On Wednesday 26 March, Chancellor Rachel Reeves delivered the Spring Statement – a response to the latest economic forecasts from the Office for Budget Responsibility (OBR), and a chance for the Government to outline where things are headed next.
The full Budget is now pushed to the autumn, so this wasn’t about major tax changes. Still, it was far from a routine update. Spending cuts were on the table – particularly in the benefits system and the wider public sector.
Here’s a clear and simple breakdown of what was said, and what might matter for you.
The Spring Statement was meant to be a check-in based on fresh numbers from the OBR. But with the economy under pressure from global trade issues and rising defence costs, it turned into something bigger.
Had the Government left everything untouched from last autumn’s plans, we’d be looking at a £4.1 billion deficit by 2029/30. Instead, some careful shuffling has brought things back to a very specific £9.9 billion in “fiscal headroom”.
Growth is actually looking a little better than expected – aside from a small dip in 2025. But that growth is mostly coming from public spending, not from businesses. Confidence in the private sector has taken a knock, especially after last year’s announcement about the increase in employer National Insurance.
That NI rise kicks in from April this year, so it’s something to factor in if you employ staff.
There are two main rules guiding Government spending:
At the moment, the OBR reckons there’s just a 51% chance that the debt rule will be met. So it’s all pretty finely balanced.
Economic growth for 2025 has been downgraded from 2% to 1%. But looking further ahead, growth forecasts are a bit more optimistic. The OBR reckons real household income will grow faster than previously expected this year. That means the average household could be about £500 better off per year.
That fiscal headroom we mentioned earlier? It’s back at £9.9 billion. But only just. The Institute for Fiscal Studies has warned that if the Government wants to stay on track with its targets, tax rises are still very much on the cards.
Some benefits cuts had already been flagged before the Statement, but they were tweaked slightly:
There’s an extra £2.2 billion for the Ministry of Defence next year. Defence spending will hit 2.36% of GDP in 2025, on its way to 2.5% by 2027. The focus is on newer technologies – drones, AI, and high-tech manufacturing. £400 million has been set aside for innovation in advanced manufacturing.
No new tax rises were announced in this statement – but as mentioned, future increases haven’t been ruled out. HMRC will be hiring 600 new staff to crack down on tax evasion, with a goal of recovering £1 billion by 2029.
Department spending is growing at 1.2% above inflation each year (just slightly down from 1.3%). There’s also a drive to cut Civil Service admin costs by 15% by 2030. That means fewer staff and more automation – expect more bots and AI doing what used to be human jobs.
The headline figure of £9.9 billion is clearly doing a lot of heavy lifting in Government plans. But the margin is thin, and we’re likely to see more uncertainty in the months ahead – especially when departmental spending reviews land in June. The Autumn Budget will bring the bigger picture into view.
If your business is feeling the squeeze – or you just want to make sure you’re prepared – we’re here to talk. We can help you understand what this all means for your business, look at ways to manage your costs, and keep your cash flow steady. Phone our office on 01709 589 439 or book a free call with us.
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