Chancellor Rachel Reeves has outlined the government’s new economic direction in the House of Commons as the Office for Budget Responsibility (OBR) released its updated forecasts. The latest figures show weaker-than-expected growth of just 1% for 2025, revised down from 2%. However, projections for the following years have improved slightly, with growth expected to hover around 1.7 - 1.9% through to 2029. Inflation is set to average 3.2% this year before easing to the Bank of England’s 2% target by 2027.
A major overhaul of welfare has also been confirmed. From April 2026, incapacity benefits under Universal Credit will be halved for new claimants, with a freeze in cash terms for existing recipients set at £97 per week. A top-up for the most severely affected will remain, but those under 22 will no longer qualify for this additional support. These changes aim to reduce long-term welfare spending but have faced criticism over their impact on vulnerable groups.
On defence, spending will increase by a further £2.2bn next year, bringing military expenditure to 2.36% of national income. To fund this, the government will reduce the overseas aid budget from 0.5% to 0.3% of gross national income in 2027 and utilise Treasury reserves.
Meanwhile, plans are in place to cut administrative costs across government departments by 15% by the end of the decade. This will include the loss of around 10,000 civil service roles in areas such as HR, policy, communications, and office management.