When is the Spring Statement – and what will be in it? From taxes to spending cuts

There have also been several big policy announcements in the run-up to the event, most recently welfare changes to achieve £5 billion in spending cuts by 2029/30

Rachel Reeves will soon give an update on her plans for the UK economy as she prepares to make the first Spring Statement of the new Labour government. The chancellor will also speak to an economic forecast as part of the event, with many predicting further spending cuts to come as the Treasury seeks to tackle ailing growth.

Ms Reeves will be delivering the statement on Wednesday 26 March. She had previously committed to one major economic event a year – the Budget – which usually comes in the Autumn. This is to "give families and businesses stability and certainty on tax and spending changes," she says.

This means there a no major policy announcements expected as part of the statement, although some have predicted that reduced spending targets and some key tax changes will be revealed.

Chancellor Rachel Reeves will deliver her Spring Statement on 26 March (Jonathan Brady/PA) (PA Wire)

There have also been several big policy announcements in the run-up to the event. On Tuesday, the government unveiled welfare reforms that will amount to £5 billion in spending cuts by 2029/30. The brunt of the cuts will fall on claimants of health-related benefits, with Universal Credit and the Personal Independence Payment both overhauled.

Explained: What are the key benefit changes in Labour’s welfare overhaul?

Shortly before this, Labour announced it was scrapping NHS England, the UK’s largest arms-length body, to bring NHS decision making closer to the Department for Health, led by Wes Streeting. The move will see 9,000 jobs lost and save the exchequer £100 million with further reforms to government structures expected.

How does the Spring Statement work?

Before the statement, the Office for Budget Responsibility (OBR) will publish its forecast on the UK economy. The public body has a newly-empowered role following Labour’s 2024 election win, with the party pledging to make every significant fiscal event subject to an OBR forecast.

This manifesto pledge came in response to the ‘mini-budget’ announced by Liz Truss just weeks into her record short tenure as prime minister. This sudden raft of tax-cutting policy measures sent the markets into turmoil, prompting Labour to pledge it would ensure “stability” was a priority when deciding economic policy.

The OBR’s forecast on 26 March will also provide estimates on the cost of living for households, and how well it thinks the government will maintain its self-imposed fiscal rules.

The chancellor will then present the main findings to parliament, delivering her plans for the economy alongside this. The opposition will be given the first response, which will likely come from Conservative leader Kemi Badenoch or shadow chancellor Mel Stride.

What will be in the Spring Statement?

The Treasury has not shared details of what will be in the Spring Statement, but economists have begun making predictions of what is most likely.

‘Billions’ in spending cuts

Firstly: cuts. It has been understood that Ms Reeves will announce major cuts on 26 March, which could amount to billions across several Whitehall departments. There could be as much as 7 per cent taken from the budgets of some departments over the next four years, The Guardian reports.

Work and Pensions Secretary Liz Kendall announced massive welfare reforms in the run up to the Spring Statement (House of Commons/UK Parliament) (PA Wire)

Alongside the recently announced cuts to welfare spending, these could amount to the “steepest cuts since 2019,” the Institute for Fiscal Studies’ (IFS) associate director, Ben Zaranko, said.

“The government will be hoping that the short-term cash injection provided last year, and efficiency improvements as public services continue to recover from the pandemic, will be enough to deliver service improvements even if money is tight,” he added.

“But we’re in a very different world to 2010 and, even though the pace of cuts would be substantially slower than in the peak austerity years, it would still represent the steepest cuts since 2019.”

Income tax ‘rise’

There has also been speculation that the chancellor may look to effectively increase taxation through extending the freeze on income tax thresholds beyond the current 2028/29 end point. Since 2021, the personal allowance has been frozen at £12,570, with the basic, higher and additional rate also staying at the same level.

The effect of this is what economists call “fiscal drag,” where more people are pulled into higher tax brackets as their earnings increase, but the thresholds stay the same.

While maintaining this policy would not technically be raising taxes on working people – a central Labour election pledge – it would mean that taxpayers on average will be paying more in income tax than they would have been.

Defence spending plans

The chancellor may also take the Spring Statement as an opportunity to clarify how international aid spending will be reallocated to defence, following Labour’s decision to boost defence spending to 2.5 per cent by 2027.

The announcement by prime minister Sir Keir Starmer came after intense pressure from the US on all European nations as it continues talks with Russia to end its invasion of Ukraine. While American counterparts welcomed the decision, it was met with criticism by development charities who accused the government of a “betrayal” of poorer countries overseas.