by Darwin Friend, head of research
For a government that spent much of the winter defending its credibility, Rachel Reeves’ Spring Statement was, if nothing else, a relatively calm affair. Markets didn’t panic. Businesses weren’t blindsided. And the chancellor didn’t spring any new tax rises on long-suffering households. In 2025, that almost counts as a win.
But taxpayers shouldn’t break out the bunting just yet.
Yes, Reeves sensibly resisted pressure from her own backbenches and left-wing campaigners to loosen fiscal rules or slap punitive new taxes on wealth. Calls for new levies on homes, savings and investments have thankfully been ignored, for now. But this respite may only last until the autumn.
Indeed, that’s when the real reckoning may come. Because behind the relatively bland delivery and some modest good news on growth, the fiscal fundamentals are still alarming.
The Office for Budget Responsibility (OBR) slashed its GDP growth forecast for this year in half to just 1 per cent. True, forecasts for future years were tweaked upwards, partly thanks to long-overdue planning reforms. But with inflation and interest rates now expected to stay higher for longer, it’s clear that the government’s economic plans haven’t won over the experts.
In fairness, the chancellor did at least attempt to find savings announcing a £14 billion package aimed at reducing welfare costs, the bloated civil service and public sector waste. Predictably, this was met with wails of "austerity" from the usual quarters. But let’s be clear: £14 billion is a fraction of the projected £219 billion rise in government current spending over the next five years. That’s not austerity, that’s a rounding error.
Much of the so-called “cuts” will come from long-overdue efficiency improvements in the public sector, where productivity has been stagnant or declining for over a decade. And some reductions to benefits will affect people who may no longer need support and should be encouraged into employment. That’s not cruel, it’s common sense.
Still, the way these savings were rushed out raises red flags. With just £9.9 billion of ‘fiscal headroom’ remaining, this is one of the slimmest cushions any chancellor has ever given themselves. And relying on volatile five-year forecasts to justify big spending decisions is a dangerous game, especially given the track record of economic estimates in recent years.
The role of the OBR in this is also something of a double-edged sword. On one hand, it’s encouraging that they reportedly rejected dodgy welfare savings from ministers last week. On the other, it’s worrying that the chancellor is now boxed into making big decisions to satisfy arbitrary rules based on forecasts that almost certainly won’t come true. Excluding the impact of the Employment Rights Bill from their forecast and admitting that the NI hikes may have a larger impact than they expect, being prime examples as both will devastate growth and employment.
It’s all beginning to feel like a fragile balancing act with the UK economy at stake. Just one shock, a rate hike, an energy spike, a trade war, or a global downturn could send the whole thing tumbling down.
And let’s not forget the structural challenges still looming. Public sector productivity isn’t going to improve just because politicians will for it. Reform is needed, and real reform is never easy with gains experienced over the long-term. Meanwhile, defence spending will inevitably rise, and demands for more cash for healthcare and social care will grow louder. Something has to give.
The danger is that when the Autumn Budget rolls around, it’ll be taxpayers who are asked to pay the price. Again. Despite the Chancellor already setting the UK in motion for its largest tax burden in its history next year, that may not be enough to satisfy her.
We’ve been here before. Politicians promise that fiscal discipline and growth will fix the problem only to come back a few months later with new stealth taxes, higher thresholds, and fresh raids on incomes, assets and pensions.
Rachel Reeves has claimed she wants to fix the public finances, deliver growth, and protect household budgets. But her record so far isn’t sizing up, a bruising Autumn Budget, burdensome new regulations, and a chilly climate for business investment is hardly inspiring confidence.
As our chief executive, John O’Connell, put it on the day: “The excruciating sight of a chancellor facing the consequences of her own actions will not provide any schadenfreude for businesses facing surging tax bills, job-seekers seeing opportunities evaporate, and farmers fearing for their livelihoods.”
If ministers are serious about fixing Britain’s economic malaise, they need to start with tax reform. That means lower rates, simpler rules, and a system that rewards work, investment and risk-taking. It also means confronting the bloated and wasteful machinery of government that’s grown fat on taxpayers’ money.
Planning reform is a step in the right direction. But it’s only one piece of the puzzle. Unless the government changes course on tax, regulation, and public sector reform, Britain’s economy will remain stuck in the slow lane.
For now, we’ll give the chancellor credit for resisting the worst impulses of her party. But taxpayers are watching. And if this cautious Spring Statement turns out to be the calm before another storm of tax rises and spending splurges, the public won’t be so forgiving next time.