Chancellor Rachel Reeves delivered her Spring Statement yesterday, her second fiscal event since taking office in July, saying it was necessary because “the global economy has become more uncertain” and trading patterns have “become more unstable”. At the outset, she said there would be no more tax rises in this statement (but in a press conference later refused to rule out a further tax raid in her Autumn Budget) and said again that in future, there would be only one fiscal update per year. Reeves confirmed the Office for Budget Responsibility (OBR) had halved its growth forecast for 2025 from 2% to 1%. While saying she was “not satisfied with these numbers,” she claimed that plans for a third runway at Heathrow Airport, changes Labour is making to the planning system and pensions, and the Government’s National Wealth Fund would deliver better growth, and that we will all be better off by the end of this Parliamentary term. The OBR has upgraded its growth forecasts for 2026 and “every single year thereafter”, she insisted. Although additional and rising borrowing costs had wiped out the £9.9bn budget surplus the Chancellor outlined in her October Budget, meaning the Government would have faced a budget deficit of £4.1bn by 2029-30, she claimed the measures she announced yesterday would put the public finances back on course for that £9.9bn surplus by the time of the next General Election.

So, this is what she said:

Welfare cuts: Reeves graded downward her estimated £5bn in savings from welfare cuts to £4.8bn after intervention from the OBR showed they would not be as hard-hitting as she thought. However, she also announced an increase in the standard Universal Credit allowance from £92 per week in 2025-26 to £106 per week by 2029-30, but with the health element cut by 50% and frozen for new claimants. She also outlined an additional £1bn in “guaranteed personal employment support” to help people find work, and another £400m to support the Department for Work and Pensions and job centres. “The Labour party is the party of work,” she said. “If you can work, you should work. But if you can’t work, you should be supported.” In reference to the 1.2m young people now not in employment, education or training (Neets), she said: “If we do nothing, we are writing off an entire generation”. Welfare as a share of GDP should fall from 2026, she added.

Tax evasion and tax fraud: Since taking office, the Government had reduced this by £7.5bn, Reeves said, saying she would carry on holding tax avoiders to account.

Whitehall spending: Pledging to “fundamentally reform the British state,” Reeves announced a budget cut of 15%, or £2bn by the end of the decade, while also announcing a £3.25bn “transformation fund” to fund new artificial intelligence (AI) software, new computer systems for the Ministry of Justice, support for children in foster care and up to 50,000 civil service voluntary redundancies. But, she claimed, overall, a “leaner” government would spend £6.1bn less on day-to-day operations by 2029-30.

Defence: Britain will be “a defence industrial superpower” under Labour, she said, saying spending would increase to 2.5% of GDP by 2030, and to 3% by end of the next parliament. Capital spending would increase by £2.2bn on defence in next financial year, and then by 0.2pc or £6.8bn a year, rising to 0.4% or £15.1bn by 2035, she added, saying “a minimum” of 10% of the defence budget would in future go toward “novel technologies including drones and AI enabled technology”. Much of the budget increase will also be spend modernising living blocks used by armed forces personnel to make “homes fit for heroes”.

Planning and housing: Reeves promised to unleash a wave of housebuilding across the country, to deliver 0.6% to economic growth in the next ten years, as well as homes, citing new measures proposed in the Planning and Infrastructure Bill including reintroducing mandatory housing targets for local councils and making it easier to build on the Green Belt. The Government will deliver 18,000 new social and affordable homes in England in 2026-27 she said, and 60,000 new construction workers would be trained to tackle skills shortages and get more young people into jobs. The looser planning rules, according to the OBR, will see 1.3m new homes built over five years.

Overseas Aid: This, she said, will be cut to 0.3% of GNI.

ISAs: “The government is looking at options for reforms to Individual Savings Accounts that get the balance right between cash and equities to earn better returns for savers, boost the culture of retail investment, and support the growth mission,” Reeves said. There have been calls for cash ISAs to be scrapped, or the annual savings’ limit reduced to £4,000, and a ‘British ISA’ for retail investors to invest specifically in British firms has been mooted by analysts.

The response: -

OBR chair Richard Hughes warned in his press conference after the address that the Chancellor’s newfound fiscal headroom, which is now less than £10bn, could be wiped out by the autumn, and gave her pretty much a 50-50 chance of that happening. He mentioned doubts over productivity, interest rates volatility, and Trump’s escalating trade war as major risks to the current OBR economic projections. The changes Reeves has made are “just enough” to restore the headroom she had back in the Autumn, he said, “but this is still the third-lowest margin any Chancellor has had against their fiscal rules, and risks to the outlook for UK productivity, interest rates, and global tariff policies could all reduce it back to zero over the next five years.”

Political Insight comment: In such a scenario, there will inevitably be further tax rises or more spending cuts. Tax as percentage of GDP is already predicted to rise to a record 37.7% in 2027-28. ^[1] The OBR also made it clear that public sector net borrowing will still be £8bn higher, on average, over the next five years than was forecast last Autumn; public sector net debt will also be £30bn higher by 2030 than was predicted at the same time because of additional borrowing. The OBR is also forecasting a decline in output between 2023 and 2029 of half a percentage point lower than in October’s forecast, with productivity more than 1% lower by the end of that period. The official tax and spending watchdog also warned that the £25bn increase in Employee National Insurance Contributions (NICs) to be forced on businesses from next week is expected to lead to 50,000 more job losses than it thought originally. The OBR also stressed that the impact of Deputy Prime Minister Angela Rayner’s Employment Rights Bill has not been considered in its estimates, yet the Bill is likely to have “material” and “net negative” economic impact on jobs, prices and productivity. The Bill promises to end “exploitative” zero-hour contracts, make flexible working the “default;” and give workers ‘day one’ employment rights, but instead, it could just make getting a job even more difficult, with a resulting slump in economic activity. In a nutshell, the Chancellor’s and the OBR’s predictions could be wildly off the mark.

Responding immediately in the House of Commons, Shadow Chancellor Mel Stride laid into the Chancellor and what he called her “emergency budget,” saying she faced a “cold hard reckoning”. The UK was growing at the fastest rate in the G7 just about a year go under the Conservatives, he reminder her, but now growth has been halved as “a consequence of the decisions and choices” “made on her watch”. He said she was blaming Ukraine, Trump, Putin, tariffs - “Anybody but her”. Stride accused Reeves of having “talked down the economy so business surveys and confidence crashed through the floor”. She “confected the £22bn black hole” so Labour could “renege on their promises,” he claimed, slamming her for taxing jobs, wealth creation, and destroying livelihoods, because “she borrowed and spent and taxed like it was the 1970s”. “Little wonder that the Chancellor has tanked the economy, little wonder we have an emergency Budget, all because of her choices,” he said.

Conservative Party leader Kemi Badenoch said: “The emergency budget aka “spring statement” was so thin it could have been sponsored by Ozempic. And yet despite the chancellor’s smoke and mirrors, the facts are getting worse. Inflation is up. Growth is halved. Unemployment expected to rise for the next 3 years. This is chaos”.

The Prime Minister, however, said on X: “Wages growing faster than prices. Jobs up. Inflation down. Interest ratesdown. NHS waiting lists down. Houses and infrastructure unblocked. Free breakfast clubs rolling out. National Living Wage increasing. National Minimum Wage increasing. Defence spending increased. 2m more NHS appointments delivered. Housebuilding to be at the highest level in 40 years. People to be £500 a year better off. The Tories blocked change for Britain. My Labour government is delivering it.”

Sunday Telegraph Editor Allistair Heath notes that the supposedly “massive” cuts to public spending announced by Rachel Reeves are in fact “equivalent to just a fifth of the spending splurge she originally unveiled in October”. “Rachel Reeves’s speech was an exercise in make-believe, a painful collection of cliches and distortions, a grotesque attempt at pretending that all is well as the economy careens into the abyss,” he writes this morning.

City AM editor Christian May writes: “If £10bn wasn’t enough room six months ago, it’s unlikely to prove sufficient for the next six months, either. Indeed, the OBR says that, given the state of our domestic economy – and global uncertainty – it won’t take much to turn that surplus into a deficit. And how would Reeves manoeuvre herself back within her fiscal rules? The smart money’s on tax rises”.

The Guardian editorial reads: “Rachel Reeves’s spring statement mattered as much for what she didn’t say as what she did. The chancellor mentioned neither the poor nor inequality. There was no defence of the welfare state, no transformative ambition, no urgency – even amid a climate crisis. Labour promised a break with the past, but she delivered continuity in technocratic clothing… More than 20 people will be poorer for every one person her reforms push into work. It’s hard not to conclude that Ms Reeves has repackaged austerity as “stability”, sacrificing the most vulnerable on the altar of prudence”.

In other news…

Every car exported to America will be hit with a 25% tariff, US President Donald Trump announced in a shock move last night. “This is the beginning of liberation day in America,” Trump said. “We’re going to charge countries for doing business in our country and taking our jobs, taking our wealth, taking a lot of things that they’ve been taking over the years.” Trump called the tariff “very modest,” but in fact it delivers a $100bn (£77bn) blow to the global auto industry: the US imported $243bn-worth of cars last year, with nearly a third (£78.5bn) coming from Mexico; the next biggest exporters are Japan, Korea, Canada, Germany and the UK. Here, tariffs will apply to more than $8bn (£6bn) of UK passenger vehicle sales, based on US Commerce Department figures. Understandably, shares in car manufacturers fell sharply on the news, including those of Tesla, led by Trump ally Elon Musk, which fell 5.6% yesterday. Japan’s Prime Minister Shigeru Ishiba called the tariffs “extremely regrettable” and said Tokyo was “considering all kinds of countermeasures”. Canadian Prime Minister Mark Carney called it a “direct attack” and threatened retaliatory tariffs. However, Trump threatened the European Union and Canada with even larger tariffs if they both work together “to do economic harm to the USA,” and that he would hit them with “large-scale tariffs, far larger than currently planned… in order to protect the best friend that each of those two countries has ever had.”. Shadow Business and Trade Secretary Andrew Griffith accused Labour of ‘dropping the ball’ by not negotiating an exemption for the UK from Trump, saying “British jobs are clearly now at real risk”. The Society of Motor Manufacturers and Traders said many American consumers are enthusiastic supporters of iconic British brands and thousands of UK motorists buy cars made in the US, and urged both sides to “explore ways in which opportunities for both British and American manufacturers can be created as part of a mutually beneficial relationship, benefiting consumers and creating jobs and growth across the Atlantic”. The tariffs will come into effect at 4am GMT on 3^rd April, and be rolled out to vehicle parts within a month.

Next, M&S and JD Sports are under fire from seven major investor groups – together managing over £1tn in assets – who say they need to pay their staff more. Axa, Scottish Widows and the Greater Manchester Pension Fund are among those joining a campaign being led by lobby group Shareaction which is calling on the companies to disclose how many of their staff are being paid below the Living Wage. “The UK’s biggest retailers are failing to support their workers with a real Living Wage, leaving hundreds of thousands of people in the sector struggling to make ends meet,” said Shareaction chief Catherine Howarth. Shareaction said the CEO of Next currently earns 226 times the pay of its average employee, while the CEOs of M&S and JD Sports earn 200 and 88 times their average employees, respectively.

Ed Miliband’s net zero drive could kill off fish and chip shops, according to The National Federation of Fish Fryers (NFFF), which says the move to ban gas is neither “feasible nor affordable”. The cost of fish and chips has already soared by more than 50% in the past five years because of inflation, rising energy costs, and higher fish and potato prices; the average cost for a portion of cod and chips is now almost £10. NFFF President Andrew Crook, who runs the Skippers of Euxton chip shop in Chorley, told The Telegraph that green infrastructure would simply not be able to supply commercial kitchens with the amount of power that they need, and that gas is the most effective way to fry. “After years of continued tax pressures and the rising price of fish, the Government must take care to not further undermine businesses like ours, which are at the heart of communities,” he said, adding: “I’m a member of the Labour Party, but I am disappointed with the start that they’ve made. I’m hoping they pull it round. All the conversations are about big business, tech startup funding. They’ve got to realise there’s a lot of small businesses out there that are often the first place people start working. It’s about time the Government recognises that and supports us, because if they don’t we’re going to see a lot of small businesses – after five tough years – decide they’ve had enough.” A spokesman for The Department for Energy Security and Net Zero (DESNZ) said: “Our mission is for clean power by 2030 because clean, home-grown energy is the best way to protect bill-payers and boost Britain’s energy independence. This will support every local business on the high street, including fish and chip shops, to access clean, affordable power”.

^[1] At the time of former Chancellor Jeremy Hunt’s Spring Statement a year ago, taxes were expected by the OBR to peak at 37.1% of GDP by 2028-29.

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