Chancellor Rachel Reeves opened her speech by reaffirming Labour’s commitment to delivering change, providing security for working people, and driving a decade of national renewal since taking office last July.
Reflecting on the government’s progress so far, she emphasised the importance of securing Britain’s future in an increasingly uncertain world. She highlighted key challenges facing the UK, including the ongoing economic impact of Russia’s invasion of Ukraine, global financial uncertainty, and rising borrowing costs affecting major economies.
Reeves made it clear that the government will not stand by passively in the face of these challenges. Instead, she stressed the need for an active approach, stating:
“This moment demands an active government. A government not stepping back but stepping up.”
Commitment to Reducing Borrowing and Strengthening Stability
Chancellor Rachel Reeves emphasised the government’s commitment to fiscal responsibility, stating that reducing borrowing levels is the right course of action. She reaffirmed the government’s adherence to the stability rule, ensuring public spending remains controlled by balancing the current budget by 2029-30 so that day-to-day expenses are fully covered by tax revenues.
Reeves highlighted the Office for Budget Responsibility’s (OBR) latest forecast, which initially projected a budget deficit of £4.1 billion in 2029-30, down from a £9.9 billion surplus in the autumn, is due to rising borrowing costs in the UK, France, and Germany amid financial market uncertainty. [1]
However, she confirmed that the measures announced in this statement have fully restored the government’s financial headroom against the stability rule. The budget is now expected to shift from a deficit of £36.1 billion in 2025-26 and £13.4 billion in 2026-27 to a surplus of £6 billion in 2027-28, £7.1 billion in 2028-29, and £9.9 billion in 2029-30.
Additionally, the Chancellor noted that the OBR forecasts the investment rule will be met two years ahead of schedule. Net financial debt is expected to reach 82.9% of GDP in 2025-26 and 83.5% in 2026-27, before declining to 83.4% in 2027-28, 83.2% in 2028-29, and 82.7% in 2029-30. This provides a financial buffer of £15.1 billion in the final year of the forecast, remaining largely unchanged from the autumn projections.
Reeves now says that the OBR has confirmed that real household disposable income will grow “at almost twice the rate” that had been anticipated in the autumn.
The independent analysts say households will be on average £500 better off under this government, Reeves tells the Commons.[4]
Commitment to Economic Stability and Tackling Tax Avoidance
Chancellor Rachel Reeves reaffirmed her commitment to economic stability, pledging a tougher stance on tax avoidance.
“I made it clear that our fiscal rules are non-negotiable, and I stand by that,” she stated. “I will always prioritise economic stability and put working people first, just as I promised during the election, at the Budget, and again today.”
Reflecting on her previous Budget, Reeves highlighted measures aimed at protecting working people, despite opposition from Conservative MPs, including maintaining income tax levels and tackling fraud.
Building on these efforts, she announced further investments in cutting-edge technology and HMRC resources to strengthen tax enforcement. The government will also increase the number of tax fraud prosecutions by 20% annually, a move expected to generate an additional £1 billion for the economy.[6]
Final Adjustments to Welfare Reforms and Budget Cuts
Chancellor Rachel Reeves outlined the government’s final adjustments to welfare reforms, reinforcing Labour’s stance as “the party of work.”
“If you can work, you should work, and if you can’t, you should be properly supported,” she stated, adding that Labour had inherited a “broken system.” She warned that failing to act would mean “writing off an entire generation”, calling it “both a loss of potential and a waste of futures”.
The OBR has assessed that the government’s welfare changes will reduce spending by £4.8 billion overall, exceeding previous estimates.
Reeves confirmed that the Universal Credit standard allowance will rise from £92 per week in 2025-26 to £106 per week by 2029-30. However, the Universal Credit Health element will be cut by 50% and subsequently frozen for new claimants.
She also announced a £1 billion investment in personalised employment support, ensuring tailored assistance to help individuals re-enter the workforce.[2]
Plan to Reduce Government Running Costs
Chancellor Rachel Reeves has outlined measures to cut the cost of running government, focusing on departmental budgets that determine spending levels until 2030.
She reaffirmed the prime minister’s recent commitment to increasing defence spending, a move funded by reductions in foreign aid. Additionally, she referenced the recent dissolution of NHS England, stating that this change ensures funding is directed towards improving patient care.
To further drive efficiency, Reeves announced a £3.25 billion transformation fund aimed at reforming public services. “This is money brought forward now to reduce the cost of running government over the long term, making public services more efficient, more productive, and more user-focused,” she explained.
The fund will support voluntary exit schemes to reduce the size of the civil service, the introduction of AI-driven tools to modernise state functions, technological upgrades for the Ministry of Justice to enhance probation services, and upfront investment in foster care to increase support for vulnerable children.[6]
Confirms Protection of Government Spending
Chancellor Rachel Reeves has assured that day-to-day government spending will increase in real terms above inflation every year throughout the forecast period and spending review. Aside from reductions in overseas aid, she confirmed that core departmental budgets remain fully protected.
Additionally, capital spending will increase by an average of £2 billion per year compared to the autumn, with a focus on economic growth and key defence commitments.
“This government will ensure that every pound we spend delivers for the British people, boosting productivity, driving economic growth, and improving frontline public services,” Reeves stated.[6]
OBR Lowers Growth Forecast for 2025
Chancellor Rachel Reeves addressed the economic uncertainty facing the UK, emphasising the government’s commitment to working closely with the Bank of England to bring inflation back to its 2% target.
She highlighted the three interest rate cuts since Labour took office and noted that the OBR forecasts inflation to average 3.2% this year, before falling to 2.1% in 2026 and reaching the target in 2027.
However, she acknowledged a setback: the OBR has downgraded the 2025 growth forecast from 2% to 1%.
“I am not satisfied with these numbers,” Reeves stated. “That is why this government is serious about taking decisive action to grow the economy.” [5]
Plans to Transform UK into a ‘Defence Industrial Superpower’
Chancellor Rachel Reeves has outlined the details of how the UK’s increased defence budget will be spent to strengthen the nation’s military capabilities.
“I confirm today that we will allocate an additional £2.2 billion for the Ministry of Defence next year, as part of our commitment to reach 2.5% of GDP for defence spending,” Reeves says.
She emphasised that at least 10% of the Ministry of Defence’s equipment budget will be dedicated to “cutting-edge technologies,” including drones and AI-powered solutions. These investments, she explains, will drive demand for “highly-skilled engineers and scientists.”
In addition to this, Reeves unveiled plans to overhaul the “broken defence procurement system,” ensuring it becomes “faster, more agile, and more efficient.”
Reeves also highlighted new investments in Barrow, a town central to the UK’s nuclear security, which will include better housing for military personnel.
Alongside the Defence Secretary, she announced the establishment of a new “Defence Growth Board” to oversee value-for-money initiatives.
Finally, Reeves emphasised her government’s efforts to make the UK a more attractive destination for major defence contractors, ultimately positioning the UK as a “defence industrial superpower.”[6]
Housebuilding Set for 40-Year High Following Reforms
Rachel Reeves has addressed the government’s housebuilding initiatives, revealing that recent reforms are expected to boost real GDP growth by 0.2% by 2029-30.
She shared that the OBR projects that these reforms will drive housebuilding to its highest level in 40 years.
“Changes to the national planning policy alone, will help build over 1.3 million homes in the UK within the next five years. This will take Labour within “touching distance” of its promise to build 1.5 million homes in England this parliament”.
“To build these new homes, we need a skilled workforce,” Reeves emphasized.
She also pointed to the Education Secretary’s announcement earlier this week of over £600 million to train up to 60,000 new construction workers. This initiative will include the creation of ten new technical excellence colleges in every region, providing working people with opportunities to reach their full potential.[3]
OBR Revises Growth Forecast for the Coming Years
The Chancellor has turned her attention to the updated growth forecast from the independent OBR.
Rachel Reeves announced that the OBR has upgraded the forecast for growth starting next year, with improvements for every year thereafter.
The revised GDP growth projections are as follows:
- 1.9% in 2026
- 1.8% in 2027
- 1.7% in 2028
- 1.8% in 2029
Reeves added, “By the end of the forecast period, our economy will be larger than the OBR’s initial projections from the time of the budget.”
This upgrade follows the announcement that the OBR has reduced the growth forecast for 2025, lowering it from 2% to 1%.[6]
