Spring Statement 2025
A delicate balancing act In her first Budget in October 2024, Rachel Reeves promised that there would only be one ‘fiscal event’ each year – she would not make significant tax changes more frequently. As she repeatedly said during her Spring Statement, the world changes rapidly: economic and political events can disrupt the forecasts that measure her compliance with her self-imposed fiscal rules. The decision to increase defence spending, reductions in expected economic growth, the risk of US tariffs and rising borrowing costs had combined to remove the ‘headroom’ that had allowed her to predict that she would balance the books by 2030. If she was determined to keep to the fiscal rules, she would have to close that gap; but if she raised taxes, she would break the promise of just one fiscal event each year. The Chancellor announced a range of policies to restore the ‘headroom’, without any significant changes to taxation. There will be cuts to civil service expenditure, to welfare and to foreign aid, making it possible to increase defence spending to 2.5% of GDP by 2027. The welfare reforms are substantial and controversial – for example, the government’s own Impact Assessment on the changes to the Personal Independence Payment (PIP) rules states that 370,000 current recipients are expected to lose their entitlement (when they have an award review) and 430,000 future potential PIP recipients will not receive the PIP they would otherwise have been entitled to. The average loss is £4,500 per year.
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