Dr Scott Andrews and Boyd Hargreaves from the University's Business School reflect on the recent Spring Statement.
On Wednesday 25th March, Rachel Reeves delivered her Spring Statement. During her opening remarks, she said that the Labour Party was elected to “bring change to our country, provide security for working people and deliver a decade of national renewal” and made the point that the Bank of England had cut interest rates three times since the government was elected.
What we already know is that the fiscal headroom[1] has certainly narrowed since the October 2024 Budget partially because of slowing tax receipts and weaker than predicted Economic Growth. Additionally geo-political issues and tensions have made the global economy a less certain place. As such Reeves argued that the UK needs to become more “active” to secure the future and deliver prosperity.
The Key announcements made during the Spring Statement include:
Welfare Budget Cuts
The Office for Budget Responsibility (OBR) say changes will save the treasury £4.8Bn and the measures include:
- A stricter eligibility test for personal independence payments (Pip’s), the main disability benefit, from November 2026
- The standard allowance for universal credit will rise by £14 a week by 2030 as opposed to the announcement the week before the Spring Statement of £15 a week.
- Health-related universal credit for new claimants, which was already due to be cut from £97 to £50 per week from April 2026 under measures already announced will now not rise with inflation until after 2030
- Under 22’s will be excluded from claiming the health-related element of universal credit
OBR forecasts, fiscal rules and inflation
- The OBR has halved its growth forecasts for 2025 from 2% to 1%. However, it has upgraded its growth forecast for next year and every year thereafter suggesting GDP growth of 1.9% in 2026, 1.8% in 2027, 1.7% in 2028 and 1.8% in 2029. Rachel Reeves also highlighted that by the end of the forecast, the UK economy will be larger compared with the OBR’s forecast at the time of the budget.
- The OBR predict that people will be more than £500 a year better off, even factoring in inflation.
- Reeves announced that she will stick to her cast-iron “fiscal rules” and suggested that the budget would have been in deficit by £4.1Bn without the measures announced in the Spring Statement and that the announcements made had restored the government’s fiscal headroom.
- Data showed that Inflation fell in February to 2.8% from 3% in January. OBR forecasts show consumer price inflation will average 3.2% this year before falling “rapidly” and meeting the Bank of England’s 2% target from 2027 onwards.
Housing
- The OBR has estimated changes to England's planning system announced last year will boost housebuilding by 170,000 over five years. These changes are forecast to grow the size of the economy by 0.2% by 2030, and 0.4% by 2035
- £625m will be spent in England over four years to boost existing schemes to train workers in the construction sector
Public services
- Day-to-day government spending is predicted to fall by £6.1bn per year by 2030
- A target was announced to reduce the administrative costs of government departments by 15% by 2030
- About 10,000 civil service jobs are likely to go which includes staff working in HR, policy advice and communications.
Expenditure
As announced before the Spring Statement:
- Defence spending is set to rise to 2.5% by April 2027, funded by international aid cuts.
- NHS England is to be scrapped, with savings to fund patient care directly.
- A plan to cut civil service costs by 15%, will save £2.2bn by the end of the decade.
- £3.25bn of investment is to be brought forward for a new “transformation fund” to bring down the cost of running government by making public services more efficient.
Following the Autumn 2024 Budget, we commented that with “the OBR predicting a low growth forecast for the next five years, it would seem that this new government’s bid to fix the foundations to deliver change will have ramifications for many months, if not years, to come.”
What is clear is that the dynamics of global politics have changed, the OBR has halved its growth forecast for 2025 and there continues to be more uncertainty around the globe. Some of the fiscal changes announced in the Autumn 2024 Budget are due to commence in April and it will be interesting to see whether the announcements made will start to take hold in the UK Economy in the following months.
Worcester Business School values its strong partnership with its business community and so we will be committed to keeping a close watch on these plans and proposals as further details begin to emerge.
Boyd Hargreaves (b.hargreaves@worc.ac.uk) is a Senior Teaching Fellow in Economics and Dr Scott Andrews (s.andrews@worc.ac.uk) is Head of Worcester Business School.
[1] Fiscal headroom is the amount by which government can increase spending or cut taxes without breaking its own fiscal rules