Spring Statement Summary: ‘Global economy becomes more uncertain’

‘The world is changing, we can see that and we can feel it’

The chancellor Rachel Reeves made her first spring statement. She said, ‘now the task is to secure Britain’s future within an insecure global financial backdrop, helping Britain to reach its potential…Labour was elected to bring change to the country, to provide security to working people and to deliver a decade of national renewal.’ The following article outlines the announcements made.

Taxes

The statement did not contain any further tax increases. The chancellor said, “it cannot be right that others are still evading what they rightly owe in tax”. Cutting edge technology will be used to assist HMRC in its crack down on what it considers to be tax avoidance, which Ms Reeves estimates will raise a further £1bn, taking the total to £7.5bn.

Office for Budget Responsibility and fiscal rules

On the eve of the statement, it emerged that the Office for Budget Responsibility (OBR) had told Reeves that her planned benefit cuts would only raise £3.4bn by 2029-30, not the £5bn she had predicted.

The chancellor said she had restored the government’s headroom to a surplus of £6bn in 2027-28, rising to £9.9bn in 2029-30, compared with the previous government’s £6.5bn.

Net financial debt will be 83.5% in 2026-27 and falling thereafter.

The OBR has upgraded its growth forecast for next year and every year after that. It predicts GDP growth of 1.9% in 2026, 1.8% in 2027, 1.7% in 2028 and 1.8% in 2029.

Real household income will grow this year at twice the rate that was expected in the autumn. Compared with the Conservatives’ final budget, the OBR says people will be more than £500 a year better off, even factoring in inflation.

Inflation and growth forecasts

Inflation fell in February, data showed. OBR forecasts show the CPI will average 3.2% this year before falling rapidly, meeting the Bank of England’s 2% target from 2027 onwards.

The OBR has revised down growth forecasts for 2025 from 2% to 1%.

The chancellor said that she will address this through measures such as the third runway at Heathrow, planning and pension reform, and deregulation.

Welfare cuts

“The Labour party is the party” of work, the chancellor said. More than 1,000 people a day are qualifying for personal independence payments (Pip), Rachel Reeves said. “It is a waste of their potential and a waste of their futures.”

The OBR has estimated her welfare savings package will save £4.8bn.

Universal credit health element will be cut for new claimants and then frozen.

There is £1bn for employment support to help people back into work, as well as £400m to support jobcentres.

Welfare spending as a share of GDP will start falling from 2026.

Spending

Defence spending is to rise to 2.5% of GDP, funded by international aid cuts and the scrapping of NHS England, with savings to fund patient care directly.

There is a plan to cut civil service costs by 15%, saving £2bn by the end of the decade.

A new ‘transformation fund’ of £3.25bn will be set up to bring down the cost of running government by making public services more efficient.

The first allocation from the fund is for AI tools to “modernise” the state, technology for the probation service and investment to support children into foster care to reduce future cost pressures.

There will be £3.5bn of day to day savings on the cost of running government by 2029-30.

Overall, day to day government spending will increase above inflation and has been fully protected.

On capital spending, the chancellor already announced £100bn of investment in her autumn budget. She will increase capital spending by an average of £2bn a year ‘to drive growth in our economy’

Defence

The chancellor has provided an extra £2.2bn for the Ministry of Defence in the next financial year to address increasing global uncertainty.

The government will spend a minimum of 10% of the MoD’s equipment budget on tech such as drones and AI, boosting production in places such as Derby, Glasgow and Newport.

There will be a protected budget of £400m within the MoD for UK defence innovation, rising over time.

Reforms to defence procurement will aim to make it quicker and give small businesses better access to MoD contracts.

There will be £200m to support nuclear submarine jobs in Barrow and funds for military homes and naval ports such as Portsmouth and Plymouth.

Support for UK Export Finance will aim to help finance overseas purchase of UK defence equipment.

Planning and growth

The OBR considered the chancellor’s planning reforms and concluded that they will permanently increase the level of real GDP by 0.2% in 2029-30, creating an additional £6.8bn for the economy. This will reach 0.4% or £15.1bn by 2030.

The OBR has said that housebuilding will reach a 40 year high, building 305,000 homes a year by the end of the forecast period. There will be 1.3m new homes over the next five years, close to the manifesto promise of 1.5m within this parliament.

The effect of all growth focused policies means an extra £3.4bn to support public services by 2029-30.