From welfare cuts to Trump tariffs: 7 takeaways from the UK spring statement

The U.K.’s top finance minister unveiled cuts to the state, (mostly) grim economic forecasts and the usual boosterish spin of budget time — although tax changes were firmly off the table.

Since her October budget, Reeves has been promising a low-key spring “update” on her search for economic growth from the Office for Budget Responsibility watchdog (OBR).

But after the OBR slashed 2025 growth predictions, Reeves’ tight fiscal rules forced her to return with more cuts Wednesday. A full review of three years’ state spending will follow in June.

The chancellor’s silver lining is that — after much twitchiness in the Treasury — the OBR is starting to count positive impacts of her growth pledges, notably on reforms to England’s creaky housebuilding bureaucracy.

But 3.2 million welfare claimants will lose out by £1,720 per year in deep cuts to the sickness and disability benefit system, which have worried Reeves’ Labour MPs.

And the slightest change to the economy in future will force her to come back for more. If U.S. goods tariffs of 20 percent kick in next Wednesday, as threatened by President Donald Trump, they could wipe out Reeves’ work at a stroke. She sought to blame “increased global uncertainty” for what the opposition Conservative Party has dubbed an “emergency budget.”

POLITICO runs through the top lines so you don’t have to.

1) The British economy has growing pains

Expected U.K. GDP growth in 2025 has halved from 2 percent to 1 percent. The predicted cost of government borrowing has risen since October. And inflation is due to peak at a higher-than-expected 3.7 percent this summer.

These factors (and others) meant that instead of having £9.9 billion of “headroom” to spare against her fiscal rules by 2030, Reeves would have run up a £4.1 billion deficit.

Instead of ditching her “non-negotiable” rules, as some Labour MPs want, Reeves maneuvered cuts to foreign aid and welfare, OBR adjustments and the odd accounting trick to pull her headroom back to exactly £9.9 billion.

Yet nearly half that headroom is based on assuming that fuel duty will rise — which it almost never does. And it is well below the £30 billion that some aides believe Reeves would like.

Public-sector debt remains near record highs — 96.1 percent of GDP in 2029/30 — forcing Britain to spend 3.8 percent of its GDP on interest payments. A 0.6-point rise in government borrowing costs would wipe out all of Reeves’ headroom.

That means a slight dip in the economy would force Reeves to come back for more tax rises or spending cuts in her autumn budget.

2) But there’s a silver lining (of sorts)

The growth forecast is now higher than previously expected in each year from 2026 — which Reeves says will pump an extra £3.4 billion into public services by 2030.

This is partly because the OBR has measured Labour’s flagship piece of deregulation — planning reform. The watchdog believes this will add 170,000 homes on its own and lift GDP 0.2 percent (£6.8 billion) in 2029/30. Reeves called it the “biggest positive growth impact” of its kind ever scored by the OBR.

But there’s a sting in the tail. The OBR forecasts 1.3 million net extra homes will be built between April 2025 and March 2030. This is short of Labour’s election promise to build 1.5 million, albeit over a different period (July 2024 to summer 2029).

Treasury officials insist the 1.5 million target still stands and can be met, partly because some growth measures — such as a war on regulators, and forthcoming industrial, trade and small business strategies — haven’t yet been counted by the OBR.

3) Whitehall is getting squeezed again

Detailed cuts to Whitehall departments will only emerge in Reeves’ June spending review, but Wednesday’s statement hints at what is coming.

After a 3.1 percent boost this year, public spending had been due to rise just 1.3 percent in each of the following three years. This is now an even tighter 1.2 percent, due to a frontloaded £3.25 billion “transformation fund” taking up cash earlier. Reeves said it would cut government running costs by £2 billion a year in 2030.

Reeves told MPs that apart from cuts to foreign aid (more below) the overall “envelope” for spending in these three years has not changed.

But because some departments such as health are protected, others such as justice and local government may need to be cut by 0.8 percent a year in real terms from 2026/27, according to the OBR.

Reports have suggested 10,000 civil service jobs will be cut. Reeves is planning voluntary exit schemes, more artificial intelligence tools and new tech in probation services.

Together the plans bring public spending down from a peak of 45 percent of GDP next year to 43.9 percent of GDP in 2029/30 — hardly a Javier Milei-style chainsaw to the state.

4) The impact of welfare cuts has been laid bare

Wednesday brought a hotly awaited impact assessment of reductions in sickness and disability benefits — the biggest single cut in the spring statement and painful for many MPs.

It will do nothing to allay their fears. It projects the cuts will push 250,000 more people, including 50,000 children, into relative poverty by 2029/30.

The changes will cost 3.2 million families — some current claimants, some future — an average of £1,720 a year compared to inflation (though 3.8 million gain by £420).

The big hope to cling to is a £1 billion boost to employment support. Wednesday’s assessment does not factor that in, and it will only be counted at the autumn budget.

But MPs will be alarmed at the fact that 800,000 current and future claimants will no longer qualify for Personal Independence Payments, a disability benefit unconnected with whether people work. Each will lose £4,500 a year on average.

And of the £4.8 billion in gross welfare cuts, officials drew up £500 million at the last minute after the OBR said the package would raise less than ministers hoped. The OBR said information for some measures “was received late and without sufficient detail.”

5) There’s hope on living standards — with caveats

Labour is pinning its 2029 election hopes on showing voters that growth can end up in their wallets. Here Reeves had something to shout about.

Wage growth will help real household disposable income (RHDI) grow by a projected 0.5 percent per year on average between 2025/26 and 2029/30, better than predicted in October. Reeves said: “People will be on average over £500 a year better off under this Labour government.”

But nearly all of that growth is expected near the start of the five years, and it will slow to almost nothing from 2027/28. The OBR believes this for several reasons, including the impact of national insurance rises and welfare cuts approved by Reeves herself.

6) Defense is a winner — off the back of sharp aid cuts

Reeves’ balancing act is aided by an accounting quirk in her decision to slash billions of pounds from foreign aid to pour into defense.

Even though this is a pound-for-pound transfer, it gives Reeves £2.6 billion of extra headroom by 2030 because much of defense spending is capital, not day-to-day.

Reeves said at least 10 percent of the Ministry of Defense’s equipment budget will be spent on “new novel technology” including drones. There will be a protected budget of £400 million for U.K. defense innovation. Reeves and Defence Secretary John Healey will co-chair a “Defence Growth Board” to monitor spending.

But the small print makes clear just how sharp the aid cuts will be — £200 million in this financial year, soaring to £2.6 billion in 2026/27. Anneliese Dodds, who resigned as aid minister over the cuts, stood in a prominent position in the Commons for Reeves’ statement dressed all in black.

The OBR also said the cuts “may drive spending pressures elsewhere,” particularly on asylum seekers.

7) There’s an orange elephant in the room

All these carefully laid plans could be blown out of the Atlantic by Trump.

If the U.S. president’s wide-ranging 20 percent tariffs hit the U.K. from April 2, the OBR believes they could reduce U.K. GDP by 0.6 percent in 2026/27 — or by 1 percent if Britain retaliates. This would almost entirely wipe out Reeves’ headroom.

U.K. officials are working with the Trump administration to ask for a carve-out from tariffs, and still hope for a deal in the coming days. Reeves said Britain would be “an ally to trading partners across the globe,” and has not ruled out scrapping a U.K. digital services tax on tech giants to get a deal over the line.

Even if she does, there’s no such thing as unbridled good news at the Treasury. Scrapping the digital services tax wouldn’t just anger some Labour MPs who want to fight big tech — it would also deprive Reeves’ Treasury coffers of £1.2 billion a year.