The Spring Statement presented to Parliament by Chancellor Rachel Reeves was never intended by the Government to be an ‘Emergency Budget’ and so it turned out.
The Chancellor painted a picture of global uncertainty but insisted that Labour would hold fast to its fiscal rules and its promise of economic stability and putting working people first.
The Chancellor explained last October that her Budget in the autumn of each year would include any tax measures. The annual Spring Statement would be a means of updating the nation on the state of the economy, public finances and the Government’s progress towards its economic objectives. Here is some of what was said.
Welfare spending
On 18th March, Government announced that welfare spending would be reduced to shave £5bn from the annual welfare bill. Personal Independence Payments and incapacity benefits were targeted. The expected level of these savings was challenged by the Office of Budget Responsibility (OBR) as being too optimistic, leading to the proposed reductions in the health element of Universal Credits and the freezing of that element for new claimants, thus making up the shortfall and announced by the Chancellor today.
Government running costs
Under a pledge to reduce Government running costs, the Civil Service numbers (dramatically increased during the COVID pandemic) were expected to be cut by up to 10,000 jobs. The Chancellor confirmed this in general terms by focusing on making the state ‘leaner and more agile’.
However, one area in which numbers of staff would be increased, not reduced, was HMRC. As part of the Treasury’s efforts to reduce the tax gap (the difference between the tax due and the tax which is actually collected); as well as even more compliance and investigation staff recruitment, several measures aimed at clamping down on tax evasion, tax avoidance and consultations on widening the reach of HMRC were announced. Tax compliance is a continuing theme, and this Government is taking it ever more seriously.
Defence spending
Citing the current truism ‘the world has changed’, with a reference to the US view of the world under its current administration, the Government has already committed to a £2.2bn increase in defence spending, funded by a reduction in the foreign aid budget.
Repeating that growth was at the centre of the Government’s economic policies, Ms Reeves said that she wanted to put defence at the heart of an industrial, manufacturing renaissance in the UK. Given the stated urgency, perhaps contractors in the field of engineering and IT may see opportunities surface quickly here.
What will the future hold?
The Chancellor pointed out that the OBR forecast for growth was 1.9% for 2026. With a growth forecast for 2025 now halved to 1%, this was certainly less than she calculated and is predicted to be less than 2% up to 2029. A significant element of this growth was expected to be fuelled by the Government’s planning reform and a hoped- for building boom. If it doesn’t materialise could this give pause for thought on possible future tax rises despite the pre-election promises?
June’s Spending Review will take a closer look at which Government departments are likely to receive a lower level of funding going forward. The defence and health budgets are already ring-fenced but the drive for greater efficiencies within these will doubtless continue. Ministers of other, lower-profile Government departments are probably looking forward to summer with trepidation!
