(CN) — United Kingdom Chancellor Rachel Reeves unveiled further cuts to the welfare bill during her spring statement to Parliament, outlining the government’s plan to get the British economy growing as this year’s growth forecast was downgraded to 1%.
Reeves announced that part of Universal Credit, the country’s largest welfare expense for working-aged people, will be cut by 50% and then frozen for new claimants.
Bound by her own self-imposed tight borrowing rules and promises not to raise taxes, Reeves had little room to meet the government’s fiscal targets.
Last week, the government unveiled changes to the benefits system in a bid to save $6.5 billion, which would leave many sick and disabled people unable to claim benefits. However, analysis by the Office for Budget Responsibility (OBR), the independent public body that provides forecasts on public finances, found that the government’s planned welfare cuts would only save $4.4 billion.
By further tightening the welfare budget to cover the imbalance, Reeves said overall public spending would drop from a deficit of $45.5 billion in 2025 to a surplus of $7.7 billion by 2028.
Around 3 million families are set to lose out on welfare benefits by 2030, according to the government’s own figures. This amounts to an average loss of $2,218 a year. Analysis by the Department for Work and Pensions also found that cuts to health and disability benefits will put an extra 250,000 people into relative poverty, which is defined as a household income below 60% of the median. This figure includes 50,000 children.
In a further crackdown, around 150,000 people will lose their caregiver allowance, affecting their ability to support those with disabilities.
Reducing levels of debt and borrowing, the chancellor said, would lead to spending more on the needs of the working people.
Meanwhile, year-over-year inflation fell to 2.8% in February, yet remains above the target of 2%.
The OBR downgraded this year’s growth forecast from 2% to 1%. Reeves said she was “not satisfied” with these numbers, which is why the government will increase investment and “tear down regulatory barriers in every sector of our economy” in order to “renew our country.”
One area of government that is set for growth in spending is defense, with the government pledging to increase spending to 2.5% of GDP before eventually rising to 3%, paying for it by reducing the overseas aid budget. This comes at a time when President Donald Trump has warned European countries to spend more on their own security.
An extra $2.8 billion will be spent on defense next year, as the chancellor repeatedly warned that “the world is changing,” with additional investment in new technologies and equipment for the military.
Planning reform and housebuilding, a core part of the government’s growth strategy, will receive an additional $2.6 billion, as it looks to build 1.3 million homes by the end of 2030.
The so-called “shadow chancellor,” Reeves’ opposition counterpart Mel Stride, stood up in Parliament and called the spring statement an “emergency budget” and blamed the growth woes on Reeves. He also urged a bigger boost in defense spending.
David Bailey’ a professor of business economics at the University of Birmingham, said he’s concerned about the cuts in spending. “The U.K. economy is pretty much flatlining. Cutting spending when there is no growth doesn’t make much sense as policy becomes pro-cyclical rather than counter-cyclical,” Bailey said.
“The rules are too tight and need to be loosened up. Rachel Reeves has boxed herself into a corner unnecessarily as many of us warned at the time of the general election.”
One of the most significant hits to the U.K. economy didn’t get a mention in the spring statement: Brexit, now five years in the rearview. “We need to talk about the elephant in the room,” Bailey said. “Brexit acts as an ongoing drag on growth; while the government talks about a reset, it has ruled out rejoining the customs union or single market. As a result, any reset won’t deliver a sizable boost to growth.”
Bailey pointed to Germany, which recently changed its constitution to spend 1 trillion euros in the next 12 years on infrastructure and defense. “Rachel Reeves might take note,” he said.
Bailey joined nine other economists in an open letter to the chancellor, noting the last 15 years “have taught us that the U.K. cannot cut its way to growth.” They urged the chancellor to “chart the course away from austerity, and make the bold policy choices needed to truly kickstart growth and deliver the economic stability, prosperity and resilience this country needs.”
Michael Ben-Gad, a professor of economics at City University London, said the U.K. suffers from five specific problems: an aging society that is pushing up pension costs, low productivity since 2008 leading to lower investment, a growing share of the population leaving the workforce, the rising costs of financing the debt, and years of defense spending cuts that has left the country vulnerable.
“The U.S. effectively underwrites European defense and Trump has made it clear that this can no longer be relied upon,” said Ben-Gad.
Critics of the government’s approach, including Labour politicians and voters, argue that rather than cutting welfare for the most vulnerable, the focus should be on raising revenue through a wealth tax.
“There is lots of pressure from backbench MPs to raise taxes, particularly introducing a wealth tax,” Ben-Gad said. “The tax burden in the U.K. is the highest since the end of the Second World War and a wealth tax might further reduce the incentive to invest.”
For many within the Labour Party, welfare cuts have been too much. Dozens of local Labour politicians have resigned, including Karen Constantine, the councilor for Ramsgate in Kent. She’d been a member of the party for 43 years.
“The new welfare policy seems wholly designed to save money by heaping more pressure on the shoulders of those who have the least,” she said. “It is a punishing, intrinsically unjust and short-sighted policy.”
She also blasted Starmer’s “lack of vision” and said Reeves’ “intractable fiscal rules mean Labour is in danger of becoming a Reform recruiting aid,” referring to the far-right party led by Nigel Farage which has recently gained in the polls.
Many Labour voters have the same concerns. “I don’t understand why it is all so openly right wing. Are they so terrified of losing to the right that they have become it?” asked Claire Balcombe, from Cumbria, who had always voted Labour but changed to the Green Party at the last election.
“I think the Labour Party, with its current leader, seems to have the confidence to act with impunity. They are storming forward with a neoliberal agenda which in the end will be self-destructive. The disenchantment of the voters through the cuts to welfare will create a lean to the right.”
Laura, who didn’t want to giver her full name, is a former Labour Party member and a special educational needs teacher. “I have voted Labour all my life and these past two weeks have been so upsetting,” she said. “This is not the Labour Party.”