Britain’s finance minister, Rachel Reeves, has reaffirmed the government’s commitment to its fiscal rules despite mounting global economic uncertainty, hinting at potential spending cuts and belt-tightening measures in her upcoming Spring Statement on Wednesday.
Fiscal Discipline Amid Challenges:
In an interview with Sky News, Reeves vowed to balance day-to-day spending with tax revenue by the end of the decade, despite slow economic growth and rising borrowing costs. The UK has also been rattled by the potential fallout from U.S. President Donald Trump’s import tariffs, which have downgraded the global economic outlook.
“The world has changed… We’ll respond to the change and continue to meet our fiscal rules,” Reeves said.
Tightening the Belt:
To meet its fiscal targets, the government has already announced welfare spending cuts aimed at saving £5 billion ($6.5 billion) annually—a move that has sparked backlash from some lawmakers within Prime Minister Keir Starmer’s centre-left Labour Party.
Additionally, Reeves revealed plans to reduce civil service costs by 15% by the end of the decade, cutting 10,000 public sector jobs and saving over £2 billion ($2.58 billion) per year. She justified the cuts by saying it was no longer appropriate to maintain COVID-era staffing levels.
Defence Spending on the Rise:
Despite the belt-tightening measures, the government will increase defence spending in response to Trump’s calls for Europe to boost its own security efforts. Further defence budget hikes are expected in the coming years.
Trade and Tax Discussions with the U.S.:
With Britain aiming to avoid U.S. tariffs, Reeves emphasized that the UK does not run a large trade surplus with the U.S., seeking to ease concerns in Washington.
Reeves also confirmed ongoing discussions regarding the UK’s Digital Services Tax on large tech firms like Google and Facebook. When asked whether Britain would consider scrapping the tax to appease the U.S., Reeves maintained that companies should “pay taxes in the country in which they operate.”
Outlook:
With the UK’s economic growth outlook expected to be revised downward on Wednesday, investors will be watching closely for further spending cuts or tax adjustments in Reeves’ Spring Statement. The government’s commitment to fiscal discipline will be tested by rising costs, slowing growth, and geopolitical uncertainty.
