What could be announced in Rachel Reeves' spring statement?
Spending cuts are expected after nearly six months of a poor economy following the October budget, where the chancellor announced tax rises and big borrowing.
Wednesday 26 March 2025 07:33, UK
Chancellor Rachel Reeves will update the country on her plans for the economy during the spring statement later on Wednesday.
Having only committed to holding one budget a year (in the autumn), this was meant to be a low-key affair.
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But a turbulent economic climate since October means the £9.9bn gap in her fiscal headroom (the amount she could increase spending or cut taxes without breaking her fiscal rules) has been wiped out.
Some big cuts have already been announced - and there may be more to come…
What could be announced later today:
Further welfare cuts
The chancellor will unveil further welfare cuts in her spring statement after being told the reforms announced last week will save less than planned, Sky News understands.
The Office for Budget Responsibility (OBR) has rejected the government's assessment that the package of measures, including narrowing the eligibility criteria for personal independence payments (PIP), will save £5bn.
The fiscal watchdog put the value of the cuts at £3.4bn, leaving ministers scrambling to find further savings.
Ms Reeves is now expected to announce that universal credit (UC) incapacity benefits for new claimants, which were halved under the original plan, will also be frozen until 2030 rather than rising in line with inflation.
As originally , there will also be a small reduction in the basic rate of UC in 2029, with the new measures expected to raise £500m.
Defence
Ms Reeves is expected to announce £400m in spending on the government's new UK Defence Investment body to "harness UK ingenuity and boost military technology", The Mirror reports.
The aim is to make it quicker and easier for defence firms to get their innovations into the hands of soldiers on the front lines as the government seeks to bolster the UK's readiness level.
Additionally, Defence Secretary John Healey told Sky News today that Ms Reeves will promise to increase defence spending by £2.2bn from April as part of the previously announced plan for the biggest boost in military funding since the Cold War.
Income tax freeze
The chancellor could decide to extend the freeze on thresholds at which people start to pay different rates of income tax beyond the current freeze, due to end in April 2028.
This could raise about £7bn a year, investment bank Citi found, and is known as a stealth tax as it drags more people into paying higher tax as their pay goes up.
Business rates
Ms Reeves promised to launch "a fairer business rates system" - but after reducing the relief rate for retail, hospitality, and leisure from 75% to 40% at the October budget, the industry is struggling further.
The government has been consulting with businesses to reform the current system, with the consultation closing this month, so there could be some help for those struggling - possibly increasing the relief rate from 40%.
Cash ISAs
The investment industry called on Ms Reeves to reduce the £20,000 tax-free annual limit on cash ISAs to £4,000 to encourage more people to invest their savings in stocks and shares.
They said this would help reinvigorate the UK's capital markets, but leading building societies - who stand to lose out - objected and said it would hurt cash ISA savers
The change has been mooted for the spring statement but could be held for the budget in the autumn.
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Employers' national insurance
The spring statement comes 11 days before the controversial 6 April rise in employers' national insurance contributions, announced at the October budget.
Ms Reeves could offer some relief via an increased employment allowance, or a higher threshold before employers' national insurance becomes payable, and specific relief for the charity sector.
International aid
Ms Reeves is expected to confirm details of how international aid funding will be reallocated to defence, after the PM said UK defence spending will rise to 2.5% of GDP by 2027.
What has already been announced?
Civil service
The government has confirmed that it will force the civil service to slash £2bn a year from its budget by cutting administration costs by the end of the decade.
The chancellor told Sky's Sunday Morning With Trevor Phillips that she is "confident" they can cut 10,000 jobs from "back office" roles to ensure resources can be spent on frontline services.
Sir Keir Starmer has pledged to use AI and automation to cut "flab" from the civil service, and will send tech teams into every government department to "make the state more innovative and more efficient".
The government has also announced senior staff will be paid depending on performance and those failing to meet standards could be dismissed if they do not improve within six months.
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Welfare system
The government was looking at freezing the personal independence payment (PIP) - up to £9,000 a year for people with long-term disabilities - to stop it rising with inflation next year.
The government chose not to freeze it as Labour MPs raised concerns it unfairly affected disabled people, but has made it more difficult to qualify for PIP.
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Work and Pensions Secretary Liz Kendall announced on 18 March the government will also abolish the work capability assessment in 2028, which determines whether someone on universal credit is fit to work.
She promised "extra financial support" for those on universal credit with health conditions will come solely through the PIP assessment.
Ms Kendall said all the changes would save £5bn.
Quangos and regulators
On 13 March, the prime minister made the shock announcement NHS England, the arm's length body that runs the NHS in England, is to be abolished to cut bureaucracy.
He also told ministers to stop "outsourcing" decisions to quangos - organisations government has devolved powers to but are partly controlled and/or financed by government bodies.
Sir Keir took aim at the proliferation of regulators, saying government has "created a watchdog state completely out of whack with the priorities of the British people".
He also set a target to cut the cost to businesses of compliance with regulations by 25%.
Training new construction workers
The Treasury has announced £600m in funding to train up to 60,000 more skilled construction workers as the government seeks to meet its target of building 1.5 million new homes by the end of this parliament.
The fund, to be used over the next four years, will be spent on training young people to become bricklayers, engineers, electricians, and carpenters.