Spring Statement 2025

The Spring Statement was the Chancellor’s most high-profile opportunity since October’s budget to discuss growth and spending.

Reeves started by putting her speech in the wider context of the fiscal year. As anticipated, there were no new tax measures. Instead, there was an update on public finances supported by the Office for Budget Responsibility, ahead of full spending review in June. All of this will be rounded out by the Autumn Budget, likely to be in November. This continues the government’s promise to hold just the one fiscal event each year.

Highlights included a significant increase in defence spending. This is to grow to 2.5 per cent of national income from April 2027, with an ambition for this to increase again to 3 per cent in the next parliament.  On top, there is a further one-off £2.2 billion available to the Ministry of Defence.

In this context, the Chancellor talked about turning the UK into a “defence industrial superpower”, with a focus on encouraging innovative technologies and providing better access to Ministry of Defence contracts for start-ups and smaller businesses. She also announced the creation of a Defence Growth Board to place this at the heart of the UK’s industrial strategy.

Given the additional defence spending, there will be impacts elsewhere in the economy. Most tangible among these are spending cuts. Headlines included the abolition of NHS England, a reduction in overseas aid to 0.3 per cent of national income, and reductions in civil service headcount. The Chancellor also talked up improvements in tax collection powers and an increased capacity for HMRC to investigate tax evasion.

Having dealt with cuts, Reeves then spent the remainder of her speech setting out her growth plans. In the absence of any new tax-raising measures, economic growth will be the only route to increasing public spending. Having recently been downgraded by the Office for Budget Responsibility from 2% to 1% this year, economic growth is now set to increase by between 1.7 per cent and 1.9 per cent each year of this parliament.

As a result, the Chancellor said that, after taking inflation into account, the average household should be around £500 a year better off. However, given very high inflation levels over recent years, there remains a question of whether people are in fact aware of any improvement in their spending power. Large recent jumps in utility costs and other household bills may mean that people are not yet feeling this in their pockets.

Other measures she highlighted were reforms to the welfare system to encourage more people back into work, and major changes to planning regulations should mean housebuilding is anticipated to rise to a 40-year high over the course of this parliament.

It is still very early in the new Labour administration, and as to be expected Reeves has put a very positive gloss on action taken to date. She was however noticeably silent on some of the more problematic issues that face employers in particular, given the imminent hikes in national insurance contributions and the increase in national minimum wage, all of which impact from the start of the new fiscal year on 6 April. We will need to see how these changes affect economic growth over the next few months, especially in troubled sectors such as retail and hospitality, before we can accurately assess progress.