UK Chancellor plans significant public spending cuts

UK Chancellor Rachel Reeves is set to announce significant cuts to public spending in her upcoming Spring Statement. This comes after the government revealed £5 billion in welfare cuts on Tuesday. Reeves is working to address a gap in the public finances by reducing budgets for Whitehall departments. Prime Minister Sir Keir Starmer has rejected the idea of returning to austerity measures. However, officials mentioned that Reeves has indicated a willingness to adjust spending if the economy worsens. She stated that "the world is changing" this week. Reeves had previously planned for a modest increase in departmental spending but rising government borrowing costs and slow economic growth have complicated her plans. The Institute for Fiscal Studies estimates that reducing the growth of departmental spending could save around £5 billion a year. Financial markets are looking for Reeves to establish a "reasonable level of headroom" in her Spring Statement. Currently, current spending needs to be matched by tax income by 2029-30. Backbench Labour MPs are urging Reeves to relax fiscal rules, but she is likely to pursue tighter spending instead. There have been complaints from ministers about budget cuts, but government insiders are confident that focusing on reform will help maintain public services. Starmer has emphasized the need for value in public spending, encouraging better use of resources and technology. Reeves is concerned about global economic challenges, including trade issues stemming from the US. While she is preparing spending plans for 2025-26, allocations for the following years are expected in June. She will have some flexibility due to a shift in foreign aid budget for increased defense spending. Experts have advised that to gain credibility with financial markets, Reeves should make savings sooner rather than later. A spokesperson for the Treasury confirmed the government's commitment to fiscal discipline and provided no comment on future forecasts.