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Chancellor Rachel Reeves is to boost the UK’s defence spending by £2.2bn next year as she delivers a grim Spring Statement in which she will claim that her economic plans have been blown off course by “a changing world”.
Reeves will insist on Wednesday she is providing “security” for the British people — both militarily and economically — but her speech to MPs will be dominated by dismal growth data, a yawning fiscal hole and an admission that things can get even worse.
She will attempt to put a positive spin on the gloomy outlook, insisting that a £2.2bn extra dose of military spending from April will boost jobs at British defence companies.
The extra funding, which will come from new cuts to the overseas aid budget and the Treasury reserve, will take UK defence spending to 2.36 per cent of GDP in the 2025-26 financial year.
Reeves has already said it will hit 2.5 per cent in 2027 — an extra £6.4bn — funded by a bigger raid on the foreign aid budget. “As defence spending rises, I want the whole country to feel the benefits too,” she will say.
The chancellor’s statement takes place in the shadow of Donald Trump, whose election as US president has forced Britain to increase military spending. Reeves has admitted that a Trumpian global trade war will also create economic “headwinds” and further dampen growth.
The chancellor will patch up a hole in the public finances of about £15bn, created by sluggish growth and higher borrowing costs, with a wave of cuts to welfare and government spending, although she denies she is returning to “austerity”.
She will also publish a forecast by the independent Office for Budget Responsibility, which is expected to halve its October growth projection for 2025 of 2 per cent.
Treasury officials say there will be no tax rises in her statement, but economists believe they can become inevitable in her autumn Budget unless the country’s economic fortunes quickly begin to improve.
The chancellor is being goaded by Conservatives who claim she is overseeing a return to “austerity”, an allegation that ministers are determined to refute.
Darren Jones, chief secretary to the Treasury, on Tuesday briefed 75 ministers on the Spring Statement plan, which is expected to include a cut of at least £5bn a year from Whitehall spending totals later in the parliament.
He said this was not “austerity”, pointing out that real spending on public services would rise every year in this parliament and was growing from a higher base, following Reeves’ big injection of cash into the NHS and other areas in her October Budget.
Paul Johnson, head of the Institute for Fiscal Studies, said talk of austerity “is way overblown in context of what government announced in October and by comparison with stated plans of last government”.
Reeves is battling some negative sentiment over her handling of the economy. A YouGov survey found that only 16 per cent of voters thought the government was handling the economy well. Just 11 per cent hold a positive view of Reeves’ performance.
On Tuesday the chancellor was publicly criticised by a ministerial colleague for taking “freebie” tickets to a Sabrina Carpenter concert, 24 hours before she announces deep cuts to welfare and public spending.
Housing minister Matthew Pennycook was asked what he thought of Reeves’ decision to attend the concert in a VIP box earlier this month without paying for the tickets.
“I don’t personally think it’s appropriate,” Pennycook told LBC. “If I want to go to a concert at the O2, I’ll pay for it. But individual MPs, individual ministers, make their own decisions.”
Reeves said she accepted the VIP package for “security reasons” but many Labour MPs privately questioned her judgment at a time when she is making deep cuts to sickness and disability benefits.
The chancellor will publish alongside the Spring Statement an impact assessment of how £5bn of welfare cuts will affect ordinary voters, with many Labour MPs fearing the political fallout.
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