Cuts, Investments, and a Focus on AI
Chancellor Rachel Reeves delivered her spring statement today, outlining a £14 billion package of cuts and new investments aimed at restoring the UK's fiscal credibility and boosting long-term productivity.
Against a backdrop of weak growth and rising debt, Reeves outlined measures to rein in public spending, drive efficiency across government departments, and invest in critical areas such as defense, housing, and AI.
Deficit Reduction: The Office for Budget Responsibility (OBR) forecasts a deficit of £36.1 billion in 2025-26, falling to £13.4 billion the following year and returning to a surplus of £9.9 billion by 2029-30.
Universal credit standard allowance will rise gradually, but the health element will be halved and frozen for new claimants. £1 billion will be invested in getting people back to work.
The government will invest further in HMRC to strengthen its enforcement capabilities, aiming to boost tax fraud prosecutions by 20% annually.
£2.2 billion will be invested in defense spending, with funds earmarked for new technologies like air defense lasers.
A £3.25 billion fund will be created to reduce inefficiency in the civil service, supporting early exits for underperforming staff and investment in AI.
Overseas aid will be cut to 0.3% of gross national income, saving an estimated £2.6 billion by 2029-30.
Changes to planning rules are expected to deliver an economic boost of £6.8 billion over five years and support the construction of more than 1.3 million new homes.
The UK economy is now forecast to grow by 1% this year, rising to 1.9% in 2026 and 1.8% the year after. Inflation is expected to average 3.2% in 2025 before falling to 2.1% in 2026.
Reeves' statement signals a shift towards AI-led reform, defense innovation, and targeted infrastructure growth. This presents both opportunities and challenges for UK businesses in the year ahead.