Chancellor Rachel Reeves delivered her first Spring Statement today, outlining a vision to “secure Britain’s future in a world that is changing before our eyes” amid global economic uncertainty and rising borrowing costs.

Defence Boost Funded by Overseas Aid Cuts

Reeves confirmed a major hike in defence spending, increasing it to 2.5% of GDP by 2027 – a move financed by reducing overseas aid to 0.3% of gross national income. The aid cut is expected to save £2.6bn by 2029-30, with an immediate £2.2bn boost for the Ministry of Defence next year.

At least 10% of the defence equipment budget will be allocated to drones and AI-enabled technology, creating jobs in advanced manufacturing hubs such as Glasgow, Derby, and Newport. Reeves also pledged investment in Barrow-in-Furness, home to the UK’s nuclear submarine fleet, to generate thousands of new roles.

Public Sector Reforms and AI Push

The chancellor announced a £3.25bn “transformation fund” to modernise public services, including AI upgrades for the Ministry of Justice’s probation services and support for foster care. She aims to cut government running costs by 15% (£2bn) by 2030, partly through civil service voluntary exit schemes.

“AI will be key to transforming the public sector,” Prime Minister Keir Starmer had previously stated, a sentiment echoed by Bank of England Governor Andrew Bailey, who compared AI’s economic potential to past technological revolutions.

However, Alan Stephenson-Brown, CEO of Evolve, criticised the lack of digital infrastructure investment: “The promised £500m for Project Gigabit was not mentioned—this is desperately needed to bridge the digital divide.”

Economic Forecasts and Fiscal Rules

The Office for Budget Responsibility (OBR) slashed its 2025 growth forecast from 2% to 1%, a figure Reeves said she was “not satisfied with.” However, the OBR upgraded longer-term projections, predicting GDP growth of 1.9% in 2026 and 1.8% in 2027.

Reeves highlighted that Labour’s planning reforms – expected to add £6.8bn to the economy by 2030 – marked “the biggest positive growth impact the OBR has ever reflected for a policy with no fiscal cost.”

Welfare Reforms and Scottish Response to Spring Statement

Welfare spending as a share of GDP will fall from 2026-27, with Reeves stating it “can’t be right” to write off a generation misusing disability payments.

Deputy first minister Kate Forbes welcomed Scotland’s 0.5% GDP growth but demanded clarity on how UK-wide welfare cuts would impact Scottish budgets.

Forbes commented: “In the three months to January, GDP is now estimated to have grown by 0.5% compared to the previous three month period. This is a strong start to the year for the Scottish economy, particularly in the context of global economic uncertainty.

“Many of the levers needed to deal with our economy lie with the UK Government. In particular, the UK Government must provide swift clarity on how today’s Spring Statement, including its profoundly concerning planned cuts to welfare, will impact Scotland’s economy and Budget.

“I am focused on delivering economic growth with the limited powers the Scottish Government holds, and creating an investor-friendly environment.

“Already this year we have seen significant investments in a subsea cable manufacturer at Hunterston and new port infrastructure from Scapa to Montrose, and we are laser-focused on unlocking new private investment in the country’s rapidly growing offshore wind industry.”

Scottish Financial Enterprise (SFE) chief executive Sandy Begbie CBE said:“The chancellor’s spring statement underlines the stark reality of the economic situation we find ourselves in. The current inflationary pressures, coupled with stagnant productivity and increasing levels of tax pose significant headwinds to business investment.

“Only genuine, long-term economic growth will help sustainably deliver on the goals of the government, and as our growth strategy set out financial and professional services will play a key role in driving this growth.

“Businesses instinctively understand the fiscal constraints facing the government and the difficult decisions required, but also the need for long-term strategic thinking that will deliver certainty and opportunity for both taxpayers and business. We welcome the government’s articulation of the importance of economic growth, but delivery is key and business will be watching closely for evidence that these promises are matched by action.

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“While we welcome the Chancellor’s commitment to public sector reform and reducing the cost to the taxpayer, there also needs to be a recognition that recently announced tax and regulatory changes are damaging to business and jobs. Simply, you cannot tax your way to economic growth and we need to see a clear industrial strategy that will allow business to invest with confidence and deliver real and sustainable growth.”

Reeves closed her first spring statement by vowing to build “a government on the side of working people,” but critics – as we’ll take a look at below – questioned whether efficiency drives and AI investments would offset economic headwinds. With inflation expected to hit 2% by 2027, the chancellor faces a delicate balancing act between austerity and growth.

Spring Statement | Tech Sector Reacts

AI and Public Sector Transformation
The chancellor’s £3.25bn investment in public service reforms, with a focus on AI and technology, drew mixed reactions from industry leaders.

John Lucey, VP EMEA North for Cellebrite, cautioned: “The tidal wave of AI isn’t slowing down… but these systems must be built on comprehensive data management and privacy protocols. Especially in public safety, AI needs human oversight – it should assist, not replace, critical decision-making.”

Etay Maor, chief security strategist at Cato Networks, warned against treating AI as a “silver bullet”: “Legacy tech is still a major headache for UK government AI initiatives. We can’t ignore the security risks of outdated systems or untrained staff. Investment must go beyond tools – it needs upgrades, training, and baked-in security from the start.”

Fraud Epidemic Ignored
Silvija Krupena of RedCompass Labs slammed the statement’s silence on fraud, which accounts for 40% of UK crime: “Criminals are leveraging AI to scale fraud, while the response is fragmented. Tech firms face no penalties for scams on their platforms, and regulators are steps behind. Without coordinated action, the UK will keep losing ground.”