Chancellor Rachel Reeves Announces Sweeping Welfare Cuts Amid Economic Challenges

Chancellor Rachel Reeves is poised to announce additional cuts to welfare and government department funding in her upcoming Spring Statement, amidst ongoing economic struggles in the UK. Following last week’s announcement of substantial welfare spending reductions that aimed for savings of £5 billion, the Office for Budget Responsibility indicated that planned reforms would not meet these targets, prompting Reeves to expand the cuts.

Amid sluggish economic growth, which remains a key priority for improving living standards, Reeves will emphasize the urgency for the UK to adapt rapidly to a changing global landscape influenced by the ongoing Ukraine conflict and potential US tariffs affecting trade. In her address scheduled for Wednesday at 12:30 GMT, she will also confirm a £2.2 billion boost to defense spending, framing it not only as a measure to enhance national security but as a strategy to improve economic stability.

The proposed welfare reforms include stricter assessments for Personal Independence Payments (Pip), potentially impacting hundreds of thousands of claimants. The OBR’s assessment suggests that those losing these benefits may apply for additional support under more severe health conditions, complicating the expected savings from the policy changes.

In her statement, Reeves intends to showcase pride in Labour’s accomplishments during its nine months in power, asserting a plan to stimulate economic growth by intertwining national and economic security. Increased defense funding is slated for investment in advanced technologies and improvements to military family housing and infrastructure. Nonetheless, some economists question the extent to which ramped-up defense spending will spur broader economic growth.

Reeves faces the difficulty of adhering to stringent financial rules amid rising interest rates and burgeoning public debt, with official data revealing negligible economic growth of just 0.1% between October and December 2024 and a contraction in January. Economic uncertainty, largely tied to global factors including the Ukraine war and fluctuating trade conditions initiated by U.S. policies, has exacerbated the financial strain. Critics argue that Reeves’ policies may also be contributing to the nation’s elevated borrowing costs, which have surged to near 4.8% for long-term government borrowing.