REBOOT 2025

Chancellor Rachel Reeves delivers Spring Statement to Boost Economy, Strengthen Security, and Reform Public Services

The economy will only grow by 1% this year, half the rate previously anticipated, Chancellor Rachel Reeves conceded Wednesday in a statement to lawmakers about the state of the public finances.
Against the backdrop of sluggish economic growth that she blamed on a volatile international environment, Reeves unveiled measures intended to meet her self-imposed budget rules. With growth in 2025 lower than anticipated, there’s a hole in the government’s revenue expectations, which Reeves has sought to fill with welfare cuts as well as measures to rein in tax avoidance and tax evasion, and by lowering the day-to-day costs of running government.
Reeves’ spring statement to Parliament was made in response to a gloomy near-term economic assessment by the government’s independent forecaster, the Office for Budget Responsibility. Reeves pointed to higher growth forecasts for the years ahead, which if they prove accurate, should ease the pressure on her to lower spending or increase taxes in the remaining years of this Parliament.
Reflecting geopolitical turbulence caused by the return of US President Donald Trump, Reeves told lawmakers that a “more insecure world” requires a greater focus on national security. As a result, she confirmed a £2.2 billion increase in defence spending, which Prime Minister Keir Starmer has said is the biggest increase since the end of the Cold War.
“This additional investment is not just about increasing our national security but increasing our economic security, too,” Reeves said. “As defence spending rises, I want the whole country to feel the benefits.”
The economy, the sixth-largest in the world, eked out modest growth of 0.1% in the fourth quarter, a hugely disappointing outcome for the government, which has made boosting growth its number one economic policy. Since the global financial crisis in 2008-2009, the economy’s growth performance has been notably below its long-term average.
Critics say Reeves is partly responsible for gloomy economic news since Labour returned to power in July after 14 years, because she was overly downbeat when taking on her role and has since increased taxes, particularly on businesses.
She received some welcome news Wednesday, with official figures showing that price rises in moderated by more than anticipated in February. The Office for National Statistics said consumer price inflation fell to 2.8% from 3% the previous month. Most analysts had expected a more modest decline to 2.9%.
Though inflation is still higher than the Bank of England’s 2% target, Reeves will likely hope that easing price pressures will lead to bigger interest rate reductions than predicted. That would lower the interest payments the government pays on its debt, potentially freeing up money for the government to spend on public services.

Boost for infrastructure

Reeves said the government is taking bold steps to stimulate economic growth through substantial investments in infrastructure and housing. A £13 billion increase in capital spending over the Parliament will support growth-enhancing projects, including £2 billion dedicated to social and affordable housing in 2026–27. This initiative aims to build 1.5 million homes in England, supported by a £625 million package to train up to 60,000 skilled construction workers. The Strategic Road Network will receive £4.8 billion in investment in 2025–26, including £1.3 billion for road renewals. The Oxford-Cambridge Growth Corridor has the potential to add £78 billion to the UK economy by 2035. Heathrow Expansion is expected to create over 100,000 direct jobs and enhance economic connectivity.

Transformation Fund

The Spring Statement emphasised the need for a more agile and efficient state. A £3.25 billion Transformation Fund will drive fundamental reforms in public services, leveraging digital technology and AI to enhance frontline delivery. Departments are mandated to reduce administrative budgets by 15 per cent by the end of the decade, with savings reinvested in frontline services. NHS England will be reintegrated into the Department of Health and Social Care to streamline operations. Reforms to the welfare system aim to create a more pro-work environment, saving £4.8 billion from the welfare budget by 2029–30. Additional funding will improve tax collection and compliance, targeting a £1 billion increase in gross tax revenue by 2029–30.
The government is committed to supporting people into work while protecting those who cannot work due to ill health. Reforms to Universal Credit and Personal Independence Payment (PIP) aim to incentivise employment and ensure fair support for those in need. The standard allowance for Universal Credit will increase above inflation, reaching £106 per week by 2029–30. The government will invest £1 billion in employment, health, and skills support by 2029–30. Changes to PIP assessment will ensure the system supports those with the highest needs. Increased checks and recruitment of additional staff will tackle welfare fraud.
The government is taking decisive action to close the tax gap and ensure a fair tax system. Investments in HMRC’s debt management capacity and compliance staff aim to increase tax collection and reduce unpaid tax debts. The rollout of Making Tax Digital (MTD) for income tax Self Assessment will be expanded, and late payment penalties will be increased to encourage timely tax payments. Modernisation of HMRC’s data acquisition will simplify tax compliance.