Chancellor right to balance the books, but wrong to do so on backs of low-income families

27th March 2025

A deterioration in the outlook for the public finances meant that fresh fiscal consolidation was needed in the Chancellor's Spring Statement to meet her fiscal rules. But with £4.8 billion of the savings coming from rushed welfare changes that will leave 3.2 million families £1,700 worse off on average, this unbalanced approach risks causing significant damage to many families’ living standards, the Resolution Foundation said today (Wednesday).

The backdrop to the Spring Statement is a significant deterioration in the short-term economic outlook, but stronger growth in the medium-term, driven by welcome reforms to the planning system. Higher debt servicing costs (up by £10.1 billion in 2029-30) and weaker tax receipts turned the UK’s current surplus of £9.9 billion in 2029-30 into a fiscal rule-breaking deficit of £4.1 billion. The Chancellor’s decisions today have restored the surplus back to where it was at the Autumn Budget.

With the Chancellor having legislated for her new fiscal rules only last month, breaking them would have carried both a political and economic price, given the recent sensitivity of UK borrowing costs to changes in market sentiment.

However, while fiscal consolidation was needed, many of the measures announced today risk being sticking plaster solutions, warns the Foundation. Rushing through massive welfare cuts - some so late that the OBR was unable to certify their effects – risks hitting the incomes of vulnerable individuals and undermining welcome efforts to get people back into work.

The biggest single cut is raising the eligibility threshold for Personal Independent Payments (PIP), a benefit not related to work status, saving £4.5 billion. 800,000 people would no longer qualify for support, losing up to £6,300 (in 2029-30) as a result, while a further 150,000 people will also lose either Carers’ Allowance (worth £4,800) or the carer element of Universal Credit (worth £2,700).

Universal Credit (UC) has also been cut by £1.1 billion overall. The standard rate of UC has received a welcome, but modest, boost, while health-related UC has been scaled back substantially, particularly for new claimants. As a result of these changes, someone who loses their job will gain £240 in UC (in 2029-30), while someone who finds themselves too ill to work will be £3,000 worse off. This rebalancing should boost work incentives, but risks leaving huge holes in the welfare system for those who fall ill and can’t work, says the Foundation.

Overall, 68 per cent of the welfare cuts announced today are concentrated among households in the bottom half of the income distribution, while the Government’s own impact assessment says that 250,000 people will fall below the poverty line as a result of these measures.

The Foundation says the Chancellor did not need to concentrate so much of her consolidation on welfare. Extending the freeze in personal tax thresholds by just a single year would have saved almost as much (£3.9 billion in 2029-30) and would have been shared far more widely across 24 million households.

The rest of the consolidation has been delivered by cutting day-to-day public spending by £3.6 billion in the final year of the forecast, but softening the blow by increasing spending in the intervening years. As a result, real per person spending on unprotected departments such as the Home Office and Justice is due to fall by £8.5 billion (or 1.1 per cent per year) between 2025-26 and 2029-30. While these cuts are a far cry from a return to austerity, they are not entirely painless efficiency savings either, says the Foundation.

Finally, while the medium-term outlook for growth and living standards has improved, the big picture still looks bleak. Real household disposable income (RHDI) is forecast to rise by just £1,200 over the course of the 2020s, down from £2,900 over the 2010s, and £4,800 in the decade running up to the financial crisis (1997-2007).

Ruth Curtice, Chief Executive at the Resolution Foundation, said:

"Having set her new fiscal rules only last autumn, and faced with rising debt interest costs and a weaker outlook for the public finances, Rachel Reeves had little choice but to make a downbeat Spring Statement.

“But while the Chancellor was right to balance the books, she was wrong to do so on the backs of low-to-middle income families, on whom two-thirds of the welfare cuts will fall. Over three million households will be worse off as a result of welfare changes.

“Major cuts to Universal Credit were made so late in the day that the OBR was unable to assess them, suggesting that long-term change is playing second fiddle to short-term savings. This approach to welfare reform that rarely ends well for individuals or the Government.

“The £3.6 billion trimming of departmental spending is a far cry from the austerity of the 2010s. But it is not pain-free either – crucial public services like courts, prisons and local government will feel the strain of reduced funding in the second half of this Parliament.

“The Government’s welcome ambition to kickstart growth got closer to reality today, with planning reforms set to boost GDP in the coming years. But the outlook still looks bleak. Much has been made of the living standards pain Britain experienced during the 2010s, but the 2020s are still on track to be even worse."