Halifax has issued an ‘emergency fund’ update to customers after Chancellor Rachel Reeves announced further welfare cuts this week.
Reeves delivered her Spring Statement to the House of Commons on Wednesday and confirmed a package of cuts that is estimated to save £4.8 billion in the welfare budget. The changes mean some further reductions in benefits that will see an estimated three million families lose out financially as a result.
In its assessment of the impact of the changes, the Department for Work and Pensions (DWP) found that by 2020 more than three million families will lose out financially as a result of the cuts – amounting to an average loss of £1,720 annually.
The assessment also said the changes will leave an estimated quarter of a million more people – including 50,000 children – in relative poverty after housing costs across Great Britain by the end of the decade. This estimate doesn’t include the impact of the £1 billion annual funding by 2029/30 for measures supporting people to get back into work which the DWP says it expects “to mitigate the poverty impact”.
In response to the Spring Statement, Halifax has advised customers to plan for the “unexpected” and suggested building an “emergency fund” to save money as a “safety net”.
The bank said: “On 26 March, Chancellor Rachel Reeves set out her Spring Statement, which outlines the Government’s latest thinking on the economy. Events like these can affect your finances so let’s look at some of the key topics raised.
“UK economic growth was the key theme of the Chancellor’s Spring Statement. The Office for Budget Responsibility (OBR) has halved the UK’s economic growth forecast for 2025 from 2% (suggested last autumn) to 1%. However, it has increased its forecast for future years, meaning the Chancellor has more headroom within her fiscal rules on day-to-day spending and investment.
“Inflation is expected to peak in July 2025 at 3.8% before falling close to the target of 2% from Q2 2026 onwards. No tax changes were announced for individuals or businesses. The Statement follows the recent announcement of changes to the benefit system, targeting cuts to welfare spending.
“Now might be the right time to look at how well you’d cope if something unexpected happened. No one knows what the future holds, so it’s wise to build a savings pot for a rainy day. Check out our emergency fund calculator to get an idea of how much to keep as a safety net based on your outgoings.
“When budgeting, it can also be helpful to use the 50-30-20 rule, where 50% of your income is spent on needs, 30% on wants, and 20% on savings.
“Beyond your emergency fund, it’s also worth thinking about having an insurance policy which could pay out if you were to die or be diagnosed with a serious illness covered by that policy. This is especially important if your children, partner or other relatives depend on you financially.”
In the short to medium term, Halifax also recommended opening an ISA as these are a “tax efficient way of saving” and reminded customers who haven’t used their ISA allowance for this year that they have until April 5 to do so.
The bank added: “Cash ISAs allow you to save into them without paying tax on the interest you earn. Stocks & shares ISAs allow you to invest without paying Capital Gains or Income Tax (in the UK) on the income and profit you make from selling assets, such as shares.
“Both cash ISAs and stocks & shares ISAs are subject to an annual allowance. There were no changes to this annual allowance in the Spring Statement, which means you can continue to put away up to £20,000 in personal ISAs (which is the total allowance across all ISA types) and additionally up to £9,000 on behalf of a child in a Junior ISA each tax year.”
Among the latest changes to welfare spending announced by the government, the Chancellor said the Universal Credit health element (sometimes called incapacity benefits) will be cut by 50% and frozen for new claimants.
The health element for those with limited capacity to work was initially set to be halved for new claimants to £50 per week in 2026-27 and then frozen, but the government has now said existing claimants will have their entitlement frozen at £97 per week until the end of the decade.
Reeves also said the Universal Credit standard allowance will increase from £92 per week in 2025-26, to £106 per week by 2029-30. The rise had previously been expected to rise to £107 per week by that year, so it will now be £1 lower per week than initially stated.
