Chancellor sets out savings as UK economic growth forecast halved
Rachel Reeves set out her Spring Statement in the House of Commons
Last updated 26th Mar 2025
Chancellor Rachel Reeves has delivered her Spring Statement today, setting out spending cuts and the latest forecasts on the economy.
Here are the key takeaway points:
Global uncertainty leads to savings being needed
Rachel Reeves blamed “increased global uncertainty” as the budget watchdog slashed its forecast for economic growth.
The Office for Budget Responsibility halved its forecast for growth in gross domestic product in 2025 from 2% to just 1%.
The watchdog’s assessment also indicated the Chancellor would have missed her goal of balancing the nation’s books without action.
She was forced to set out savings of around £14 billion to ensure she met her “non-negotiable” goal of balancing day-to-day spending against tax receipts, rather than borrowing.
New 'Transformation Fund' to help create savings
Rachel Reeves said the Government will make the state “leaner and more agile” as she announced a new Transformation Fund.
“The Health Secretary is driving forward vital reforms to increase NHS productivity, bearing down on costly agency spend to save money we can improve patient care. And the Chancellor of the Duchy of Lancaster is taking forward work to significantly reduce the costs of running government by 15%, worth £2 billion, by the end of the decade.
And she signalled cuts in Whitehall, with “voluntary exit schemes to reduce the size of the civil service”, taking advantage of technology to “make Government leaner, more productive and more efficient”, saving £3.5 billion by 2029/30.
Money for defence
Extra spending on defence was widely expected ahead of the statement and Chancellor Rachel Reeves confirmed an additional £2.2 billion to the Ministry of Defence’s budget for next year.
She said: “Today I confirm that I will provide an additional £2.2 billion for the Ministry of Defence next year, a further down payment on our plans to deliver 2.5% of GDP. This additional investment is not just about increasing our national security, but increasing our economic security, too.”
Universal Credit increase
Universal credit standard allowance will increase from £92 per week in 2025-26, to £106 per week by 2029-30, Rachel Reeves told the Commons.
The Chancellor added that the Universal Credit health element will be cut by 50% and frozen for new claimants.
She said: “The OBR (Office for Budget Responsibility) have said that they estimate the package will save £4.8 billion in the welfare budget, reflecting their judgments on behavioural effects and wider factors.
Labour say planning reforms will lead to 1.3 million new homes
In the statement, the Chancellor said that the OBR had concluded the Government’s planning reforms would “help build over 1.3 million homes” in the next five years.
She said: “The planning system that we inherited was far too slow. The OBR have concluded that our reforms will lead to housebuilding reaching a 40-year high of 305,000 by the end of the forecast period.
“And changes to the national planning policy framework alone will help build over 1.3 million homes in the UK over the next five years taking us within touching distance of delivering on our manifesto promise to build 1.5 million homes in England this parliament.
Growth forecast upgraded
Chancellor Rachel Reeves finished her statement by saying the Office for Budget Responsibility (OBR) has upgraded their growth forecast “next year and every single year thereafter”, saying: “With GDP growth of 1.9% in 2026, 1.8% in 2027, 1.7% in 2028, and 1.8% in 2029.
“By the end of the forecast our economy is larger compared to the OBR’s forecast at the time of the budget.”
Tory's reaction
In his response, Conservative shadow chancellor Mel Stride accused Labour leaders of having “reneged on their promises to the British people” during last year’s general election.
Mr Stride told the Commons: “Given her track record, given the fact that she has failed to control spending and borrowing to date, what does she think the markets are going to make of her latest promises?
“But (Chancellor Rachel Reeves) says of course that none of this – none of this – is her fault, that it’s the war in Ukraine, it is (US) president (Donald) Trump, it is tariffs, it is (Russian) president (Vladimir) Putin, it is the Conservatives, it is (the) legacy, it is anybody but her.
“But what the British people know is that this is a consequence of her choices. She is the architect of her own misfortune: it was (Ms Reeves) who talked down the economy, who talked down the economy so that business surveys and confidence crashed through the floor.
“It was (Ms Reeves) who confected the £22 billion black hole, a smokescreen that was only ever there in order to cover up for the fact that she and the Prime Minister (Sir Keir Starmer) reneged on their promises to the British people during the last general election.”