What to expect from the Chancellor’s Spring Statement
The UK’s first Spring Statement under Chancellor Rachel Reeves is set for 26 March, but those expecting headline-grabbing tax and spending announcements are likely to be disappointed.
The Chancellor has repeatedly committed to a single major fiscal event per year—the Autumn Budget—leaving this month’s statement as little more than a response to the latest economic forecast from the Office for Budget Responsibility (OBR).
But with public finances under pressure and a wafer-thin margin for meeting fiscal targets, even a low-key event could have significant implications for businesses and taxpayers alike.
Reeves entered office promising fiscal discipline, enshrining new rules in January that require her to run a current budget surplus and reduce public sector net financial liabilities as a share of GDP by 2029–30. At the time of the Autumn Budget, the OBR’s projections gave her just £9.9 billion in headroom—barely a buffer when managing a £1.5 trillion economy.
Since then, economic conditions have been mixed. Wage growth has buoyed Pay-As-You-Earn tax receipts, but self-assessment revenues have underwhelmed. Borrowing remains elevated, with the latest data suggesting the 2024–25 deficit could overshoot earlier forecasts by £16 billion.
Meanwhile, inflation, while down from its 2022 highs, remains above target and has proven stubborn, complicating interest rate expectations and government debt servicing costs.
The OBR’s March forecast could confirm that Reeves’s already slender fiscal breathing room has evaporated, leaving her with a difficult choice: stick to the self-imposed “one fiscal event per year” rule and risk missing her fiscal targets, or act now with policy adjustments to pre-empt trouble in the Autumn Budget.
If the forecast does deteriorate, the Chancellor has two broad options: delay corrective measures until autumn, or act now with spending cuts or revenue-raising measures.
Neither choice is attractive. Delaying action would leave her open to months of speculation about inevitable tax hikes, potentially unsettling financial markets. Moving early, however, could force policy decisions with significant political and economic consequences.
One well-worn strategy to raise revenue without explicitly increasing tax rates would be to extend the freeze on tax thresholds beyond 2025. The so-called “stealth tax” approach quietly increases the government’s tax take as wage growth pulls more earners into higher brackets.
Estimates suggest a two-year extension of the threshold freeze could generate £10 billion by 2029–30—a sum that could largely fill the fiscal gap. Reeves declined to extend the freeze in October, arguing it would disproportionately impact working families, but a changed fiscal picture could force her hand.
Meanwhile, the Treasury has already drafted billions in spending cuts. Welfare budgets are reportedly a key target, aligning with Reeves’s previous rhetoric on benefit reform. But with multi-year departmental budgets set to be finalised in June, early cuts could constrain flexibility later in the year.
Complicating matters is the international economic backdrop. The return of Donald Trump to the White House has already sent ripples through global trade, with increased defence spending pressures on European nations.
The UK has committed to raising defence expenditure to 2.5% of GDP by 2027, with funding partially offset by cuts to international aid. But any broader global economic slowdown—potentially exacerbated by protectionist US policies—could further weaken UK growth and tax revenues, making fiscal consolidation even harder.
Beyond the raw numbers, the Chancellor faces a credibility test. Reeves has framed her fiscal rules as “non-negotiable,” and any deviation risks undermining market confidence in the government’s commitment to fiscal discipline.
With UK borrowing costs still elevated compared to early 2024, even a modest deviation from the rules could fuel concerns about the sustainability of the public finances, potentially pushing gilt yields higher.
At the same time, a slavish commitment to an arbitrary fiscal target could be economically counterproductive. The UK has rarely run a current budget surplus in the last two decades, and the rigid pass-fail nature of Reeves’s rule leaves no room for economic fluctuations.
Ironically, the government’s own fiscal framework will introduce more flexibility from 2026, allowing a small deficit within a range. Had this mechanism been in place now, much of the current debate would be moot.
For businesses, the Spring Statement is unlikely to offer immediate tax or regulatory changes, but it will set the tone for the year ahead. If Reeves does opt to extend tax threshold freezes, higher earners should brace for a gradual tax squeeze.
Employers, meanwhile, are already facing higher National Insurance costs from April, a burden that may yet increase if additional revenue-raising measures are needed later in the year.
Ultimately, the real fiscal battle will be fought in the Autumn Budget. But if the OBR’s forecast paints a bleak picture on 26 March, Reeves may find herself making tough decisions much sooner than expected. In fiscal policy, as in politics, rules are made to be tested—and sometimes, broken.