The  Spring Statement explained

Economic outlook, fiscal stability and planning reforms

Introduction

The Government of the United Kingdom has typically held two major fiscal events each year – the Autumn Budget and the Spring Statement – with each updating on the economy’s performance, significant tax changes, fiscal measures and adjustments to allowances. In 2024, however, Chancellor Rachel Reeves committed to limiting major tax changes to one fiscal event a year, meaning that she had no new tax policies to introduce at the Spring Statement on 26 March 2025.

Despite the absence of immediate changes to personal or business taxation, this Spring Statement remains highly relevant for individuals, business owners and accountants. The Office for Budget Responsibility (OBR) released its latest Economic and Fiscal Outlook (EFO) alongside the Chancellor’s speech, containing revised forecasts for growth, inflation, borrowing and debt. These forecasts inform the government’s approach to public spending, highlight existing economic challenges and shed light on how the government aims to meet its self-imposed “fiscal rules” in the years ahead.

The year so far has been characterised by continuing external uncertainties. The global economy continues to experience notable shifts in growth patterns, trade relationships and geopolitical concerns – many of them linked to the war in Ukraine, ongoing supply-chain disruptions and the tail-end pressures of the global pandemic. Higher interest rates in numerous major economies have raised the cost of government borrowing, while many countries confront stubborn inflation rates. Against this backdrop, the Chancellor’s Spring Statement takes on additional importance as it clarifies how the government plans to navigate these uncertainties and improve the UK’s fiscal position while attempting to foster growth and protect public services.

This guide aims to provide a clear breakdown of the Statement’s content, its potential impacts on individual taxpayers and its significance for businesses. It also aims to clarify how the government’s spending decisions may lead to opportunities or challenges for different sectors of the economy. Finally, it explores the relevant announcements regarding the welfare system, which may affect workforce participation rates, and the additional funding for defence and infrastructure projects, which in turn could stimulate employment and growth in specific industries.

 

 

 

Overview of the Spring Statement

On 26 March 2025, Chancellor Rachel Reeves delivered her Spring Statement in the House of Commons, followed by the publication of a series of official tax-related documents on gov.uk. While the Chancellor’s speech itself contained no major new tax measures, these supporting documents clarify a number of supplementary items. In particular, they confirm:

These clarifications reinforce that no immediate changes to headline tax rates or allowances took effect on 26 March 2025 but shed light on the government’s future direction. As a result, attention now shifts to the Autumn Budget, though small administrative adjustments or pilot schemes may still emerge in the interim.

Key themes that emerged from the Statement include the following.

 

Economic outlook and growth forecasts

The OBR is an independent body charged with providing objective analysis of the UK’s public finances and the macroeconomic environment. Its forecasts have a significant influence on government policy, shaping the context within which Chancellors deliver Budgets and Statements. For the Spring Statement 2025, the OBR outlined a central scenario based on available data through early March 2025. While it is impossible to predict every factor in a constantly shifting global economy, the OBR uses a blend of recent economic data, known policy positions, and modelling assumptions to produce its best estimate of future growth, inflation, borrowing and other key indicators.

 

Growth figures for 2025

According to the latest OBR economic and fiscal outlook, the UK’s real GDP growth for 2025 is now forecast at 1%, which is half of the previous 2% estimate from October 2024. Multiple factors drove this revision: persistent inflationary pressures, higher global borrowing costs, geopolitical uncertainties and lingering disruptions to trade. Furthermore, the ongoing conflict in Ukraine continues to cast a shadow over energy prices and supply chains, making both businesses and consumers more cautious.

It is important to note that the OBR’s forecast aligns with global concerns that many advanced economies are seeing downward revisions in short-term growth, especially given uncertainties around commodity pricing, fiscal tightening and monetary policy shifts (such as rising interest rates).

 

Medium-term upgrades (2026–2029)

Despite the downgrade for 2025, the OBR upgraded its growth outlook for every year from 2026 through 2029. The projected figures (ranging from around 1.7% to 1.9%) reflect an expectation that some of today’s headwinds, particularly inflation, energy price volatility and supply-chain constraints, will gradually subside. This outlook also incorporates potential economic boosts from higher levels of infrastructure spending, defence expenditure and an anticipated uptick in housing construction.

From a macro perspective, the OBR seems to suggest that once short-term pressures ease, the UK economy has the capacity to expand at a moderate but sustainable pace. The government’s stated objective is to catalyse growth via targeted investment – especially in skill-building, advanced technologies and the construction sector – rather than relying on broad-based tax breaks or large-scale spending in multiple policy areas.

 

Inflation and the cost of living

The OBR forecasts an average Consumer Prices Index (CPI) inflation rate of around 3.2% for the full year 2025, dropping further to 2.1% in 2026 and then stabilising at 2% from 2027. While the government welcomes the downward trend, many households and businesses have had to manage a period of elevated prices, especially for energy. The OBR’s projections indicate that the worst may be behind us in terms of sustained inflation, though actual outcomes will hinge on global energy prices, interest rate policies and the state of consumer confidence.

For individuals, an easing of inflation translates into more stable household budgets and less pressure on disposable incomes. For businesses, it may lead to more predictable operating costs and potentially reduced wage demands over time – though much will depend on sector-specific factors, labour market tightness and continued uncertainties in the global environment.

 

Public finances, fiscal rules and debt projections

A prominent feature of this year’s Spring Statement is the government’s reaffirmation that it remains on course to meet its fiscal rules: balancing day-to-day spending (the “current budget”) by 2029/30 and ensuring net debt is falling as a share of GDP from 2027/28.

 

Fiscal headroom

When the Chancellor delivered the Autumn Budget in October 2024, she claimed to have around £9.9bn of “fiscal headroom” for the 2029/30 year. Subsequent changes in the economic outlook – particularly higher interest rates and altered productivity assumptions – threatened to erode that headroom, to the extent that some officials predicted a £4.1bn deficit in the same year. However, the government has responded by cutting back day-to-day departmental spending, introducing efficiencies in the welfare system and allocating resources in a way designed to maintain a target surplus of roughly £9.9bn by 2029/30.

The Chancellor’s statement emphasised the significance of this surplus figure. It essentially means that, if the OBR’s forecasts prove accurate, the government will still meet its stability rule two years ahead of schedule, providing a buffer should the economic situation deteriorate. While a £9.9bn surplus is modest when considered in the context of total government spending, it represents critical headroom that might protect the UK from unexpected shocks, such as sudden interest rate hikes or further geopolitical turmoil.

 

Debt dynamics

Public sector net debt, as a share of GDP, is forecast by the OBR to fall from 95.9% in 2024/25 to 95.1% in 2025/26, then climb back to 96.1% by 2029/30. Although these levels remain high by historical standards, the brief decline in 2025/26 provides a short-lived easing in the debt path, aligning with the government’s “investment rule.”

From 2026 onward, debt edges upward again, highlighting potential fiscal pressures if borrowing costs rise more than projected. As long as interest rates remain around current expectations, the government anticipates this level of debt will stay manageable. However, a sharp increase in bond yields or other market shocks could quickly undermine these forecasts, pushing debt-servicing costs higher and limiting fiscal flexibility

 

Key spending areas: Defence, infrastructure and housebuilding

The Spring Statement shed light on three major spending avenues that underscore the Chancellor’s fiscal priorities:defence, infrastructure and housebuilding.

 

Defence

A heightened threat environment, particularly in Eastern Europe, has prompted the UK Government to promise a noteworthy additional £2.2bn in defence spending for 2025/26. Specific allocations include accelerating technological upgrades – such as directed-energy weapons for the Royal Navy – and improving the accommodation and welfare for service personnel.

From an economic perspective, increased defence expenditure has a potential multiplier effect, particularly when invested in cutting-edge research, domestic manufacturing capacity and innovation. Academic studies suggest that targeted defence spending, especially in advanced technologies, can stimulate growth by fostering high-tech clusters, encouraging collaboration between universities and the private sector, and creating highly skilled jobs.

 

Infrastructure

In the pursuit of sustainable growth, the government announced an extra £13bn in capital investment in infrastructure projects, on top of the £100bn uplift introduced at the previous Autumn Budget. This funding aims to spur a wide range of public works, including transport improvements (for instance, expansions to major airports), enhancements in digital connectivity, and upgrading local and regional amenities.

The Chancellor emphasised that well-chosen infrastructure projects can catalyse private investment, boost productivity and support the broader economy. Projects under consideration could include expansions in key corridors such as the Oxford-Cambridge region, which is recognised for its growth potential in technology and research-driven industries. By linking new housing developments with improved transportation, for example, the government hopes to realise significant knock-on benefits for both businesses and communities.

 

Housebuilding and planning reforms

One of the centrepieces of this Statement is a renewed focus on boosting housebuilding. Updated planning reforms aim to streamline the approvals process and increase the supply of new homes, with an explicit target of reaching levels of housebuilding not seen in four decades. According to the OBR, successful implementation of these reforms could raise economic output by 0.2% in 2029/30 (around £6.8bn in today’s terms) and push borrowing £3.4bn lower in the same period, thanks to broader economic gains.

Housebuilding is not only critical for addressing the UK’s chronic housing shortage but also for stimulating the construction sector, which in turn supports suppliers, tradespeople and services related to property development. The government has also outlined a “construction skills package” worth £625m over the Parliament, intended to train an additional 60,000 skilled construction workers to help deliver these projects. These reforms may signal opportunities for expansion, increased subcontracting work and the potential for improved margins if skilled labour supply becomes more readily available. However, it remains essential for businesses to maintain robust financial planning, as the volatility of construction costs and the cyclical nature of the sector can introduce risks.

 

Tax measures and HMRC compliance initiatives

While the Chancellor did not announce any new tax rates or allowances in this Statement, tax-related documents published that day on gov.uk outline additional details on the government’s approach to compliance and enforcement.

Late payment penalties

Research-and-development relief eligibility

Given rising economic pressures, speculation persists about possible changes at the Autumn Budget, such as extending the freeze on thresholds for income tax, national insurance or inheritance tax or potentially introducing new levies to manage budgetary pressures. Nevertheless, no decisions have been confirmed in the Spring Statement.

 

Making Tax Digital extension

While not framed as a “new” tax measure, the Spring Statement did confirm the timetable for extending MTD.

Although around 4 million businesses with incomes below £20,000 remain outside the scope of these expansions, this rolling schedule underscores the government’s broader shift toward digital-first tax administration.

 

Strengthening HMRC compliance

The Spring Statement outlined a plan to raise an additional £1bn per year by 2029/30 through a range of compliance-focused initiatives.

Overall, these measures indicate that HMRC will continue to take a more robust approach to tackling unpaid tax, late payments and avoidance schemes. From a practical perspective, all taxpayers – both corporate and individual – should ensure that they maintain accurate records, meet deadlines, and are fully aware of the penalty structures if they fail to comply.

 

 

 

Welfare reforms and public sector restructuring

 

Welfare system overhaul

Although not introduced as an immediate measure, the government reiterated its intent to overhaul certain aspects of welfare assessments, particularly for those with long-term health conditions. The government is aiming to restart Work Capability Assessment (WCA) reassessments for certain cohorts whose condition may have changed.

The OBR factored these proposed welfare reforms into its forecasts, concluding that the net effect could reduce welfare spending by £4.8bn by 2029/30. However, these savings partly rest on assumptions that more individuals with mild-to-moderate conditions will enter employment once certain disincentives are removed and that reformed assessments will better target benefits to those who truly cannot work.

 

Transformation Fund

A new £3.25bn Transformation Fund has also been unveiled, dedicated to modernising and digitising public services, delivering frontline improvements and ultimately helping lower long-term administration costs. The government will invest a portion of this fund into the social care system, the probation service and advanced AI-driven administrative processes.

In practice, the success of such measures depends on how effectively local authorities and government departments deploy these funds. If the Transformational Fund meets its goals of improving public service delivery and unlocking efficiency gains, it could help the Chancellor protect key front-line services from deeper spending cuts in the future.

 

Reductions in the civil service

Another measure aims to achieve greater efficiency by reducing the headcount in the Civil Service. In parallel, the government is revamping procurement systems, with the aim of cutting wasteful spending on so-called “government credit cards” and centralising certain back-office functions.

Any immediate net effect on the economy is uncertain, as job cuts can initially reduce household incomes. However, if these roles are transferred into the private sector or if re-skilling efforts succeed in placing former civil servants into more productive employment, the net macroeconomic impact could be negligible or even positive. The government’s stance is that maintaining a “lean and agile state” will not only reduce day-to-day departmental expenditure but also potentially free up resources to be invested in new growth-generating initiatives.

Implications for individuals

Although the main speech contained no direct tax changes for individuals, the official tax-related documents do provide important clarifications.

Other primary considerations include the following.

Overall, the absence of significant personal tax changes in the Spring Statement provides short-term certainty. However, individuals should anticipate that the Autumn Budget could bring adjustments to thresholds or the scope of allowances if the economic outlook shifts or if the government deems further revenue-raising measures necessary.

Implications for businesses

Businesses across all sectors can glean several insights from the Spring Statement and the accompanying tax-related documents.

Looking ahead: Autumn Budget and beyond

The government has stated it will only hold one major fiscal event a year to implement substantial tax changes – namely the Autumn Budget. As a result, many of the potential policy shifts are expected to arise later this year. Given that the OBR’s current forecasts underscore ongoing risks, it is entirely possible the Chancellor could choose to do the following:

The next key milestone before the Autumn Budget will be the Spending Review on 11 June 2025, which promises to provide further detail on departmental budgets for the coming years. The Chancellor has made it clear that it will not be “business as usual” and there could be substantial reorganisation and data-led analysis of how public resources are allocated.

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Important information

The way in which tax charges (or tax relief, as appropriate) are applied depends on individual circumstances and may be subject to change in the future. The information in this report is based on our understanding of the Chancellor’s 2025 Spring Statement and the OBR forecast, in respect of which specific implementation details may change when the final legislation and supporting documentation are published.

This document is solely for information purposes and nothing in this document is intended to constitute advice or a recommendation. You should not make any investment decisions based on its content. Pension eligibility depends on individual circumstances.

While considerable care has been taken to ensure that the information contained within this document is accurate and up to date, no warranty is given as to the accuracy or completeness of any information.