The budget watchdog has slashed its forecast for economic growth by half as Rachel Reeves unveiled a £14bn package to repair the UK economy that includes cuts to welfare.
Delivering her spring statement to the House of Commons on Wednesday, the chancellor blamed “increased global uncertainty” as the Office for Budget Responsibility halved its forecast for growth in gross domestic product in 2025 from 2 per cent to just 1 per cent.
Ms Reeves also confirmed a further squeeze on the welfare budget, building on cuts to the disability and incapacity bill set out earlier this month, with the package now expected to save £4.8 billion rather than the more than £5 billion in 2029/30 hoped for by ministers.
In a damning revelation, the government’s own impact assessment said after the announcement that an estimated quarter of a million people, including 50,000 children, would be pushed into relative poverty by the end of the decade as a result of welfare reforms.
The assessment also estimated 3.2m families would lose on average £1,720 per year compared to inflation in 2029 and 2030.
Shadow chancellor Mel Stride accused Ms Reeves of having “tanked the economy” as he said she “chose to be reckless” with fiscal headroom.
Labour ex-shadow Treasury minister brands disability benefits cuts ‘cruel’
A Labour former shadow Treasury minister has criticised Labour’s cuts to disability benefits as a “cruel choice” by Rachel Reeves.
Richard Burgon, pictured right, said the Chancellor had avoided more difficult decisions such as taxing wealthier people.
Mr Burgon said: “Making cuts instead of taxing wealth is a political choice, and taking away the personal independence payments from so many disabled people is an especially cruel choice.
“A disabled person who can’t cut up their own food without assistance, and can’t go to the toilet without assistance, and can’t wash themselves without assistance will lose their personal independence payment.
“So hasn’t the Government on this taken the easy option of cutting support for disabled people rather than the braver option which would be to tax the wealthiest through a wealth tax?”
Ms Reeves said: “There is nothing progressive, there is nothing ‘Labour’ about not supporting people who are disabled and sick and young people to do jobs that are commensurate with what they are able to do.”
She said one in eight young people had been “effectively written off” by the Conservatives in government, and ministers were consulting on an additional premium for the most sick and disabled.
“In the budget last year we got rid of the non-dom tax status, we increased capital gains tax, we introduced VAT on private schools and we changed the rules of inheritance tax, so I don’t recognise what (he) says,” she said.
The Chancellor said she will not “make any apologies for putting more money in defence” after former Labour leader Jeremy Corbyn called on her to end the two-child benefit cap.
Mr Corbyn, the Independent MP for Islington North, pictured above, said: “There are 4.3 million children living in poverty in our society. There are 1.2 million people in receipt of Pip (personal independence payments) who are about to lose it following her statement last week.
“(Ms Reeves) has put a huge amount of money into defence, could she not think for a moment of reversing the decision last week to take £5 billion out of the welfare budget and end the two-child benefit cap, which has driven so many children and families into really desperate poverty?”
Ms Reeves replied: “I am not going to make any apologies for putting more money in defence. This Labour Government takes defence of our country seriously, and so we should.
“We are the party that created Nato, and under the leadership of the Labour Party today we will always defend our country.”
The chancellor’s announcements included changes to universal credit, as well as measures to help people back into work. Ms Reeves also promised a boost for the UK’s defence spending.
It comes after the UK’s budget watchdog warned last week’s reforms would save over £1bn less than forecast. Here are six key takeaways from today’s announcement.
Concerns that cash Isa allowances are under “threat” have been expressed, as the Government said it is looking at options for reforms.
There have previously been reports that the idea of lowering the annual cash Isa allowance to £4,000, from £20,000, was being mooted, to encourage more people to put their money into investments.
Several organisations, including building societies, have pushed back against the idea, while others have argued that it could encourage budding investors.
Richard Fearon, chief executive of Leeds Building Society, said: “We remain concerned about the long-term threat of a reduction in cash Isa allowances.
“Reducing the amount which can be saved would have significant effects on savers, mortgage rates and wider aims to increase the size of the mutual sector.”
In a damning revelation, the government’s own impact assessment said 3.2m families would lose on average £1,720 per year compared to inflation in 2029 and 2030 under Reeves’s welfare cuts.
It also said a quarter of a million people, including 50,000 children, would be pushed into relative poverty by the end of the decade as a result of welfare reforms.
Reeves’ benefit cuts to plunge 250,000 people into poverty, government admits
Rachel Reeves’ benefits cuts will push an estimated quarter of a million people, including 50,000 children, into poverty by the end of this decade, according to the government’s own impact assessment.
Ministers finally published the document alongside the spring statement, a week after they first outlined moves to slash £5 billion from the welfare bill.
The impact assessment warned the cuts, that will see more than one million disabled people lose their benefits, will result in “an additional 250,000 people (including 50,000 children) in relative poverty after housing costs in 2029/30 as a result of modelled changes to social security”.
Reeves has guaranteed ‘another six months of damaging speculation and uncertainty over tax policy’, IFS warns
The respected Institute for Fiscal Studies (IFS) has delivered a damning verdict on the chancellor’s spring statement, saying the has guaranteed “another six months of damaging speculation and uncertainty over tax policy”.
“That didn’t go well between last July’s election and October’s Budget. I fear a longer rerun this year,” director Paul Johnson said.
He slammed Rachel Reeves for deciding to restore her £9.9 billion of fiscal headroom simply back to the same level it was before a growth downgrade from the Office for Budget Responsibility (OBR).
Any further OBR downgrade will reopen speculation about which taxes will have to rise to help Ms Reeves meet her self-imposed fiscal rules again this autumn.
Mr Johnson added: “There is a cost, both economic and political, to that uncertainty. The government will suffer the political cost. We will suffer the economic cost.”
Labour MPs urge Rachel Reeves to rethink welfare cuts
Rachel Reeves has faced pleas from Labour MPs to reverse cuts to health and disability benefits, amid warnings they will lead to increased poverty.
The Chancellor claimed the Government “inherited a broken” welfare system as “more than 1,000 people” qualify for personal independence payments every day – and one in eight young people are not in employment, education or training.
Ms Reeves used the spring statement to confirm further pressure on the welfare budget, which follows cuts to the disability and incapacity bill set out earlier this month.
Labour MP Debbie Abrahams, who chairs the Work and Pensions Committee, told the Commons: “I recognise the difficulties that (Ms Reeves) is facing in terms of fiscal challenges and so on that she inherited and I also support the reforms (Work and Pensions Secretary Liz Kendall) has set out.
“But all the evidence is pointing to the fact that the cuts to health and disability benefits will lead to increased poverty, including severe poverty, and worsened health conditions as well.
“How will making people sicker and poorer help in terms of driving our economy up and people into jobs?”
Look on the bright side benefits are being cut so that an extra £2.2 billion can be spent on defence this year with this coming on top of the billions already given to the Ukraine.
Poverty for the poorest in our society is just a price we have to pay. No ifs, no buts, that’s how it is. Labour know the drill.
And economic growth. Well that’s in reverse and as many pundits are predicting, there will be further cuts to come.