Economic Uncertainty, Defence, and Welfare in Reeves’ Spring Statement … writes Zahra Jawad
Shadow Chancellor Rachel Reeves delivered Labour’s Spring Statement following the Prime Minister’s Questions in the House of Commons.
While not a formal fiscal event—Labour has pledged to hold only one official statement per year—Reeves used this opportunity to outline key economic forecasts and policy priorities.
Reeves emphasised the importance of adhering to her fiscal rules, framing them as essential to stabilising the economy and addressing public sector debt. The Office for Budget Responsibility (OBR) has downgraded the UK’s 2025 growth forecast from 1.5% to 1.0%, citing continued economic stagnation since late 2022.
To support fiscal stability without increasing taxes, Reeves pledged to crack down on tax evasion, projecting £7.5 billion in additional revenue. This includes increased investment in HMRC to improve enforcement capacity, aiming to raise prosecutions for tax fraud by 20% annually.
Borrowing is expected to decline year-on-year, reaching 2.1% of GDP by 2029–30, with public debt also forecast to fall as a proportion of GDP.
The Office for Budget Responsibility has readjusted its growth forecasts for the UK economy next year and beyond, showing a positive outlook.
She announced to the house by the end of the forecast our economy is larger compared to the OBR’s forecast at the time of the Budget.
One of the centrepieces of Reeves’ statement was a bold commitment to increase defence spending.
It has been confirmed the Ministry of Defence’s budget will receive a £2.2bn increase next year.
She announced plans to raise spending to 2.5% of GDP by 2027, with a longer-term goal of 3% by 2030. Reeves also revealed plans to establish a UK Defence Innovation Agency, backed by a £400 million budget to accelerate R&D and procurement.
In a bid to stimulate economic growth, she pledged to reduce red tape for SMEs bidding on Ministry of Defence contracts.
However, this military investment comes at the cost of reducing foreign aid from 0.5% to 0.3% of GNI.
The move has drawn criticism, including from Lord Rami Ranger, who argued it would damage the UK’s global standing. Experts echo this sentiment, warning it could further erode the UK’s soft power—already weakened, as evidenced by the UK’s recent drop below China in Brand Finance’s Soft Power Index.
Reeves also unveiled final adjustments to welfare policy, reiterating Labour’s stance as “the party of work” and asserting that “if you can work, you should work.” The reforms include stricter eligibility criteria for Personal Independence Payments (PIP), potentially affecting hundreds of thousands of claimants.
Universal Credit will also be impacted. From next year, new claimants will see weekly top-ups reduced from £97 to £50. The OBR estimates that overall welfare changes will reduce government spending by £4.8 billion by 2029–30.
In parallel, Reeves pledged to tackle what she described as “broken public services,” with targeted investments in skills, housing, and public sector reform.
As she closed her speech, she stated “The OBR have today concluded that these reforms will permanently increase the level of real GDP by 0.2pc by 2029-30, an additional £6.8bn in our economy, and by 0.4pc of GDP within the next 10 years, an additional £15.1bn in our economy.”
Adding on that these changes reflect the biggest growth impact the OBR have ever reflected in their forecast, for a policy with no fiscal cost.”
In her statement, she repeatedly stressed the economic downturn was caused due to a series of global uncertainties.
Despite her rigid fiscal rules that have been the backbone holding her forecasts, critiques were keen to call it out.
Caroline Lucas, member of the Green Party of England and Wales questioned Reeves in a tweet stating why her policies rule out wealth taxes – this has been a subject of debate for many within parliament.
Jeremy Corbyn also showcases his disdain, stating “It is disgraceful on the chancellor’s decision to abandon those in need”, referring to those who will be affected by the cuts in welfare.
Whilst the statement offers a roadmap of fiscal restraint paired with targeted investment, questions linger around the trade-offs, particularly on welfare cuts, reduced foreign aid and tax legislation.
her vision of growth without tax hikes faces mounting scrutiny as labour popularity has already crippled following their poor performance in public polls.
The economic credibility of the party now rests on whether these forecasts translate into tangible improvements for households and industries alike.
