Spring Statement 2025: What It Means for You and the UK Economy

Welfare changes, economic forecasts, and defense spending—explained in simple terms

Chancellor Rachel Reeves has delivered her 2025 Spring Statement, outlining key updates on welfare, government spending, and the economy. Here's a clear breakdown of the biggest changes and what they could mean for everyday people.

UK Economic Outlook: Growth Slows, Inflation Still High

The Office for Budget Responsibility (OBR) has released its latest forecast—and it’s a mixed bag.

• Growth for 2025 has been cut from 2% to just 1%.
• However, forecasts for the following four years have improved slightly.
• Inflation is now expected to average 3.2% this year, higher than the previous 2.6% forecast.
• The government’s 2% inflation target may not be hit until 2027.

While inflation is cooling, it’s not falling fast enough to bring immediate relief to households, and the economy is growing more slowly than hoped.

Welfare Changes: What’s Happening to Benefits?

There are major updates to Universal Credit and other welfare payments, with stricter rules and changes that could impact many:

• Health-related Universal Credit for new claimants is being frozen in cash terms until 2030.
• The standard Universal Credit will rise to £106 per week by 2030.
• Incapacity benefits for current claimants will be frozen at £97 per week from April 2026.
• Stricter eligibility checks for Personal Independence Payments (PIP) will begin from November 2026.
• Under-22s will no longer qualify for the incapacity top-up under Universal Credit.

These changes are aimed at saving public money, but may affect younger and vulnerable claimants the most.

Government Spending: Tight Margins, Tough Choices

The government is under pressure to stick to its fiscal rules, which require it to balance spending with tax income by 2030.

• A £9.9bn budget buffer set in October is now gone due to higher interest payments on debt.
• Without action, the UK would miss its spending rules—but after recent savings, the OBR says there’s now a 54% chance of hitting the target by 2030.
• The second rule, which says public debt must fall as a share of the economy, has only a 51% chance of being met.

The takeaway? Every penny counts, and there's very little wiggle room for new spending without making cuts or raising taxes.

Defence Spending Rises, Foreign Aid Cut

In a notable shift, the UK is putting more money into defence—while reducing overseas aid.

• Defence spending will rise by £2.9bn next year, plus a further £2.2bn, bringing it to 2.36% of national income.
• To help cover this, foreign aid will be cut from 0.5% to 0.3% of gross national income by 2027.

The government says this is necessary given global tensions, but critics argue that cutting aid could harm Britain’s global standing.

Boost for Housing

In a positive step for the housing market, changes to England’s planning rules are expected to lead to 170,000 new homes being built over the next five years.

This could help tackle the UK’s chronic housing shortage and improve affordability, especially for first-time buyers.

A Balancing Act with Few Easy Wins

The 2025 Spring Statement paints a picture of an economy under pressure—with falling inflation, but still-high prices, slow growth, and tight public finances.

While there are positive steps, like boosting defence and housing, these come alongside benefit freezes and spending cuts that could hit lower-income households hard.

Chancellor Reeves must now walk a tightrope—delivering growth and stability without breaking her own rules or overburdening working families.

Sources: (Bbc.co.uk, Sky.com)