Spring Statement 2025: What do you need to know?

The context of the Spring Statement

The background to the Spring Statement is that the Labour government said in their manifesto before last summer’s election that they only want to have one big fiscal event each year. They said that will be in the autumn each year.

UK governments are required, though, to publish two financial forecasts a year – spring and autumn. That meant that there would always have to be a half-year results day ‘trading’ update. Since 2010, these financial forecasts have to be audited by the Office for Budget Responsibility (OBR).

Unless you’re an accountant, economist, financial adviser or bond trader then it’s not that exciting. It’s the publication of updated financial forecasts and a statement in the House of Commons by the Chancellor of the Exchequer as to how things are going.

Why the focus on the Spring Statement this year?

Rachel Reeves presented her autumn Budget at the end of October last year – less than five months ago. That Budget raised taxes substantially and was presented as putting the government’s finances on a much stronger footing for the next few years.

As part of the Budget, the Chancellor made two decisions that are very relevant to the Spring Statement:

1. She set some fiscal rules – in banking parlance, these are debt covenants. The UK government made commitments to the buyers of our debt as to the financial rules that we will stick to. This is important, as the UK government is running very large annual deficits and so needs to raise substantial amounts of debt finance each year
2. Her Budget set the headroom against these forecasts. Whether as a result of circumstance, or through choice, Rachel Reeves gave the country relatively little headroom in historic terms

Importantly, the government’s fiscal rules treat capital expenditure more favourably than revenue expenditure.

Whilst there are always lots of numbers in forecasts, for ease, the main headroom figure was £9.9 billion.

What has changed since the 2024 Budget?

Within a couple of months, it became clear that the headroom and/or the fiscal rules were too optimistic. There is a question as to how foreseeable that outcome was, but speaking as an accountant, that’s the job.

By comparison to the main headroom figure of £9.9 billion, the adverse movement since October last year is £13.1 billion. Factoring in changes to debt interest and tax receipts, according to the OBR’s updated forecasts we were on course to breach our facilities as a country by £4.1 billion in 2029/30.

What did Rachel Reeves announce in the Spring Statement?

Rachel Reeves has done a few things to compensate for higher debt and other costs of £13.1 billion. These are:

• Cutting forecast welfare spending by £4.8 billion
• Raising additional tax revenue of £2.2 billion by greater compliance activity, debt collection and other charges
• Classifying £4.4 billion of expenditure as capital rather than revenue
• Cutting government expenditure by £1.9 billion (£3.6 billion net of an initial increase of £1.7 billion, despite spending £1.4 billion on trying to get welfare recipients into employment)

Those bullets total £13.3 billion. Broadly, you get back to where you started.

For those who want to read more, here is a link to the OBR’s Economic and fiscal outlook for March 2025.

What to take away from the Spring Statement?

In my view, there are a few key takeaways. In particular, the headroom was already very narrow and the position hasn’t been improved. In paragraph 1.21, the OBR states:

“Headroom of £9.9 billion against the fiscal mandate is only one-third of the average of £31.3 billion that Chancellors have set aside against their fiscal rules since 2010. It is also a very small margin compared to the risks and uncertainty inherent in any fiscal forecast. The average absolute final-year revision to pre-measures borrowing over the past ten forecasts has been £19.4 billion. And risks to the forecast are heightened at present given the significant uncertainty surrounding domestic and global economic developments.”

That is pretty sober reading. We’re still pushing our luck.

The other one is that our interest on debt is much higher than was forecast last October. It’s going up when the outlook for interest rates more generally is down, but not for governments with large national debts.

At paragraph 1.24, the OBR’s summary of the risks to the financial forecasts is:

“The long-term fiscal outlook remains very challenging, with pressures from an ageing population, climate change, and rising geopolitical tensions putting the public finances on an increasingly unsustainable path.”

Overall, it is clear that you need to be prepared for further tax rises in the autumn Budget this year. Where possible, you might want to consider action ahead of the government’s big fiscal event for 2025.