Defence boost but growth forecast falls

Chancellor Rachel Reeves confirmed a £2.2bn defence spending boost in her Spring Statement however it came on the back of a disappointing fall in forecasted economic growth.

As widely predicted, there were no further tax increases or surprises for businesses, who were hit hard by the chancellor’s autumn Budget with its employers’ NI hike and a record £40bn in tax rises.

However, the forecast from the Office for Budget Responsibility (OBR) halved the UK’s growth in 2025 from two per cent to one per cent.

And since the statement, the UK and the world’s economy has been hit by American President Donald Trump’s global tariffs. His move will see a 10 per cent tariff on all UK exports to the US.

The OBR has cautioned that becoming embroiled in a trade war could undo the £9.9bn headroom the chancellor has built into the economy.

The situation around growth and economic uncertainty has led some experts to warn that the government might have to raise taxes later in the year, if the economy and public finances get worse.

The Institute for Fiscal Studies said the chances of Rachel Reeves meeting her fiscal rules were ‘a coin toss’ and there was a “good chance” that the economic forecast will “deteriorate”.

In her statement, the chancellor said that defence spending will increase to 2.5 per cent of GDP from April 2027, by reducing overseas aid to 0.3 per cent of gross national income.

Confirming an additional £2.2bn in spending for the Ministry of Defence next year, she said it was necessary because of the need to move quickly in a “changing world”.

She said that she wanted the “whole country” to feel the benefits of the increase.

The chancellor said the government was also taking forward work to “significantly reduce the costs of running government” by 15 per cent, or £2bn, by the end of the decade. She said that the state can be “leaner and more agile”.

She also told the Commons that the OBR had assessed that Labour’s planning reforms “will lead to housebuilding reaching a 40 year high”.

Changes to the national planning policy alone, she said, will help build more than 1.3 million homes in the UK within the next five years.

This will take Labour within “touching distance” of its promise to build 1.5 million homes in England this parliament, she added.

She said the government’s plan to get Britain building will drive growth in the economy and put more money in people’s pockets.

MPs were told it was not right people were evading tax. The autumn Budget contained measures to raise £6.5bn by a crackdown on tax avoidance and evasion by the end of the forecast period. The chancellor said new measures would increase this by £1bn.