Rachel Reeves has stated that the welfare system is not living up to the expectations of taxpayers, as she reaffirmed her commitment to achieving a 2.5% defense spending target by 2027 in light of the significant challenges facing European security.
The Chancellor, speaking to Sky’s political editor Beth Rigby on the Electoral Dysfunction podcast, which will be released on Friday, emphasized the need for «better value for money» in terms of what taxpayers contribute.
Politics Live: PM issues warning over Putin and peace deal
These remarks precede the spring statement on 26 March, where Ms. Reeves is anticipated to announce billions of pounds in cuts, including to the benefits budget.
Ms. Reeves highlighted the necessity for welfare reform, citing that the current system is «letting down taxpayers due to its high costs».
«The system is failing our economy by keeping too many individuals reliant on out-of-work benefits, and it’s failing benefit recipients by trapping them in a cycle of dependency rather than actively supporting their return to work,» she explained.
When asked about the need to find savings to adhere to her self-imposed fiscal rules, Ms. Reeves declined to offer a detailed commentary on the content of the upcoming spring statement. However, she emphasized the importance of the reforms regardless of the projections from the Office for Budget Responsibility (OBR).
She also pointed out that there are a million young people who are neither in education, employment, nor training, with the majority of them capable of working.
«Our plans will ensure that they are employed and, more importantly, provided with the necessary support to reintegrate into the workforce,» she added.
👉 Click here to follow Electoral Dysfunction wherever you get your podcasts 👈
The spring statement will respond to the OBR’s latest updates on the economy and public finances, as the Chancellor has previously committed to a single major fiscal event each year for stability and clarity on tax changes, unlike past governments that delivered budgets twice a year.
However, the challenging economic conditions since the October 2024 budget have necessitated a departure from this approach, with inflation peaking at 3% in January, a significant rise in government bond yields, and lower-than-expected growth rates.
This has eroded the £10 billion fiscal cushion previously available to Ms. Reeves – a figure the Treasury aims to preserve.
Ms. Reeves assured that the spring statement will not introduce additional tax hikes, emphasizing that the October budget was a unique event for the current parliament.
Read More:
Poundland up for sale as budget tax hike looms
Jobcentre reforms at heart of Labour’s plan to ‘get Britain working’
She reiterated that Labour’s manifesto pledges not to increase income tax, VAT, or national insurance will be upheld without exception.
‘World has changed’
In other parts of the podcast, Ms. Reeves defended the government’s choice to reduce foreign aid in order to finance a rise in defense spending.
Although Labour’s manifesto committed to reinstating development spending to 0.7% of gross national income «as soon as fiscal circumstances permit», approximately £6 billion annually will now be reallocated from the aid budget to cover defense costs.
This translates to a decrease in aid spending from 0.5% of GDP to 0.3%.
Ms. Reeves explained that this decision was necessary to fulfill another manifesto promise – increasing defense spending to 2.5% of GDP, up from the current 2.3%.
«The decision wasn’t just about reaching 2.5%, but about achieving it by 2027,» she stated.
«I believe that was the most crucial aspect of the announcement.
«While it was known that we would reach 2.5% during this parliament, what stood out was that we are now on track to achieve it in two years due to the changing global landscape and the severity of the challenges we face.»
Listen to the complete interview with Rachel Reeves on the Electoral Dysfunction podcast, available this Friday at 5am.