Reeves to unveil £2.2bn UK defence spending boost in Spring Statement

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Chancellor Rachel Reeves is to boost the UK’s defence spending by £2.2bn next year as she delivers a grim Spring Statement in which she will claim that her economic plans have been blown off course by “a changing world”.

Reeves will insist on Wednesday she is providing “security” for the British people — both militarily and economically — but her speech to MPs will be dominated by dismal growth data, a yawning fiscal hole and an admission that things could get even worse.

Meanwhile it emerged on Tuesday that Reeves has been unable to persuade the independent UK fiscal watchdog she can cut a net £5bn from the welfare bill with a series of reforms, leaving her scrambling at the eleventh hour to find savings elsewhere.

In her Spring Statement, the chancellor will attempt to put a positive spin on the dark outlookinsisting that a £2.2bn extra dose of military spending from April will boost jobs at British defence companies.

The extra funding, which will come from new cuts to the overseas aid budget and the Treasury reserve, will take UK defence spending to 2.36 per cent of GDP in the 2025-26 financial year.

Reeves has already said military expenditure will hit 2.5 per cent in 2027 — an extra £6.4bn — funded by a raid on the foreign aid budget. “As defence spending rises, I want the whole country to feel the benefits too,” she will say.

The chancellor’s address to MPs takes place in the shadow of Donald Trump, whose election as US president has forced Britain to increase defence spending.

Reeves has admitted that a Trumpian global trade war will create economic “headwinds” and further dampen growth.

The chancellor will publish a forecast by the Office for Budget Responsibility, which is expected to halve its growth projection for 2025 from the 2 per cent it predicted in October to close to 1 per cent.

The UK fiscal watchdog will also reveal a hole in the public finances of about £15bn, created by sluggish growth and higher borrowing costs, which Reeves will patch up with a wave of cuts to welfare and broader government spending.

However, ministers’ claims that a package of welfare reforms would save £5bn by 2029-30 have been dismissed by the OBR as unrealistic in recent days. The problems were first reported by the Times.

Liz Kendall, work and pensions secretary, was forced to make new last minute cuts to the welfare system of about £500mn, but that still left the OBR only “scoring” net savings of £3.4bn, according to government insiders.

The chancellor, who has been forced to find savings elsewhere in Whitehall including through big cuts to the civil service, is being goaded by Conservatives who claim she is overseeing a return to “austerity”.

Darren Jones, chief secretary to the Treasury, on Tuesday briefed 75 ministers on the Spring Statement plan, which is expected to include a cut of at least £5bn a year from Whitehall spending totals later in the parliament. This will be on top of the welfare savings.

Jones insisted this was not “austerity”, pointing out that real spending on public services would rise every year in this parliament and was growing from a higher base, following Reeves’ big injection of cash into the NHS and other areas in her October Budget.

Paul Johnson, head of the Institute for Fiscal Studies think-tank, said talk of austerity “is way overblown in the context of what the government announced in October and by comparison with stated plans of the last government”.

Meanwhile Reeves is battling negative sentiment over her handling of the economy. A YouGov survey found that only 16 per cent of voters thought the government was handling the economy well. Just 11 per cent hold a positive view of Reeves’ performance.

On Tuesday the chancellor was publicly criticised by a ministerial colleague for taking “freebie” tickets to a Sabrina Carpenter concert, 24 hours before she announces deep cuts to welfare and public spending.

Housing minister Matthew Pennycook was asked what he thought of Reeves’ decision to attend the concert in a VIP box earlier this month without paying for the tickets.

“I don’t personally think it’s appropriate,” Pennycook told LBC. “If I want to go to a concert at the O2, I’ll pay for it. But individual MPs, individual ministers, make their own decisions.”

Reeves said she accepted the VIP package for “security reasons” but many Labour MPs privately questioned her judgment at a time when she is making deep cuts to sickness and disability benefits.

The chancellor will publish alongside the Spring Statement an impact assessment of how the programme of welfare cuts will affect ordinary voters, with many Labour MPs fearing the political fallout.