Rachel Reeves was accused of balancing the books at the expense of the poor in her spring statement, as official figures showed three million households could lose £1,720 a year in benefits.
The chancellor confirmed welfare cuts of £4.8bn, but insisted the government’s priority was to restore stability to the public finances in the face of rising global borrowing costs.
Economists warned Reeves could be forced to come back with more tax rises in the autumn, with the Office for Budget Responsibility (OBR) saying that any tariffs imposed by Donald Trump may upend their forecasts.
As if to underline the uncertain outlook, Trump announced a punitive 25% tariff on all car imports to the US just hours after Reeves spoke. He insisted the move would be “permanent”.
Paul Johnson, the director of the Institute for Fiscal Studies thinktank, earlier said there would now be “six or seven months of speculation about what taxes might or might not be increased in the autumn”.
“There is a cost, both economic and political, to that uncertainty,” he said.
Ministers are bracing for a backbench rebellion against the benefit cuts, which are expected to be put to a vote in May. It is speculated that as many as three dozen MPs could refuse to support the government, alongside possible frontbench resignations. However, with Labour’s huge majority, the proposals are expected to get through.
Impact assessments of the welfare reforms published alongside the spring statement reflected the toll of an additional £500m in last-minute savings that were forced on the government.
They showed an additional 250,000 people being pushed into relative poverty as a result of the cuts to the personal independence payment (Pip) and incapacity benefit.
Paul Kissack, the chief executive of the Joseph Rowntree Foundation, accused the chancellor of “putting the burden of the changing world on the shoulders of those least able to bear the load”.
“The government needs to protect people from harm with the same zeal as it attempts to build its reputation for fiscal competence,” he added.
But in defence of the cuts, Reeves recounted to MPs the chaos that had followed Liz Truss’s mini-budget.
She said “there is nothing progressive, there is nothing Labour, about working people paying the price of economic irresponsibility”.
In a speech that stressed the importance of shoring up the public finances in a rapidly changing world, she pledged £2.2bn for defence spending and claimed Labour was making progress in rebooting economic growth.
Though the OBR halved its forecast of GDP growth in 2025 to 1% from 2% at her October budget, Reeves hailed the fact that it had revised up its expectations for future years, after judging that Labour’s planning and housebuilding reforms will be good for growth.
The welfare reforms were part of a £14bn package of measures aimed at rebuilding £10bn of headroom against Reeves’s self-imposed fiscal rules, in five years’ time.
These included a fresh crackdown on tax avoidance and a tight spending squeeze later on in the parliament which is very likely to lead to cuts in unprotected government departments, teeing up a fractious spending review in June.
Ruth Curtice, the director of the Resolution Foundation thinktank, said while Reeves 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”.
Helen Barnard, the director of policy at the food bank charity Trussell, said: “The insistence by the Treasury on driving through record cuts to disabled people’s social security to balance the books is both shocking and appalling. People at food banks are telling us they are terrified how they’ll survive.”
Reeves used her autumn budget to increase taxes by £40bn, including the controversial rise in employer national insurance contributions, which comes into force next month, alongside a flood of rising costs for consumers, including higher council tax and energy bills.
The chancellor insisted she would not have to raise taxes on a similar scale. “We have now wiped the slate clean, and we’ll never have to do a budget like that again,” she said.
Reeves blamed global factors for the deterioration in the fiscal outlook since October. “The global economy has become more uncertain, bringing insecurity at home, as trading patterns become more unstable and borrowing costs rise for many major economies,” she said.
Challenged about the welfare cuts at a Downing Street press conference, she stressed that the impact assessments did not include the effects of £1bn in spending on back-to-work measures.
“We’re putting £1bn in for targeted employment support to get people back to work,” she said.
“So I’m confident that our plans, far from increasing poverty, will actually result in more people having fulfilling work, paying a decent wage to lift themselves and their families out of poverty.”
The OBR suggested the changes would lead to an extra 1.3m homes being built, which Reeves said would put Labour within “touching distance” of its 1.5m target by 2029.
The OBR said the resulting boost to GDP would bring in an extra £3.4bn to Treasury coffers. Using a favoured phrase of Gordon Brown’s, Reeves called this “the proceeds of growth”.
Yet the OBR made clear that if Trump unleashes a global trade war when he announces tariffs next week, on what the White House is calling “Liberation Day”, it would blow a fresh hole in the public finances.
The OBR warned that its worst case scenario of a tit-for-tat trade war could “almost entirely eliminate” the headroom against Reeves’s fiscal rules, by denting economic growth.
However, the chancellor urged the public to “see where we get to” with the US. “Increased tariffs between our economies will damage both of our economies, and we will continue to make that case for free and open trade,” she added.
Reeves and her team are braced for a backlash against the welfare cuts from Labour MPs, who will be asked to support them in May’s vote.
The Labour MP Neil Duncan-Jordan said that the “last minute scramble” to tweak the cuts in line with OBR forecasts had “shattered any illusion of a moral case for cuts”.
The Poole MP added: “We are talking about people’s lives here – my constituents are frightened. This policy will fuel the social determinants of poverty that ultimately create further pressure on the services the chancellor is trying to cut.”
Connor Naismith, the MP for Crewe and Nantwich, first elected last year, was among those to say they would vote against the government.
“I didn’t come into politics to inflict this on the most vulnerable people in our society, and I cannot vote for changes which will have this impact,” he posted on X.
“I know many colleagues are similarly concerned about these proposed changes and are continuing to make the case to ministers that we should change course.”
Several other Labour MPs challenged Darren Jones, the chief secretary to the Treasury, over welfare cuts at a meeting afterwards with a group of backbenchers.
One said the discussions were “brutal” and that Jones faced “lots of people kicking off over Pip”. Of about two dozen Labour MPs present, more than half a dozen criticised the cuts and as many as four indicated that they would vote against them, according to people present.
Other Labour MPs said the hostile questions came from people who are routinely critical of the government.
Peter Lamb, who was among those who criticised the cuts, told the Guardian he was worried that ministers had not appreciated the impact of the change.
“Frontbenchers genuinely do not appear to be aware that the changes to Pip will mean there are those with a high level of need who will no longer be able to access the support they need for daily living,” the Crawley MP said.
The Liberal Democrat welfare spokesman, Steve Darling, who is registered blind, said: “This is incredibly insulting and shows the government just doesn’t understand the challenges facing people with disabilities.”
Mel Stride, the shadow chancellor, accused ministers of having “reneged on their promises to the British people” in the election and said the country was “weaker and poorer” as a result of their actions.
