Rachel Reeves has vowed not to shy away from economic challenges amid criticism from unions and political opponents after she cut welfare and squeezed Whitehall budgets in her spring statement.
Writing for The Times newspaper, the Chancellor warned there would be “no quick solutions” to fix Britain’s financial woes amid concerns about some three million families on incapacity benefits expected to be hit by the changes.
Economists warned of further uncertainty ahead of the autumn budget, while opposition critics accused Ms Reeves of mismanaging the public finances and unions said the policy changes marked a return to austerity.
But in an article on Thursday, the Chancellor wrote: “While there are no quick solutions to fixing our damaged economy, our plan for change is starting to bear fruit: interest rates cut and wages up; waiting lists down and defence bolstered; the economy predicted to grow faster than the OBR had previously expected from 2026.
Rachel Reeves delivered her statement on Wednesday (Ben Stansall/PA)
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“I won’t shy away from the challenges we face, and change won’t happen overnight. But the prize on offer to us is immense.
“Shovels in the ground and cranes in the sky, and an economy that finally delivers on the priorities of the British people.”
An estimated 250,000 more people, including 50,000 children, will be left in relative poverty after housing costs by the end of the decade as a result of the Government’s squeeze on welfare, according to its own impact assessment.
The changes will affect about three million families on incapacity benefits, while 800,000 claimants will have reduced personal independence payments (Pip).
The budget watchdog said the £14 billion of measures to restore Ms Reeves’s headroom back to £9.9 billion came from “direct savings from welfare reforms and the reduction in day-to-day departmental spending” along with the “indirect boost” from changes such as planning reforms.
The Office for Budget Responsibility also halved its forecast for growth in gross domestic product in 2025 from 2% to just 1%, but upgraded its forecasts for subsequent years.
GDP is expected to increase by 1.9% in 2026, 1.8% in 2027, 1.7% in 2028 and 1.8% in 2029, though the watchdog warned tariffs threatened by Donald Trump could wipe out the Chancellor’s relatively thin £9.9 billion buffer.
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The US president announced on Wednesday night he was placing a 25 per cent levy on car imports to America, sparking further uncertainty over whether the UK will be able to secure a carve-out amid an escalating trade war.
Meanwhile, the Institute for Fiscal Studies (IFS) and the Resolution Foundation think tanks will publish their analysis of the statement on Thursday.
In a snapshot assessment on Wednesday, IFS director Paul Johnson warned that Ms Reeves had opened the door to six months of “damaging speculation and uncertainty over tax policy” ahead of the next budget after the statement.
The £9.9 billion buffer maintained by Ms Reeves to meet her self-imposed rule of covering day-to-day spending with tax receipts rather than borrowing is small by historic standards.
At a press conference later on Wednesday, Ms Reeves declined to rule hiking taxes at her next budget but insisted she was focused on growing the economy as a way to generate revenue.
The IFS director added: “We might be in for another blockbuster autumn budget. That didn’t go well between last July’s election and October’s budget. I fear a longer rerun this year.”
Meanwhile, in an initial analysis, the Resolution Foundation said planned cuts to departmental spending are “a far cry” from austerity, but “not pain-free either” and warned living standards are on track to be worse than the 2010s.
