Chancellor Rachel Reeves is set to present her Spring Statement on Wednesday, March 26, outlining her economic plans for the UK amid ongoing financial pressures. While Reeves has ruled out tax increases, she faces difficult choices as the economy struggles with slow growth, rising inflation, and external global factors.
What to Expect from the Spring Statement
Unlike the annual Budget, government sources have emphasized that the Spring Statement is not a major financial event. However, given the current economic climate, significant announcements are expected, particularly regarding spending cuts and cost-saving measures.
Welfare Spending Cuts
The government has already outlined plans to reduce welfare spending by £5 billion per year by 2030. Measures include stricter eligibility tests for Personal Independence Payments (PIP) and a freeze on incapacity benefits. Further details on the impact of these cuts are expected during the statement.
Civil Service Job Reductions
Reeves has committed to reducing government operating costs by 15% by the end of the decade. This includes cutting around 10,000 civil service jobs, with roles in human resources, policy advice, communications, and office management expected to be affected.
Defence and International Aid Budget Adjustments
With the government committed to increasing defence spending to 2.5% of national income by 2027, the chancellor is expected to detail how funds will be reallocated, including potential reductions in international aid.
Potential Tax Adjustments for Businesses
While Reeves has consistently ruled out tax hikes, negotiations are ongoing regarding adjustments to the UK’s 2% Digital Services Tax (DST), which affects tech giants like Amazon and Meta. Changes to this tax could form part of a wider deal to avoid US trade tariffs.
Economic Forecast and Fiscal Challenges
Before Reeves addresses Parliament, the Office for Budget Responsibility (OBR) will publish its latest economic forecast, assessing government spending plans, borrowing levels, and the cost of living. The chancellor will present these findings alongside her economic strategy.
Reeves has set two key fiscal rules:
No borrowing for day-to-day public spending
Reducing debt as a share of national income by the end of this Parliament
However, recent economic data suggests challenges in meeting these targets. The UK government’s financial buffer of £9.9 billion for achieving its budget rule by 2029-30 has reportedly been eliminated. Additionally, borrowing in February exceeded expectations, reaching £10.7 billion.
State of the UK Economy
The UK economy grew by just 0.1% between October and December 2024 and contracted by 0.1% in January. Weak growth, combined with inflation currently at 3%—above the Bank of England’s 2% target—adds to the economic uncertainty.
Interest rates, currently at 4.5%, could remain high if inflation does not decrease. This would keep borrowing costs elevated for businesses and households while offering better returns on savings. Further pressure is expected in April when National Insurance contributions for employers increase, potentially leading to higher consumer prices.
Reeves has also warned about the impact of potential global trade conflicts, particularly US tariffs, which could further slow UK growth and push inflation higher.
Following her speech, opposition leaders—likely Conservative leader Kemi Badenoch or Shadow Chancellor Mel Stride—will respond, setting the stage for further economic debate.
