By William Schomberg
LONDON (Reuters) – British finance minister Rachel Reeves is likely to announce cuts to her spending plans on Wednesday in an attempt to show investors that she can be trusted to fix the public finances as growth falters.
With Britain’s 2025 economic outlook set to be slashed, Reeves has said she is ready to tighten the government’s belt to ensure she stays on track to meet her budget targets.
Reeves and Prime Minister Keir Starmer are under pressure to meet their promises to voters in last year’s election to speed up Britain’s economy. But growth has tailed off and demands for spending have mounted, chief among them on defence as Europe braces for less U.S. protection.
“Our task is to secure Britain’s future in a world that is changing before our eyes,” Reeves is due to say in her fiscal update speech to parliament starting around 1230 GMT.
She will also say the government needed “to go further and faster” to kickstart growth and protect national security, according to speech excerpts shared by the Treasury.
Reeves has already sought to pin much of the weak outlook to upheaval in the global economy, which is reeling from U.S. President Donald Trump’s import tariff plans.
But employers say a big tax hike – announced by Reeves in October and which comes into force next month – will cost jobs, push up prices and confound the government’s growth promises.
Earlier this month, the centre-left Labour government announced plans to save around 5 billion pounds ($6.5 billion) a year in spending on the sick and disabled, accounting for about half the estimated shortfall in Reeves’ budget strategy.
To help fully restore her room for manoeuvre, she is likely to slow previously planned increases in public spending.
Reeves has also said that 10,000 public sector jobs could be cut and further savings might come from the accounting treatment of billions of pounds being diverted from overseas aid spending to the defence budget.
Some Labour lawmakers are alarmed about the cuts after years of squeezed spending for many areas of government under the previous Conservative government.
SLOWER SPENDING INCREASES?
Reeves has said overall day-to-day public spending will still outpace inflation in the coming years but would be focused on priority areas.
She is determined to avoid a repeat of the debt market shock in 2022 after former Conservative Prime Minister Liz Truss said she would slash taxes without saying how her sums would add up.
British debt costs have climbed in recent days. Some investors are wondering how Reeves can meet her target of balancing day-to-day spending with tax revenues by 2030 while the growth outlook remains so weak.
Paul Mortimer-Lee, a research fellow at the National Institute of Economic and Social Research, a think tank, said Reeves would eventually have to raise taxes again.
“This is not rocket science. You can’t actually cut spending very much and there’s no mandate for that,” Mortimer-Lee. “The only way you’re going to fix it is raise taxes.”
Reeves and Starmer promised voters they would not hike income tax or other major revenue-raisers. But they could extend a freeze on the thresholds at which people start to pay basic and higher rates of income tax, dragging more people into the tax net.
The Office for Budget Responsibility, which produces the forecasts for the government’s budget plans, is expected to cut sharply its forecast for 2% economic growth this year. The Bank of England last month halved its forecast to just 0.75%.
Reeves points to the Organisation for Economic Cooperation and Development’s latest forecast for 1.4% growth this year, down from a previous 1.7% estimate but the second-fastest among the Group of Seven nations after the U.S.
Britain is hoping it can avoid a fresh shock to its economy when the Trump administration announces a round of trade tariffs on April 2. London is in talks with Washington about its Digital Services Tax which is levied on large tech companies such as Google and Facebook.
($1 = 0.7720 pounds)
(Additional reporting by Andy Bruce; Writing by William Schomberg; Editing by Alison Williams)
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