Several billion pounds in spending cuts – including from the welfare budget – are expected in the spring statement later this month from Chancellor Rachel Reeves.
The Treasury believes Reeves must maintain a £10bn headroom after months of economic downturn and geopolitical events since last October’s budget. Reeves self-imposed fiscal rules mean she can’t borrow for day-to-day spending, leaving spending cuts as one of her only options.
Treasury sources said “the world has changed” since Ms Reeves delivered Labour’s first Budget in power, when she had a £9.9 billion buffer in her spending plans.
An insider told the BBC: “Clearly the world has changed a lot since the autumn Budget. People are watching that change happen before their eyes.
“The Office for Budget Responsibility will reflect that changing world in its forecasts later this month and a changing world will be a core feature of the chancellor’s response later this month.”
Defence spending
It comes as Keir Starmer said the government will increase defence spending to 2.5% of GDP by 2027 – worth an additional £6bn a year.
Reeves said: “I do want to make sure as we spend more on defence that is used to support British jobs and British industries. That’s why I met on Friday with UK defence companies and companies operating in the UK to work on how we can increase the capacity and the capability.
“I am determined that as we spend that money on that defence and security, that we use it in a way that can also help stimulate the economy, and particularly to revive some parts of the country that do often feel like they’re left behind.”
In response, GMB’s Susanna Reid said: “We’ve suddenly found all of this money to defend [Ukraine], where was that money when the govt came into power saying there’s a £22bn blackhole & we need to take money away from pensioners to fill it.”
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