U.K. Chancellor announces welfare cuts, increased defence expenditure to fix public finances

Chancellor Reeves announces deepened welfare cuts, increased defense spending, and crackdown on tax evasion in U.K.'s Spring Statement.

The U.K.’s Chancellor of the Exchequer, Rachel Reeves, announced that she would deepen previously announced cuts to disability and sickness benefits as part of a £14 billion package to fix the country’s public finances.

The Chancellor, who emphasized higher borrowing costs and greater trade uncertainties in the world, also confirmed a previously announced increase in arms expenditures as part of the U.K. increasing its contributions to the defence of Ukraine and Europe.

“The increased global uncertainty has had two consequences, first on our public finances, and second, on our economy,” Ms. Reeves said as she unveiled her ‘Spring Statement’ . The speech came on the same day the U.K.’s independent fiscal watchdog, the Office for Budget Responsibility (OBR) halved the U.K.’s growth rate for 2025, from 2% to 1%, but upgraded growth over the next few years.

In the face of opposition from its own party, the government had announced welfare cuts last week, which it claimed would result in savings of £5 bn. OBR had rejected these numbers, estimating instead that the resulting savings would fall short by £ 1.4 bn, necessitating further welfare cuts and setting the government and the OBR on a collision course. Ms Reeve confirmed on Wednesday that the additional welfare cuts would  save £ 4.8 bn.

“If you can work, you should work; but if you can’t work, you should be properly supported,” the chancellor said, suggesting that too many people were qualifying for  ‘Personal Independence Payments ( PiP)’ each day. The government has announced that it will reform PiP, which is not a means-tested benefit, in addition to reforming elements of the ‘Universal Credit‘ scheme, a means-tested benefit.

Ms Reeves said she was keeping to a commitment to not raise taxes right now, but she said she would crack down on tax evasion. The chancellor announced investments to combat evasion, expected to raise £ 1 bn. She also announced that planning and other reforms would save another £ 3.4 bn by 2029-30.

Ms Reeves also confirmed an increase in defence spending of half a percentage point of GDP to 2.5% in 2027 and a “downpayment “ of £2.2 bn in the next fiscal year, funded by cuts to foreign aid.