Spring Statement 2025: Speech by the Chancellor, Rachel Reeves - March 26

Mr Speaker, this Labour government was elected to bring change to our country. To provide security for working people. And to deliver a decade of national renewal. That work of change began in July – and I am proud of what we have delivered in just nine months.

Restoring stability to our public finances… … giving the Bank of England the foundation to cut interest rates… … three times since the General Election. Rebuilding our public services… … with record investment in our NHS… … bringing waiting lists down for 5 months in a row. And increasing the National Living Wage… … to give 3 million people a pay rise from next week.

Now… … our task is to secure Britain's future… … in a world that is changing before our eyes. The threat facing our continent was transformed when Putin invaded Ukraine. It has since escalated further… … and continues to evolve rapidly. At the same time, the global economy has become more uncertain… … bringing insecurity at home… … as trading patterns become more unstable… … and borrowing costs rise for many major economies.

Mr Speaker, the job of a responsible government is not simply to watch this change. This moment demands an active government. A government not stepping back, but stepping up. A government on the side of working people… … helping Britain reach its full potential.

We have the strengths to do just that… … as one of the world's largest economies … … as an ally to trading partners across the globe… … and as a hub for global innovation. These strengths… … and the progress we have made so far… … mean we can act quickly and decisively in a more uncertain world… … to secure Britain's future… … and to deliver prosperity for working people.

Mr Speaker, as I set out at the Budget last year… … I am today returning to the House to provide an update on our public finances… … supported by a new forecast from the independent Office for Budget Responsibility… … ahead of a full Spending Review in June. I will then return to the House to deliver a budget in the autumn… … in line with our commitment to deliver just one major fiscal event a year.

So let me turn now to the OBR's forecasts… … and I want to thank Richard Hughes and his team for their dedicated work. The increased global uncertainty has had two consequences. First, on our public finances. And second, on the economy. I will take each in turn.

In the autumn, I set out new fiscal rules that would guide this government. These fiscal rules are non-negotiable. They are the embodiment of this government's unwavering commitment… … to bring stability to our economy… … and to ensure security for working people. Because the British people have seen what happens when a government borrows beyond its means. The mini-budget delivered by the party opposite led to higher bills… … higher rents… … and higher mortgages.

It was not the wealthy who suffered most, it was working people. And they continue to feel the effects… … two and a half years later… … of the damage that the party opposite did. Now let me be clear. There is nothing progressive… … there is nothing Labour… … about working people paying the price of economic irresponsibility. The British people put their trust in this government… … because they knew that we would never take risks with the public finances… … that we would never do anything to put their household finances in danger. But we must earn that trust every single day.

The two fiscal rules I set out at the Budget were… First, our “Stability Rule”, which ensures that public spending is under control… … balancing the current budget by 2029-30… … so that day-to-day spending is met by tax receipts. Second, our “Investment Rule” to drive growth in our economy… … ensuring that net financial debt falls by the end of the forecast period… … while enabling us to invest alongside business.

Turning first to the Stability Rule, the OBR's forecast shows that… … before the steps I will set out in this statement… … the current budget would have been in deficit by £4.1bn in 2029-30… … having been in surplus by £9.9bn in the autumn… … as the UK, alongside its international peers like France and Germany… … has seen the cost of borrowing rise during this period of heightened uncertainty in financial markets. As a result of the steps that I am taking today… … I can confirm that I have restored in full our headroom against the “stability rule”… … moving from a deficit of £36.1bn in 2025-26 and £13.4bn in 2026-27… … to a surplus of £6.0bn in 2027-28, £7.1bn in 2028-29 and £9.9bn in 2029-30. That means that we are continuing to meet the Stability Rule two years early… … building resilience to shocks in this, a more insecure world.

The OBR forecast that the “investment rule” is also met two years early… … with net financial debt of 82.9% of GDP in 2025-26 and 83.5% in 2026-27… … before falling from 83.4% in 2027-28, to 83.2% in 2028-29 and 82.7% in 2029-30… … providing headroom of £15.1bn in the final year of the forecast… … broadly unchanged from the autumn.

After the last government doubled the national debt… … debt interest now stands at £105.2bn this financial year… … more than we allocate on Defence, the Home Office and Justice combined. So the responsible choice is to reduce our levels of debt and borrowing in the years ahead… … so we can spend more on the priorities of working people.

Mr Speaker. I said that our fiscal rules were non-negotiable. And I meant it. I will always deliver economic stability. And I will always put working people first. I said it at the election. I said it at the budget. And I repeat it today.

Let me now set out the steps the government has taken. At the Budget we protected working people… … by keeping our promise not to raise their rates of National Insurance, income tax or VAT. At the same time, we began to rebuild our public services… … after the party opposite left a £22bn black hole in the public finances. Ours were the right choices, for stability and renewal… … funded by the decisions that we took on tax.

As I promised in the autumn, this Statement does not contain any further tax increases. But when working people are paying their taxes, while still struggling with the cost-of-living… …it cannot be right that others are still evading what they rightly owe. In the Budget, I delivered the most ambitious package of measures that we have ever seen… … to cut down on tax evasion… … raising £6.5bn per year by the end of the forecast. Today, I go further… … continuing our investment in cutting-edge technology … … investing in HMRC's capacity to crack down on tax avoidance… … and setting out plans to increase the number of tax fraudsters charged each year by 20%. These changes raise a further £1bn… … taking total revenue raised from reducing tax evasion under this government to £7.5bn… … figures verified by the Office for Budget Responsibility… … and I want to thank my HF the Exchequer Secretary for his continued work in this area.

Mr Speaker, last week my RHF the Secretary of State for Work and Pensions, set out this government's plans to reform the welfare system. The Labour party is the party of work. We believe that if you can work, you should work… … and if you can't, you should be properly supported. This government inherited a broken system. More than 1,000 people qualify for Personal Independence Payments every single day. And 1 in 8 young people are not in employment, education or training. If we do nothing, that means we are writing off an entire generation. That cannot be right. It is a waste of their potential and it is a waste of their futures.

As my RHF said in her statement last week… … the final costings would be subject to the OBR's assessment. Today, the OBR have said… … that they estimate the package will save £4.8bn in the welfare budget… … reflecting their judgements on behavioural effects and wider factors. This also reflects final adjustments to the overall package… … consistent with the Secretary of State's statement last week... … and the government's Pathways to Work Green Paper. The Universal Credit Standard Allowance will increase from £92 per week in 2025-26 to £106 per week by 2029-30… … while the Universal Credit Health element will be cut by 50% and then frozen for new claimants.

On top of this, we are investing £1bn to provide guaranteed, personalised employment support to help people back into work… … and £400m to support the Department for Work and Pensions to deliver these reforms effectively and fairly… … taking total savings from the package to £3.4bn. Overall, these plans mean that welfare spending as a share of GDP will fall between 2026-27 and the end of the forecast period. We are reforming our welfare system… … making it more sustainable… … protecting the most vulnerable… … and supporting more people back into work.

Mr Speaker, at the Budget, I fixed the foundations of our economy to deliver on the promise of change. That work has already begun. 2 million extra appointments in our NHS. Waiting lists down. New breakfast clubs opening across England. The largest settlements in real terms for Scotland, Wales and Northern Ireland in the history of devolution. Asylum costs, falling. Promises made, promises kept. And every single one opposed by the parties opposite.

At the budget… … alongside providing an increase in funding for this year and next… … I set the envelope for the Spending Review… … which we will deliver in June… … to set departmental budgets until 2028-29 for day-to-day spending… … and 2029-30 for capital spending. Today, I am reflecting two steps we have taken in our spending plans.

First, because we are living in an uncertain world… … as the Prime Minister has set out… … we will increase defence spending to 2.5% of GDP, by reducing overseas aid to 0.3% of Gross National Income. This means we save £2.6bn in day-to-day spending in 2029-30… … to fund our more capital-intensive defence commitments.

Second, in recent months, we have begun to fundamentally reform the British state… … driving efficiency and productivity across government… … to deliver tangible savings… … and improve services across our country. Earlier this month, the Prime Minister set out our plans to abolish the arms-length body NHS England… … and ensure that money goes directly to improving the experience for patients. My RHF the Health Secretary is driving forward vital reforms to increase NHS productivity… … bearing down on costly agency spend… … to save money we can improve patient care. And my RHF the Chancellor of the Duchy of Lancaster is taking forward work to significantly reduce the costs of running government… … by 15%, worth £2bn, by the end of the decade.

This work shows that we can make our state leaner, and more agile… … delivering more resources to the frontline… … while ensuring we control day-to-day spending to meet our fiscal rules. Today, I build on that work… … by bringing forward £3.25bn of investment… … to deliver the reforms that our public services need… … through a new Transformation Fund.

That is money brought forward now… … to bring down the costs of running government by the end of the forecast period… … by making public services more efficient and more productive. I can confirm today the first allocations from this fund… … including funding for Voluntary Exit Schemes to reduce the size of the Civil Service… … pioneering AI tools to modernise the state… … investment in technology for the Ministry of Justice to deliver probation services more effectively… … and up-front investment to support children in foster care… … to give them the best start in life… … and reduce cost pressures in the future.

Our work to make government leaner… … more productive… … and more efficient… … will help deliver a further £3.5bn of day-to-day savings by 2029-30.

Overall, day-to-day spending will be reduced by £6.1bn by 2029-30… … and it will now grow by an average of 1.2% a year above inflation... … compared to 1.3% in the Autumn. Mr Speaker, I can confirm to the House that day-to-day spending will increase in real terms, above inflation, in every single year of the forecast. And in the Spending Review Period, apart from the reduction in overseas aid… … day-to-day spending across government has been fully protected.

I can today also confirm our approach to capital investment. In the Autumn Budget I announced £100bn of additional capital spending… … to crowd in investment from the private sector… … to fix our crumbling infrastructure… … and to create jobs in every corner of the country. Today, I am not cutting capital spending, as the party opposite did time and again. Because that choked off growth. And it left school roofs literally crumbling. That was the wrong choice, it was the irresponsible choice, it was the Tory choice. Today, I am instead increasing capital spending … … by an average of £2bn per year compared to the Autumn… … to drive growth in our economy… … and deliver in full our vital commitments on defence.

This government will ensure that every pound we spend will deliver for the British people… … by increasing productivity… … driving growth in our economy.,, … and improving frontline public services.

Mr Speaker, let me turn now to the impact of increased uncertainty on our economy. To deliver economic stability, we must work closely with the Bank of England… … supporting the independent Monetary Policy Committee in their work to meet the 2% inflation target. There have been three interest rate cuts since the General Election and today's data showed that inflation fell in February.

Having peaked at 11% under the previous government… … the OBR forecast that CPI inflation will average 3.2% this year… … before falling rapidly to 2.1% in 2026 and meeting the 2% target from 2027 onwards... … giving families and businesses the security that they need… … and providing our economy with the stable platform it needs to grow.

Mr Speaker… … earlier this month, the OECD downgraded this year's growth forecast for every G7 economy, including the UK. And the OBR have today revised our growth forecast for 2025… … from 2% in the autumn… … to 1% today. I am not satisfied with these numbers. That is why we on this side of the house are serious about taking the action needed to grow our economy. Backing the builders, not the blockers… … with a third runway at Heathrow Airport… … and the Planning and Infrastructure Bill. Increasing investment… … with reforms to our pension system... … and a new National Wealth Fund. And tearing down regulatory barriers… … in every sector of our economy. That is a serious plan for economic growth. That is a serious plan to improve living standards. That is a serious plan to renew our country.

Mr Speaker… … earlier this month, the OECD downgraded this year's growth forecast for every G7 economy, including the UK. And the OBR have today revised our growth forecast for 2025… … from 2% in the autumn… … to 1% today. I am not satisfied with these numbers. That is why we on this side of the house are serious about taking the action needed to grow our economy. Backing the builders, not the blockers… … with a third runway at Heathrow Airport… … and the Planning and Infrastructure Bill. Increasing investment… … with reforms to our pension system... … and a new National Wealth Fund. And tearing down regulatory barriers… … in every sector of our economy. That is a serious plan for economic growth. That is a serious plan to improve living standards. That is a serious plan to renew our country.

Mr Speaker, a changing world presents challenges. But it also presents new opportunities. For new jobs. … and new contracts… … in our world class defence industrial centres… … from Belfast to Deeside, and from Plymouth to Rosyth.

In February, the Prime Minister set out the government's commitment to increase spending on defence to 2.5% of GDP from April 2027… …and an ambition to spend 3% of GDP on defence in the next parliament. That was the right decision in a more insecure world… … putting an extra £6.4bn into defence spending by 2027.

But we have to move quickly in a changing world. And that starts with investment. So today I confirm that I will provide an additional £2.2bn for the Ministry of Defence next year… … a further downpayment on our plans to deliver 2.5% of GDP. This additional investment is not just about increasing our national security… … but increasing our economic security, too. As defence spending rises, I want the whole country to feel the benefits. So I will set out the immediate steps that we are taking to boost Britain's defence industry… … and to make the UK a defence industrial superpower.

We will spend a minimum of 10% of the Ministry of Defence's equipment budget on novel technologies … … including drones and AI enabled technology… … driving forward advanced manufacturing production in places like Glasgow, Derby and Newport… … creating demand for highly skilled engineers and scientists… … and delivering new business opportunities for UK tech firms and start-ups.

We will establish a protected budget of £400m within the Ministry of Defence… … for UK Defence Innovation… … rising over time… … with a clear mandate to bring innovative technology to the front line at speed.

We will reform our broken defence procurement system… … making it quicker, more agile and more streamlined.... … and giving small businesses across the UK better access to Ministry of Defence contracts.

We will take forward our Plan for Barrow, a town at the heart of UK nuclear security… … working with my HF the Member for Barrow and Furness… … and providing £200m, supporting the creation of thousands of jobs.

We will regenerate Portsmouth naval base, securing its future.. … as called for by my HF the Member for Portsmouth South.

We will secure better homes for thousands of military families… … like those in the constituencies of my HFs for Plymouth Moor View, Plymouth Sutton & Devonport, York Outer and in Aldershot.

Finally, we will provide £2bn of increased capacity for UK Export Finance… … to provide loans for overseas buyers of UK defence goods and services… … giving further opportunities for our world leading defence companies… … to grow and create jobs here in Britain… … as military spending rises right across Europe.

To oversee all of this vital work… … my RHF the Defence Secretary and I will establish a new Defence Growth Board… … to maximise the benefits from every pound of taxpayers' money that we spend. And we will put Defence at the heart of our modern industrial strategy… … to drive innovation that can deliver huge benefits back into the British economy.

That is how we make our country a defence industrial superpower… … so the skills of the future… … the jobs of the future… … and the opportunities of the future… … can be found right here in the United Kingdom.

Mr Speaker, as the previous government learned to their detriment – there are no shortcuts to economic growth. It will take long-term decisions. It will take hard yards. It will take time for the reforms we are introducing to be felt in the everyday economy. It is right that the Office for Budget Responsibility consider the evidence… … and look carefully at measures before recognising a growth impact in their forecast.

But, Mr Speaker, I can announce to the House… … that the OBR have considered – and scored – one of the central planks of our plan for growth. In my first week as Chancellor, I announced that we were pursuing the most ambitious set of planning reforms in decades… … to get Britain building.

And in December - we published changes to the National Planning Policy Framework… … driven forward tirelessly by my RHF the Deputy Prime Minister… … reintroducing mandatory housing targets… … and bringing “grey belt” land into scope for development. The OBR have today concluded that these reforms will permanently increase the level of real GDP… … by point .2% by 2029-30… … an additional £6.8bn in our economy… … and by point .4% of GDP within the next 10 years… … an additional £15.1bn in our economy. That is the biggest positive growth impact that the OBR have ever reflected in their forecast, for a policy with no fiscal cost. And taken together with our plans to increase capital spending… … this government's policies will increase the level of real GDP by point .6% in the next ten years. Policies to grow our economy. Promised by this Labour Government. Delivered by this Labour Government. Opposed by the parties opposite.

Mr Speaker, the planning system that we inherited was far too slow. The OBR have concluded that our reforms will lead to housebuilding reaching a forty year high… … of 305,000 by the end of the forecast period. And changes to the National Planning Policy Framework alone… … will help build over 1.3 million homes in the UK over the next five years… … taking us within touching distance… … of delivering on our manifesto promise to build 1.5 million homes in England this parliament. Homes promised by this Labour Government. Built by this Labour Government. Opposed by the parties opposite.

The impact on our economy goes further still. I said at the election that we could not simply tax and spend our way to prosperity. We need growth. So I can today confirm… … that the effect of our growth policies… … including our planning reforms… … means an additional £3.4 billion to support our public finances and our public services by 2029-30. The proceeds of growth. Promised by this Labour government. Delivered by this Labour Government. And opposed by the parties opposite.

And Mr Speaker, earlier this week… … we provided an additional £2bn of investment in social and affordable homes next year… … delivering up to 18,000 homes… … and allowing local areas to bid for new developments across the country... … including sites in Thanet, Sunderland and Swindon. More security for families across the country. Promised by this Labour government. Delivered by this Labour government.

To build these new homes… … we need people with the right skills. Earlier this week, my RHF the Education Secretary announced more than £600m… … to train up to 60,000 more construction workers… … including 10 new Technical Excellence colleges across every region of the country… … giving working people the chance to fulfil their potential. New opportunities for our young people. Promised by this Labour government. Delivered by this Labour government.

To build these new homes… … we need people with the right skills. Earlier this week, my RHF the Education Secretary announced more than £600m… … to train up to 60,000 more construction workers… … including 10 new Technical Excellence colleges across every region of the country… … giving working people the chance to fulfil their potential. New opportunities for our young people. Promised by this Labour government. Delivered by this Labour government.

Mr Speaker, all this is just the start. The Planning and Infrastructure Bill passed its second reading on Monday. Once this Bill completes its passage… … it will help deliver the homes and infrastructure our country badly needs. I say to the parties opposite: the British people will be watching. If the parties opposite don't support these reforms, let us be clear about what that means. They are opposing economic growth. They are opposing new homes for working people. And they are opposing higher living standards across our country. We are clear about whose side we are on. The parties opposite must decide too.

This Labour Government is taking the right decisions now to secure Britain's future. And today, I can confirm to the House… … that the OBR have upgraded their growth forecast next year… … and every single year thereafter… … with GDP growth of 1.9% in 2026, 1.8% in 2027, 1.7% in 2028, and 1.8% in 2029. By the end of the forecast… … our economy is larger compared to the OBR's forecast at the time of the budget.

But Mr Speaker, this isn't just about lines on a graph. This is about improving people's lives. Working people are still feeling the pinch after a cost of living crisis that saw prices spiral. So I am pleased that the OBR confirm today … … that Real Household Disposable Income… … will now grow this year at almost twice the rate expected in the autumn. And living standards will rise twice as fast this parliament compared to the last.

Compared to the forecast at the final budget delivered by the party opposite… … and after taking account of inflation… … the OBR say today… … that households will be on average over £500 a year better off under this government. That will mean more money in the pockets of working people. Promised by this Labour government. Delivered by this Labour government. Opposed by the parties opposite.

Mr Speaker, the world is changing. We can see that… … and we can feel it. A changing world demands a government that is on the side of working people. Acting in their interest. Acting in the national interest. Not retreating from challenges. Not stepping back. But a government with the courage to step up… … to secure Britain's future… … and to seize the opportunities that are there before us. I am impatient for change, just like the British people are, after fourteen wasted years. And we are beginning to see change happen. Our Plan for Change is working. Defence spending is rising. Waiting lists are falling. Wages are up. Interest rates are cut. That is the difference that this Labour government is making.

And today, Mr Speaker… … the OBR confirm… … that our plan to get Britain building… … will drive growth in the economy… … and put more money in people's pockets.

There are no quick fixes. But we have taken the right choices now. Returning stability to our economy after years of mismanagement by the party opposite. Delivering security for our country and security for working people. That is what drives this government. That is what drives me as Chancellor. And that is what drives the choices that I have set out today. And I commend this statement to the House.