In the Spring Statement 2025, the Chancellor is set to provide an update on her plans for the UK economy on March 26, when she delivers a statement alongside an economic forecast. The update will follow an analysis from the Office for Budget Responsibility (OBR), which monitors government spending and performance. Chancellor Rachel Reeves has previously ruled out additional tax increases, but she faces tough decisions due to the current performance of the UK economy and global developments.

What is the Spring Statement and When Is It?

The OBR, an independent body responsible for assessing government policies, will release its forecast for the UK economy on March 26. This forecast will cover key issues such as the cost of living, household finances, and whether the government will adhere to its borrowing and spending rules.

Following the publication of the OBR’s findings, Reeves will present her Spring Statement 2025 to Parliament. This is an important moment for the government, though it will not involve major policy changes. The statement will primarily offer an update on the economic situation, and the opposition is expected to respond, likely from Conservative leader Kemi Badenoch or shadow chancellor Mel Stride.

What is the Chancellor Likely to Announce?

The Spring Statement 2025, is typically a precursor to the annual Budget, which is the government’s main economic event. Reeves has committed to delivering one major economic statement per year to provide businesses and families with stability and clarity regarding tax and spending policies. Therefore, no sweeping policy announcements are expected on March 26, though some developments may be disclosed before the event.

With the UK economy facing challenges, and external factors such as US trade tariffs affecting performance, speculation is growing about whether the Chancellor will adjust her borrowing rules. The OBR’s forecast is expected to confirm that the financial buffer of £9.9bn, designed to meet budget rules by 2029/30, has been significantly eroded.

Reeves has previously emphasised that her fiscal rules are non-negotiable. These rules include:

– Not borrowing to fund day-to-day public spending.

– Ensuring that debt as a percentage of national income falls by the end of this parliament.

Ahead of the Spring Statement, the Treasury is preparing plans to implement significant spending cuts. Welfare spending is expected to be impacted, alongside budget reductions in other government departments. Reeves has expressed a commitment to fundamental reform of the welfare system, driven by concerns over rising benefit claimants.

Additionally, global factors such as the ongoing conflicts in Ukraine and the Middle East have raised government borrowing costs, further complicating fiscal planning.

Other Potential Announcements

Reports suggest that some additional announcements may be made alongside the Spring Statement. These could include:

– A reduction in the £20,000 tax-free annual limit on cash ISAs, which would encourage more people to invest in stocks and shares.

– Confirmation of how international aid funding will be redirected to defence, in line with the Prime Minister’s announcement to increase UK defence spending to 2.5% of national income by 2027.

Sources within the government have emphasised that this event will not include tax increases, but rather focus on spending cuts. However, there is speculation that the Chancellor may opt to extend the freeze on income tax thresholds, which would effectively function as a stealth tax rise. This policy means that more people would end up paying higher rates of tax as their income rises, even though the tax rates themselves would not change.

While the previous Conservative government froze the thresholds until 2028, there is talk that Reeves could extend this freeze, potentially raising an additional £7bn a year. However, Reeves chose not to extend the threshold freeze in her first Budget, arguing that such a move would unfairly burden working people.

Whether any further spending cuts will be revealed during the Spring Statement 2025 or in the upcoming Spending Review in June, or delayed until the next full Budget, remains uncertain.

How is the UK Economy Performing?

Recent data suggests that UK economic growth has been slow, with only a marginal 0.1% growth recorded between October and December 2024. While the economy is not shrinking, it is not growing at the pace needed to stimulate significant job creation or pay increases. When the economy grows, businesses can expand, hire more workers, and pay higher wages, which in turn generates more tax revenue for public services.

In addition to sluggish growth, inflation remains higher than desired. The current rate of 3% is above the Bank of England’s target of 2%, and inflation is expected to rise further. This will influence decisions on interest rates, which currently stand at 4.5%. Higher interest rates increase borrowing costs for loans, credit cards, and mortgages, but they also offer better returns on savings.

Business costs are expected to rise further in April due to an increase in National Insurance contributions for employers, which may be passed on to consumers in the form of higher prices.

The Chancellor’s fiscal plans are under increasing pressure following a government surplus that missed official forecasts. This has led to growing speculation that Reeves may be forced to adjust her fiscal rules in response. Although borrowing costs surged in January due to concerns about the UK’s economic outlook, they have since fallen, though they remain higher than last year.

Reeves has also warned that a potential global trade war could negatively impact UK growth, even though tariffs may not directly target the UK, ultimately raising inflation and further complicating the country’s economic outlook.