Author: David Thurlow
Chartered Financial Planner and Investment Manager - Member of the Investment Committee
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Published: March 2025
The Chancellor, Rachel Reeves, delivered her Spring Statement yesterday, 26 March 2025. The Spring Statement provides an opportunity for the Chancellor to adjust the government’s fiscal policies in response to evolving economic challenges and uncertainties. She cited that the increase in the heightened global uncertainties have caused some of the forecasts to change, notably the Stability rule (i.e. spending being met by tax receipts). The focus has very much been on the long-term and by the end of their parliamentary period, being able to balance the books. In the short-term in the economic forecast by the Office for Budget Responsibility (OBR), it has reduced growth from 2% to 1% for 2025. Rachel Reeves spent time focusing on the predicted growth from 2025 onwards in which it is currently forecast as 1.8% by the end of their tenure. She acknowledged that inflation was higher than she announced in October (expected to peak at 3.7% in the summer) but expects this to fall to 2.1% by 2026, then hitting the government’s target of 2% by 2027.
The OBR has revised its forecast, predicting a deficit of £4.1bn by 2029/30, reversing the surplus projected in the Autumn budget. The Chancellor made it clear that her fiscal rules are ‘non-negotiable’. She sent a clear message that she will not be ‘U-turning’ on her fiscal policy set out on 30 October 2024.
Ms Reeves noted that the OBR will conduct a budget review in June ahead of the Autumn budget, to which Mel Stride, as the Shadow Chancellor, challenged in his response that she could not commit to not raising additional taxes.
The increase in Defence budget is likely to be welcome news, particularly given global uncertainties such as the ongoing Ukraine War and other political tensions worldwide. The government’s focus was on the UK becoming an Industrial Superpower investing in equipment such as drones and AI enabled technology developed by UK start-up / technology firms, as well as focus in the UK on housing development. Ministers say the spending will be funded by reducing overseas aid.
Rachel Reeves indicated that the welfare budget reform would generate £4.8bn of savings, however, there are concerns about the effects of such measures on low-income households. She also increased HMRC focus on tax avoidance, and this is expected to generate an additional £1bn of revenue.
The real test will be in the coming months as the government’s plans are put into action. Will these measures succeed, or will taxpayers face more strain in the Autumn Budget?
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