Treasury earmarks billions in spending cuts

The UK Treasury has initially allocated billions of pounds in spending cuts, affecting welfare and other government departments. This move comes as markets widely anticipate that the Chancellor's room for maneuver has almost completely disappeared. Further fiscal tightening measures are also being considered.

The Treasury will submit the proposed cuts to the official forecasting body, the Office for Budget Responsibility (OBR), on Wednesday, ahead of the Spring Statement later this month. Sources say that "the world has changed" since the October budget, when the OBR indicated that Chancellor Rachel Reeves had £9.9 billion of headroom against her self-imposed borrowing targets. This situation requires careful consideration.

Due to global economic headwinds and changes in the UK's long-term economic performance, the OBR's forecast is likely to show that this headroom has vanished. The forecast will be released alongside the Spring Statement. The Treasury will inform the OBR on Wednesday of its "significant measures," which are essentially adjustments to taxes and spending designed to get public finances back on track to meet the Chancellor's self-imposed rules. These measures are deemed essential for fiscal stability.

The Treasury internally attributes the rise in government borrowing costs to global economic policy and geopolitical uncertainty. The Eurozone economy is also stagnating, and a decline in UK productivity data has also affected forecasts. A government insider said: "Clearly, the world has changed a lot since the autumn budget. People are witnessing this change firsthand. The Office for Budget Responsibility will reflect this changing world in its forecast later this month, and a changing world will be a central feature of the Chancellor's response later this month." These global factors are significantly impacting the UK's fiscal outlook.

US President Donald Trump this week imposed tariffs on its three major trading partners, Canada, Mexico, and China. Reeves told the BBC on Tuesday that even if the UK is not affected by tariffs, a global trade war would reduce economic growth and increase inflation. Corrective budgetary measures will reflect existing policy objectives but will also help to fill the gaps that have emerged in recent months. New welfare cuts, expected to be "politically painful," are aimed at reducing the huge growth in health-related benefits. These initiatives will be outlined in an upcoming speech by Secretary of State for Work and Pensions, Liz Kendall.

Ahead of the Spring Statement, Cabinet Office Minister Pat McFadden and Health Secretary Wes Streeting will also outline a major efficiency drive within the civil service, which they hope will deliver significant staff and cost savings. The Chancellor will argue that the government has always intended to "reform the welfare system to get people back into work" and "improve productivity in the National Health Service." An insider told the BBC: "Whether or not there is headroom, the Chancellor is determined to press ahead with the changes we need to make Britain more secure and prosperous, and the whole government will be making that argument in the weeks ahead."