Earlier today, Chancellor of the Exchequer Rachel Reeves delivered the Spring Statement. The key takeaway from the announcement is that the UK’s economic growth forecast has been revised down, with projections now indicating that growth will not exceed 1.9% by the end of this parliamentary term. This, alongside the decision to increase defence spending as a proportion of GDP, has prompted Number 11 to curtail wider government spending, as previous plans were based on a higher growth forecast from the Office for Budget Responsibility that have now turned out to be overly optimistic.
Accordingly, the Chancellor has announced a range of spending cuts and measures to target growth. These are outlined below, alongside an assessment of how the changes will impact rail.Â
Headline announcements
£4.8bn in welfare cuts
The Chancellor outlined changes to disability and incapacity benefits, which will save £4.8bn annually. The main change is that Universal Credit’s health element will be cut by 50% and frozen for new claimants.
Whitehall spending cuts
A 15% reduction in government running costs to save £2bn by 2030. Overall, operational spending will be £6.1bn lower by 2029–30.
Defence investment
£2.2bn has been allocated to modernise accommodation for forces and to develop high-tech weaponry, contributing to the commitment to increase defence spending to 2.5% of GDP by 2027. At least 10% of the defence budget will go towards emerging technologies.
Planning and housing reforms
The government will reintroduce mandatory housing targets and relax Green Belt restrictions, aiming to boost GDP by 0.2% (£6.8bn) by 2030 and 0.4% (£15.1bn) by 2035.Â
Key announcements impacting rail
Departmental budget cuts
One of the most significant changes is the reduction in departmental spending. The Chancellor announced that the planned increase in departmental budgets has been lowered from 1.3% to 1.2% in real terms. This means by 2029/30, day-to-day spending will be £6.1bn lower than initially planned, resulting in deeper cuts for unprotected departments, including the Department for Transport (DfT).
Civil Service job cuts
Reeves confirmed a 15% reduction in civil service running costs, saving £2.2bn annually. These cuts will again affect unprotected departments such as DfT and the Department for Business and Trade (DBT). The Chancellor of the Duchy of Lancaster will provide instruction to departments on where these reductions should be made in the next few weeks.
While Reeves has stated that these job reductions will focus on back-office roles, some, including, unions dispute this, arguing that up to 50,000 jobs could be at risk. The government estimates it will be around 10,000 jobs.
Construction workforce investment
The Chancellor has allocated £600m to train 60,000 construction workers over the next four years to address 35,000 vacancies. This is a positive development. While the funding is primarily aimed at the construction sector, it has the potential to ease some skills shortages for rail infrastructure projects. Moreover, expanding the supply of construction workers should also reduce competition for talent in areas of rail where there are deep shortages, such as electrification.
Analysis and looking ahead
This announcement has some positive aspects for the industry. Firstly, the government has not reversed capital spending on rail infrastructure. As things stand, planned projects are set to proceed. Given the current economic uncertainty, this is a win.
Moreover, although the skills announcement is not linked to rail, it shows the government recognises the critical importance of infrastructure skills for economic growth and has acted accordingly. This, in itself, is a positive step forward.
On the less positive side, the civil service cuts could have a significant impact. However, we will have to wait for further details to assess the real effect. The full implications for rail will become clear with the publication of the Spending Review in June.
While we would have liked to see details on the government’s plans for new rail infrastructure, this was not anticipated. Instead, these will be outlined in the forthcoming 10-year infrastructure strategy, which is also expected in June.
If you have any questions or wish to discuss this further, please contact Edward Hughes at Edward.hughes@nsar.co.uk.