Chancellor Rachel Reeves used her first Spring Statement to reinforce Labour’s core economic message: stability, prudence, and growth through long-term reform. But beneath the headline of restored fiscal headroom and a promise to keep the UK economy on track lie contentious trade-offs and slower-than-hoped growth. Here is what was announced, what it signals, and how we got here.
Public Finances and Fiscal Rules
Reeves began by stressing that the government’s two key fiscal rules — the “Stability Rule” (requiring the current budget to be in surplus by 2029-30) and the “Investment Rule” (ensuring net debt falls as a share of GDP by the same date) — have both been met two years early. But meeting those rules came at a cost.
The OBR had warned that without intervention, the government would be facing a £4.1bn deficit by 2029-30. In response, Reeves implemented a £14bn package of savings, restoring the fiscal buffer to £9.9bn. She pointed to higher borrowing costs driven by global instability, including the return of Donald Trump to the White House and ongoing conflict in Ukraine, as justification for taking swift corrective action.
Debt interest now stands at over £105bn – more than the total budgets of the Home Office, Justice, and Defence combined. Reeves repeatedly reminded the House of the legacy left by Liz Truss’s mini-budget, which she argued had permanently damaged the UK’s fiscal credibility.
Growth: Ambitious Rhetoric, Tepid Forecasts
Despite Reeves’ assertion that this is a government focused on long-term growth, the growth picture remains subdued. The OBR halved its forecast for UK GDP growth in 2025 from 2% to 1%. While projections for later years are slightly more optimistic – 1.9% in 2026, 1.8% in 2027, 1.7% in 2028, and 1.8% in 2029 – these are incremental gains rather than transformational leaps.
Real household disposable income is expected to grow at almost double the rate previously forecast, and households are expected to be £500 better off under Labour compared to the previous government. But with taxation due to hit a record 37.7% of GDP by 2027-28, the path to prosperity is unlikely to feel smooth.
Welfare Cuts and the Labour Identity Test
Perhaps the most politically contentious part of the statement was the extension of welfare reforms first signalled last week. Reeves confirmed that the health element of Universal Credit will be cut by 50% for new claimants from next year and frozen until the end of the Parliament. A new premium will be introduced for those with severe lifelong conditions, but the broad direction is clear: reduce eligibility and drive people towards work.
The OBR estimates the full welfare savings package at £4.8bn, but after factoring in new spending on employment support (£1bn) and jobcentre reforms (£400m), net savings fall to £3.4bn. Labour MPs on the left of the party have already expressed unease, warning this approach risks alienating core voters and contradicts the party’s traditional values.
Spending: Front-Loaded Reform, Cautious Increases
Reeves emphasised that this is not a return to austerity. Day-to-day government spending will increase in real terms every year of this Parliament, rising by an average of 1.2% annually above inflation. However, that’s a downgrade from the 1.3% increase planned in the Autumn Budget, and most of the increases are front-loaded, leaving potential pressure points later in the decade.
To fund increased investment, Reeves confirmed a 15% cut in civil service costs by 2029-30, partly through voluntary exit schemes backed by a £3.25bn Whitehall transformation fund. AI tools and tech modernisation – particularly within the probation service and child services – are expected to contribute to £3.5bn in day-to-day savings.
Defence and Industrial Strategy
In a move foreshadowed in advance of the Statement, Reeves confirmed that defence spending will rise to 2.5% of GDP from 2027. This is being funded by cutting the UK’s foreign aid contribution from 0.5% to 0.3% of GNI, a decision expected to save £2.6bn a year.
The MOD will see an immediate £2.2bn boost next year. The government has also pledged that 10% of the MOD’s equipment budget will go toward novel technologies, including drones and AI-enabled systems. A new UK Defence Innovation unit will be established with a £400m protected budget.
Reeves positioned this as part of a broader ambition to make the UK a “defence industrial superpower,” echoing themes of national resilience and economic security. New investments will support manufacturing hubs in Barrow, Derby, Newport, and Glasgow, aiming to create jobs and regional growth.
Planning Reform and Housebuilding
A notable bright spot in the growth narrative came from the OBR’s assessment of Labour’s planning reforms. Changes to the National Planning Policy Framework are forecast to permanently raise GDP by 0.2% by 2029-30 and by 0.4% by 2034-35 – a boost worth £6.8bn and £15.1bn respectively.
These reforms, including the reintroduction of mandatory housing targets and adjustments to green belt policy, are expected to push housebuilding to a 40-year high of 305,000 new homes annually. The government is aiming for 1.3 million homes over five years, just shy of its 1.5 million manifesto pledge.
The Political Balancing Act
“This moment demands an active government,” Reeves said, closing her remarks with a call to action. Yet for all the talk of transformation, much of the Statement felt like risk mitigation. Stability, yes. Growth, perhaps. But ambition, particularly on living standards and long-term productivity, remains tempered by the shadow of global volatility and past fiscal missteps.
The next Budget, promised for the autumn, will be the real test of whether this government can translate fiscal discipline into tangible gains for households, businesses, and the broader economy. For now, Reeves has bought herself time and credibility. But she will need more than fiscal headroom to maintain political momentum in a slowing economy.
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