Reeves squeezes benefits as 2025 growth forecast halved

Rachel Reeves has squeezed the welfare budget further and boosted defence spending in a Spring Statement aimed at kick-starting the faltering economy.

The Office for Budget Responsibility (OBR) – the government’s financial watchdog – halved its growth forecast for this year to 1%.

The chancellor blamed global instability, arguing that the world was “changing before our eyes” and promising a “new era of security and national renewal”.

The OBR painted a more upbeat picture of subsequent years, predicting growth will be higher than expected thanks, in part, to more housebuilding.

The Spring Statement was meant to be a routine update on the public finances but Reeves made more extensive changes after her plans were blown off course by lower growth and higher government borrowing costs.

Reeves used her statement to announce a further £2.2bn for defence, while a target has been set to reduce the administrative costs of government departments by 15% by 2030.

Real household disposable income per person is expected to grow by an average of around 0.5% a year, the OBR said.

Reeves said this meant that by 2029 households would be on average more than £500 a year better off compared with what the OBR had expected in October.

Economist Paul Johnson, director of the Institute for Fiscal Studies, told BBC Breakfast this was “actually a pretty feeble rate of growth”.

Writing in the Times, Reeves defended her handling of the economy, saying her plan was starting to “bear fruit”, with wages up and interest rates down.

“I won’t shy away from the challenges we face, and change won’t happen overnight,” Reeves added. “But the prize on offer to us is immense.”

The Conservatives claimed her statement was an “emergency budget” to “clean up the mess” created by her decision in October to increase national insurance costs for business and government borrowing to fund public services.

Shadow chancellor Mel Stride accused the chancellor of having “tanked the economy” due to her “ineptitude”.

This is hotly disputed by the government who insist they are sticking to rigid “fiscal rules” aimed at keeping a lid on borrowing – to prevent a repeat of the economic meltdown seen after Conservative PM Liz Truss’s “mini budget”.

But the OBR – which was set up in 2010 to evaluate the government’s figures – said Reeves will only manage to avoid breaking her fiscal rules through billions in public spending cuts.

The government insists the most vulnerable will be protected from spending cuts – but some Labour MPs have accused the chancellor of seeking to balance the books on the backs of the poor and are threatening to vote against the changes.

The Department for Work and Pensions’ assessment finds that 3.8 million families are set to be on average £420 per year better off due to the changes.

But the government analysis suggests more than 3 million families will on average be £1,720 a year worse off by 2030 due to benefit cuts.

On social media, Labour MP Jon Trickett said: “I will not be voting for cuts to poorest people on welfare benefits. The chancellor has other options.

“Picking on disabled people is not the right thing to do.”

Another Labour MP, Brian Leishman, said he was “very disappointed” with the chancellor’s statement, saying “I’m not on board with that whatsoever” and confirmed he would not vote in favour.

Reeves also restored the government’s £9.9bn “headroom” – spare cash it will have by the end of its five year budget period to deal with unexpected developments.

But the OBR says this is a “very small margin” and it would not take much to knock the government’s finances off course.

The watchdog believes Reeves has just over a 50% chance of meeting her own borrowing and debt rules by the end of the decade.

But Reeves insisted at a news conference that she was determined to keep a grip on the public finances.

“People should have no doubt about my commitment and how seriously I take the fiscal rules, as I said today they are non-negotiable,” she told reporters.

She said the government would continue to make the case for free trade, amid the looming threat of US tariffs.

On Wednesday, US President Donald Trump announced new import taxes of 25% on cars and car parts coming into America in a move that threatened to widen the global trade war.

Lib Dem Treasury spokeswoman Daisy Cooper warned the chancellor she was “flying blind” into a trade war with Donald Trump that would leave her plans in “tatters” and the government should instead seek a new trade deal with the EU.

Reform’s deputy leader Richard Tice described the OBR’s forecasts as “delusional” and said Labour should not rely so much on their advice.

“We can’t keep spending more than we’re earning,” he told BBC Radio 5’s Matt Chorley.

“I’m afraid we’re heading to a very difficult place, led by the R-word – recession.”