In the backdrop of Trump’s tariffs spree, the government is planning corrective budget measures that will align with existing policy goals while addressing the emerging fiscal gap
The Treasury has outlined plans for significant spending cuts across welfare and other government departments, as the Chancellor’s fiscal room for maneuver appears to be diminishing. These proposed cuts are set to be presented to the Office of Budget Responsibility (OBR), the official economic forecaster, on Wednesday, ahead of the Spring Statement later this month.
Sources within the Treasury have indicated that the economic landscape has shifted dramatically since the last Budget in October, when the OBR projected that Chancellor Rachel Reeves had approximately £9.9 billion in headroom against her self-imposed borrowing targets. However, the OBR’s upcoming forecast, which will be released alongside the Spring Statement, is expected to show that this headroom has largely evaporated due to global economic headwinds and changes in the UK’s long-term economic performance.
The Treasury will inform the OBR of its “major measures” which essentially entail changes to tax and spending policies aimed at stabilizing public finances and aligning with the Chancellor’s fiscal rules. Internally, the Treasury is attributing the increased government borrowing costs to global economic policy and geopolitical uncertainty. The stagnation of the euro area economy and lower UK productivity numbers have also contributed to the revised economic outlook.
One government insider remarked, “Clearly, the world has changed a lot since the autumn Budget. People are watching that change happen before their eyes. The Office for Budget Responsibility will reflect that changing world in its forecasts later this month, and a changing world will be a core feature of the Chancellor’s response.”
This week, US President Donald Trump imposed tariffs on the three largest trading partners of the US: Canada, Mexico, and China. While Trump suggested that the UK could avoid border taxes during his meeting with Prime Minister Sir Keir Starmer last week, Chancellor Reeves warned on Tuesday that even if the UK escapes tariffs, a global trade war would still likely result in lower growth and higher inflation.
In response to these economic challenges, the government is planning corrective budget measures that will align with existing policy goals while addressing the emerging fiscal gap. Insiders anticipate “politically painful” new welfare cuts aimed at curbing the rapid growth in health-related benefits. Work and Pensions Secretary Liz Kendall is expected to outline these measures in a forthcoming speech.
In addition to welfare cuts, Cabinet Office Minister Pat McFadden and Health Secretary Wes Streeting will announce a significant efficiency drive within the civil service in the run-up to the Spring Statement. This initiative aims to achieve substantial headcount and cost savings.
The Chancellor will argue that the government’s efforts to reform welfare and enhance the productivity of the National Health Service (NHS) were always part of the plan to secure Britain’s economic future.
As the UK navigates a complex economic environment marked by global trade tensions and domestic fiscal challenges, the Spring Statement will be a critical moment for the government to demonstrate its commitment to fiscal responsibility and economic growth. The proposed budget measures, while potentially unpopular, are seen as necessary steps to ensure the long-term stability and prosperity of the nation.
