once again, Reeves refers vaguely to additional global “uncertainty” – the codeword for “President Trump has essentially ripped up 70 years of defence and security consensus as he cosies up to Russia, so we need to act, and fast”.
Planning and growth
The OBR has considered Reeves’s planning reforms and has concluded that they will permanently increase the level of real GDP by 0.2% in 2029-30, an additional £6.8bn for the economy. This will reach 0.4%, or £15.1bn, by 2030.
She says this is the biggest positive growth impact the OBR has ever predicted for a policy with “no fiscal cost”.
The OBR has said that housebuilding will reach a 40-year high, hitting 305,000 homes a year by the end of the forecast period. That amounts to 1.3m homes in the UK over the next five years, which Reeves says takes the government “within touching distance” of its manifesto promise to build 1.5m homes in England within this parliament.
The government will launch a construction training package to train up to 60,000 workers to build the homes, as well as investing an additional £2bn in social and affordable housing.
Overall, Labour’s policies will increased GDP by 0.6% by 2034-35 and add an extra £3.4bn to support public services by 2029-30, according to OBR estimates.
Opposing Labour’s planning reforms would mean “opposing economic growth”, Reeves says.
PW: “There are no shortcuts to economic growth. It will take long-term decisions. It will take hard yards,” Reeves says, another reference to the anaemic growth forecasts. She is right, but at the same time, voters will only take arguments like this for so long. The rabbit in the hat, such as it is, comes with the forecast from the OBR of changes to the planning system bringing not just more homes but a real boost for growth. Yes, an election could be over four years away, but promises of jam tomorrow are never where a chancellor really wants to be.
Closing remarks
“The world is changing, we can see that and we can feel it,” Reeves says.
“The British people are impatient for change after 14 years of failure,” she adds.
PW: Once again, “there are no quick fixes”, Reeves says, a point observant voters will have very much got by now. But, she says, stability has returned. This was, overall, a fairly tough message delivered with some understandable gilding. The good thing for governments with big majorities is that such moments can be forgotten quite quickly – as long as they are replaced by something better. That, as ever, is Reeves’s task. She is perhaps lucky that she faces a Conservative party without much of an alternative economic plan.
