Rachel Reeves Hit with £15 Billion Budget Bombshell as Surging Welfare Spending Exposed

Rachel Reeves is facing a serious financial headache ahead of her Spring Statement — a whopping £15 billion shortfall that’s opened up thanks to lower-than-expected tax income and higher borrowing costs. And the catch? Labour has pledged not to borrow more for everyday spending or hike taxes before 2030, so her options are already looking painfully limited.

Government spending has ballooned to a staggering £1.27 trillion for 2024/25, with welfare taking the biggest slice of the pie at £313.5 billion. That alone gives a sense of how tight things are — there’s not exactly a lot of wiggle room left. And with growth 1.2% lower than it was back in October, Reeves now has to work out how to plug the gap without leaning on more borrowing or asking taxpayers for more, as reported by the Express.

To make matters worse, the cost of government borrowing has gone up too, now sitting between 0.25% and 0.5% higher than what was expected. Meanwhile, tax revenues have fallen short by a hefty £7.7 billion. The Office for Budget Responsibility is about to confirm what Reeves already knows: the books aren’t balancing. Borrowing in 2029-30 is now projected to be £15 billion higher than it was when she first laid out her Budget plans last October.

Trying to honour Labour’s fiscal promises while also dealing with this unexpected black hole is shaping up to be a political nightmare. To keep those commitments, Reeves had already squirrelled away a £10 billion contingency fund — but even that might not be enough to cover the growing gap.

Ben Zaranko from the Institute for Fiscal Studies laid things out bluntly. “The signs are that she’ll prioritise her fiscal rules and her promises on tax, and instead pare back the generosity of her public spending plans for the rest of the Parliament,” he told The Times. And the hard truth? “This will mean bigger cuts for some unfavoured bits of government, not all of which can be delivered through painless efficiency savings or productivity improvements.”

Cuts are already on the table. Reeves, alongside Cabinet Office minister Pat McFadden, is reportedly planning to slash £2 billion in annual Civil Service funding. That’s expected to come with a directive for all government departments to trim their admin costs by 15% over the next five years.

The focus seems to be on areas like HR, office management, and communications — but unions are already warning that nearly 10% of the entire Civil Service wage bill could be on the chopping block. There’s also talk of leaning more on tech and AI to pick up some of the slack in admin roles, which might save money, but could also mean fewer jobs.