Chancellor Rachel Reeves is set to make further cuts to welfare benefits and government departments in her Spring Statement on Wednesday.

The government announced big welfare spending reductions last week but the chancellor is set to expand the cuts after being told reforms to the system would save less than planned.

The Office for Budget Responsibility (OBR) has assessed that changes to benefits will save £3.4bn in 2029/30 rather than the £5bn claimed by ministers.

The chancellor faces pressure over the performance of the economy, with growth remaining sluggish. But Reeves will argue the UK has to “move quickly in a changing world” and will confirm a £2.2bn increase in defence spending.

The chancellor will set out her latest plans for the UK economy in her Spring Statement at 12:30 GMT, and will cite uncertainty surrounding the Ukraine war and US tariffs threatening to upend global trade.

Reeves, who ruled out tax rises in the statement, has already announced several spending cuts.

But late on Tuesday, it emerged that she would widen her cuts to welfare after the OBR, which monitors the government’s spending plans, estimated the already-announced welfare system reforms would not save the £5bn as planned.

The reforms include stricter tests for personal independence (Pip) payments, affecting hundreds of thousands of claimants.

But it is understood the OBR assessed that many claimants facing losing health-related benefit payments would instead claim for more severe conditions.

The government did not deny reports, first carried by The Times, that the chancellor would make further cuts to try to make up some of the shortfall.

Some Labour MPs who stayed publicly loyal and had difficult conversations with anxious constituents and annoyed activists have privately expressed frustration at the news.

In her Spring Statement, Reeves will say she is “proud” of what Labour has delivered in its nine months in power.

She will attempt to put national security at the heart of her plan to “kickstart economic growth”, saying the increase in defence spending is “not just about increasing our national security but increasing our economic security, too”.

“This moment demands an active government stepping up to secure Britain’s future… We need to go further and faster to kickstart growth, protect national security and make people better off through our plan for change.”

The increased funding will be invested in advanced technologies, including new energy weapons on Royal Navy ships.

It will also be used to provide better homes for military families by refurbishing the defence estate, and help fund upgrades to infrastructure at Naval Base Portsmouth.

The government announced earlier this month that it would cut the foreign aid budget to increase military spending to 2.5% of national income by 2027.

“As defence spending rises, I want the whole country to feel the benefits,” the chancellor will say.

But some economists have argued the increase in defence spending will have a limited impact on economic growth.

Low economic growth and higher interest rates on government borrowing in recent months have made it harder for Reeves to stick to her self-imposed and “non-negotiable” rules on borrowing and debt.

These rules are not to borrow to fund day-to-day public spending, and to get government debt falling as a share of national income by the end of this parliament.

Helen Miller, the deputy director of the Institute for Fiscal Studies (IFS) told BBC Radio 4’s Today programme that Reeves had left “a tiny margin” in the Budget.

“At that point in time, you could have said ‘don’t do that – give yourself a bigger margin’ would have been a sensible thing to do,” Ms Miller said.

“Now she’s done it and, having put so much emphasis on the rules being non-negotiable, I think it would be very difficult for her to come back and say ‘actually, at the first time of being tested, I’m going to let my fiscal rules be broken’.”

The OBR will publish a new economic forecast after the Spring Statement, where it is widely expected the watchdog will lower its growth expectations.

Official figures estimate the economy grew by just 0.1% between October and December 2024, with it shrinking by 0.1% in January.

When an economy is growing slowly – or contracting – businesses might not take on more workers or give pay rises. Lower profits mean firms pay less in tax, which funds government spending.

Ahead of her statement, Reeves has sought to blame the worsening state of the public finances on a global rise in borrowing costs.

Economic uncertainty, partly related to the war in Ukraine and US President Donald Trump’s trade tariffs, have been blamed for the cost of government borrowing rising across the world.

However, critics have said the UK’s higher borrowing costs are in part down to Labour’s economic policies and the country’s economic outlook.

Long-term government borrowing costs over a period of 10 years continued to rise on Tuesday to hit just below 4.8%.