UK Budget 2025: Rachel Reeves announces £21.7-bn fiscal boost, introduces welfare reforms

UK Chancellor Rachel Reeves has announced that the government’s fiscal headroom will more than double to £21.7 billion, strengthening the Treasury’s ability to manage unexpected economic shocks.

The announcement

comes despite the Office for Budget Responsibility (OBR) revising down long-term productivity growth, a shift expected to reduce tax receipts by £16 billion by 2030.

Fiscal Position and Conservative ‘Legacy’

Reeves told MPs that expanding fiscal headroom is critical to maintaining stability, especially if the government’s spending plans are knocked off course. She sharply criticised the Conservative government’s economic “legacy,” pointing out that Britain’s net financial debt now stands at £2.6 trillion, with “one in every £10” of government spending going towards interest payments.

She said the Labour government’s fiscal rules will reduce borrowing while protecting investment, projecting a £3.9-billion surplus by 2028–29. Reeves added that the government beat forecasts this year “and we will beat them again.”

OBR Growth Outlook Downgraded

While the OBR expects GDP to grow 1.5% in 2025, it has lowered estimates for the following years:

• 
  

  1.4% in 2026.

  
  


• 
  

  1.6% in 2027.

  
  


• 
  

  1.5% in 2028 and 2029.

  
  

Reeves said the downgrade reflects structural challenges but insisted it is not “Britain’s destiny.”

ISA Reforms and Regional Funding Boost

The chancellor announced major reforms to the Individual Savings Account (ISA) system. While the total £20,000 allowance remains unchanged, £8,000 must now be invested, encouraging higher market participation. People over 65 will retain the full cash allowance.

Reeves also announced significant regional allocations:

• 
  

  £13 billion in flexible funding for seven metro mayors.

  
  


• 
  

  £370 million for Northern Ireland.

  
  


• 
  

  £505 million for Wales.

  
  


• 
  

  £820 million for Scotland.

  
  

Welfare and Employment Reforms

Reeves confirmed that the government has reintroduced face-to-face assessments for disability benefits in a bid to improve accuracy and outcomes. She added that Universal Credit reforms will return 15,000 people to the workforce.

To support young workers, apprenticeship training will be made free for under-25s in small and medium-sized enterprises.

In a major youth employment push, Reeves also announced a new £820-million “youth guarantee” over the next three years, ensuring access to work, training, or education opportunities for young people.