Reeves Announces £5bn Welfare Cuts and Tax Hikes in Spring Statement 2025 Amid £22bn Deficit

Chancellor Rachel Reeves stood at the despatch box in the House of Commons on Wednesday, 26 March 2025, and delivered a stark message: Britain’s finances are in crisis, and tough choices are no longer optional. The Office for Budget Responsibility (OBR) had just revealed a £22 billion deficit for the current fiscal year — far worse than expected — with growth for 2025/26 slashed to just 1%. Inflation holds steady at 2.8%, interest rates remain at 4.5%, and public trust is fraying. Reeves didn’t mince words. "The world has changed," she said, referencing the OBR’s grim outlook. "We cannot borrow to pay for today’s bills. We must live within our means."

Defence Rises, Welfare Falls

One of the most striking shifts in the Spring Statement was the boost to defence spending. The government will pump an extra £2.2 billion into the military next year, pushing UK defence spending to 2.36% of GDP in 2026 and hitting the NATO target of 2.5% by 2027. It’s a clear signal: national security is no longer negotiable. But that increase comes at a cost elsewhere. Welfare cuts are expected to save £4.8 billion — more than initially projected. The most controversial change? The health-related element of Universal Credit will no longer be available to anyone under 22. Critics argue this punishes young adults entering a volatile job market, especially those with long-term health conditions. Personal Independence Payments (PIPs) will also face tighter eligibility rules. "This isn’t about laziness," said Diane Abbott, former Labour MP. "It’s about punishing the disabled. Cutting disability benefits isn’t a Labour thing to do."

Tax Tightening and the Hidden Costs

The government’s tax strategy is a two-pronged approach: close loopholes and raise penalties. By 2029/30, HMRC expects to raise over £1 billion annually by cracking down on tax evasion and expanding Making Tax Digital for income tax. From April 2028, sole traders and landlords earning over £20,000 must use commercial software for their final tax returns — no more spreadsheets or handwritten forms. Late payment interest rates jump 1.5% starting 6 April 2025. For small businesses already squeezed by inflation, this isn’t just bureaucracy — it’s a cashflow nightmare. Meanwhile, Stamp Duty Land Tax cuts ended abruptly on 31 March 2025. Homebuyers in England and Northern Ireland now face the full rate again, hitting first-time buyers hardest. And the inheritance tax threshold? Frozen until 2030. For farmers, the sting is sharper: full 100% relief on agricultural property now only applies to the first £1 million. Anything above that? A reduced rate — but still enough to force some families to sell land just to pay the bill.

Public Sector Squeeze

The civil service is taking a hit. 10,000 jobs will be cut by 2030, mostly in HR, policy, communications, and administrative roles. Departments will slash administrative spending by 15%. Treasury minister Emma Reynolds insisted, "There will always be a safety net for the most vulnerable." But when the machinery of government gets leaner, who’s left to help those navigating the system? Foreign aid, too, is being scaled back — from 0.5% to 0.3% of gross national income by 2027. The move drew swift criticism from humanitarian groups. "This isn’t austerity," said a spokesperson for Oxfam UK. "It’s a retreat from global responsibility."

Farming, Wages, and the Invisible Tax

England’s farming budget remains at £5 billion for 2024/25 and 2025/26, distributed across Countryside Stewardship and other environmental schemes. But the inheritance tax changes threaten the very survival of family farms. "We’ve seen landowners sell 200 acres just to pay the taxman," said James Whitaker, a third-generation farmer from Lincolnshire. "It’s not about wealth. It’s about legacy." Employers face another hit: National Insurance contributions rise in April 2025. Labour costs are climbing just as businesses struggle to find staff. Meanwhile, the National Living Wage jumps to £12.21 per hour — a welcome boost for workers, but another pressure point for small shops, care homes, and hospitality firms.

What’s Next? The June Review and the Autumn Budget

The Spring Statement was never meant to be the final word. It was a warning shot. The June Spending Review will lay out exact departmental budgets — especially for Defra, which now must balance farm subsidies, environmental grants, and rural services with shrinking funds. The real pain, however, comes in the Autumn Budget. That’s when the government will decide whether to raise income tax, VAT, or corporate rates to close the remaining £4.1 billion deficit in its forecast. The OBR’s fiscal headroom has shrunk by £15 billion. Reeves has vowed to return to surplus — £10 billion by 2029. But with inflation sticky, growth weak, and public anger rising, that goal feels increasingly distant.

Expert Reactions and the Bigger Picture

The Institute of Chartered Accountants in England and Wales (ICAEW) issued a blunt warning: "Infrastructure spend must be smart, as well as speedy," said Policy Director Jonathan Fell. "If we pour money into the wrong projects, we’ll displace private investment — and hurt long-term growth." Meanwhile, a Bishop Fleming analysis from October 2025 called Reeves’ claim that "real household disposable income will rise £500" misleading. "That projection only materializes after tax thresholds unfreeze — and even then, only for some," the report noted. "It’s a statistical illusion dressed as policy." The government’s message is clear: discipline over popularity. But as families feel the pinch at the checkout, at the doctor’s office, and on their farm gates, the question isn’t just whether these cuts are necessary — it’s whether they’re fair.