Rachel Reeves has expressed concerns about the welfare system not meeting the needs of taxpayers, as she reaffirmed her commitment to achieving a 2.5% defense spending target by 2027 due to the pressing issues surrounding European security.
Speaking to Sky’s political editor Beth Rigby on the Electoral Dysfunction podcast, set to release on Friday, the chancellor emphasized the importance of receiving “better value for money” for the taxes paid by the public.
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These remarks come ahead of the spring statement on March 26, where Ms. Reeves is expected to announce substantial cuts, including to the benefits budget.
Addressing the need for welfare reform, the chancellor stated that the current system is “failing taxpayers due to its high cost”.
“It’s also failing our economy by keeping too many individuals reliant on out-of-work benefits, and it’s failing benefit recipients by trapping them without adequate support to return to work,” she explained.
When asked about the necessity of finding savings to adhere to her self-imposed fiscal rules, Ms Reeves declined to provide specific details regarding the upcoming spring statement but stressed that reforms are crucial regardless of the OBR’s forecast.
She highlighted that there are one million young people not engaged in education, employment, or training, of which the majority could be employed.
“Through our proposed plans, these individuals will have the opportunity to work and receive the necessary support to reintegrate into the workforce,” she added.
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The spring statement will respond to the latest updates from the OBR, which provides biannual forecasts on the economy and public finances.
In contrast to previous governments holding budgets in the spring and autumn, Ms. Reeves has committed to a single major fiscal event annually to ensure stability and predictability regarding tax changes.
However, due to the challenging economic circumstances following her October 2024 budget, she is compelled to make adjustments, given the rise in inflation, government bond yields, and lower-than-expected growth rates.
This has impacted the £10 billion fiscal headroom that Ms. Reeves previously had, a figure the Treasury aims to preserve.
Ms. Reeves assured that the upcoming spring statement would not entail additional tax hikes, emphasizing that the October budget was a unique event.
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Is Rachel Reeves about to cut welfare?
She reiterated Labour’s commitment in their manifesto not to raise income tax, VAT, or national insurance and assured that they would uphold this pledge.
‘World has changed’
During the podcast, Ms. Reeves defended the government’s decision to reduce foreign aid to allocate funds for increased defense spending.
While Labour’s manifesto aimed to restore development spending to 0.7% of gross national income, around £6 billion yearly will now be redirected from the aid budget to defense, reducing aid spending from 0.5% to 0.3% of GDP.
Ms. Reeves explained that this shift was necessary to fulfill another manifesto commitment of raising defense spending to 2.5% of GDP by 2027.
“The crucial aspect was not just reaching 2.5% but achieving this target by 2027, recognizing the significant changes in the world and the gravity of the current situation,” she stated.
Listen to the full interview with Rachel Reeves on the Electoral Dysfunction podcast, available Friday at 5am.