Chancellor Rachel Reeves has delivered her first Spring Statement, setting out a package of economic reforms, investment plans and fiscal tightening as the government seeks to reset the economy amid global uncertainty and sluggish domestic growth.
The most significant revelation was the Office for Budget Responsibility’s (OBR) decision to halve the UK’s 2025 growth forecast from 2% to 1%. “I am not satisfied with these numbers,” Reeves told MPs, but insisted the government is “serious about taking the action needed to grow our economy”.
Despite the immediate downgrade, Reeves said the OBR has upgraded growth forecasts for every subsequent year, with GDP expected to rise by 1.9% in 2026, 1.8% in 2027, 1.7% in 2028 and 1.8% in 2029. “By the end of the forecast, the economy is larger compared to the OBR’s projection at the time of the Budget,” she said.
Fiscal Rules Met Ahead of Schedule
Reeves highlighted that the government has met both its fiscal rules – balancing the current budget and reducing net financial debt – two years early. Net financial debt is now forecast to fall to 82.7% of GDP by 2029-30, creating headroom worth £15.1bn by the end of the decade.
This turnaround was framed as a £14bn “repair job” after increased borrowing costs threatened to breach spending limits. “The world is changing, and so must we,” Reeves said. “A changing world demands a government that is on the side of working people.”
Welfare and Public Sector Reforms
One of the most controversial announcements was the confirmation of a £4.8bn cut to the welfare budget, including a 50% cut and subsequent freeze to the Universal Credit health element for new claimants.
Universal Credit’s standard allowance will increase from £92 per week in 2025/26 to £106 by 2029/30, but the broader message was clear: “Labour is the party of work,” Reeves declared, stressing that those who can work should do so, while support remains for those who cannot.
A £3.25bn Transformation Fund was also launched to reform public services, reduce the civil service headcount through voluntary exits, and invest in AI and tech-driven efficiency projects. These efforts are forecast to save an additional £3.5bn in day-to-day government spending by 2029-30.
Defence, Infrastructure and Investment
On defence, Reeves confirmed an additional £2.2bn in spending next year, as part of a long-term plan to raise defence spending to 2.5% of GDP. This will be funded in part by reducing overseas aid to 0.3% of gross national income, saving £2.6bn annually.
Capital spending has been increased by an average of £2bn per year, and Reeves announced plans to invest in new technologies including AI-enabled systems and drones, with Glasgow, Derby and Newport earmarked for advanced manufacturing.
Planning reform was another focus, with the OBR estimating Labour’s overhaul will lead to a 40-year high in housebuilding, unlocking 1.3 million homes over the next five years and delivering a permanent GDP boost of 0.2% by 2029-30 – equivalent to £6.8bn in additional economic output.
Tackling Tax Evasion
The Chancellor also pledged to clamp down harder on tax avoidance and evasion, with a target to increase the number of fraudsters charged by 20%. Combined with existing measures, Reeves said this will bring total savings from tackling tax evasion to £7.5bn.
Aiming for Stability and Growth
Inflation, which peaked at 11% in recent years, is forecast to return to the Bank of England’s 2% target by 2027, with Reeves saying this “will give the economy the stable platform it needs to grow”.
Household disposable income is projected to grow “at almost twice the rate” expected last autumn, with Reeves claiming families will be on average £500 better off under Labour.
“This is just the start,” Reeves concluded. “We are raising the bar across our key financial targets, investing where we have competitive strengths, and delivering more for our shareholders and our citizens.”
Industry Reactions
Susan Love, Strategic Engagement Lead for Scotland
“ACCA’s data from SME financial professionals highlighted plummeting business confidence in recent months, largely driven by increasing costs. As expected, today’s statement didn’t contain any additional measures that will impact upon business, but this year’s lower growth forecast, energy cost increases and the knock-on impact on inflation do little to boost confidence and investment.
Spending cuts announced today – with more detail yet to come in June – have clear implications for the Scottish budget; not least given our higher rate of economic inactivity and Scottish social security system. This will present difficult choices to the Scottish Government, potentially restricting their headroom to invest in services, such as skills and infrastructure, aimed at boosting economic growth.”
Paresh Raja, CEO of Market Financial Solutions, said: “Overturning outdated parts of government to improve efficiency has been a major focus for Labour since the election, and planning reform was raised again as a key part of this agenda. However, the “get Britain building” rhetoric must now translate into tangible action – bringing in new construction workers is a positive step, as the Chancellor had already announced three days ago, but much of today’s speech involved repeating the Autumn Budget’s plans to encourage housebuilding.
“Reforming the planning system is obviously important. However, investors and developers are unlikely to commit to new projects unless they see a strong and growing economy that provides long-term confidence and a return on their investment. The OBR forecasts were a blow in this regard, and the onus must now be on turning the corner to turbo-charge GDP growth.
“House prices are rising, inflation fell in February, and the base rate is expected to come down further this year. These are all positives, highlighting that the property market remains bouyant, and this is important given how significant the sector’s contribution to GDP is. In future statements and budgets, we need the Chancellor to focus more energy on supporting homebuyers and borrowers, which will further stimulate growth in the market.”
Tim Parkes, CEO of RAW Capital Partners, said: “It might not have the standing of the Autumn Budget, but the Spring Statement was an opportunity for the government to set out a bold vision for growth nonetheless. However, today’s speech highlighted that there remains a keen focus on fixing legacy issues, both with the state of the economic and within the property sector, most notably where housebuilding is concerned. This is, of course, important. But the UK also needs a more proactive and forward-thinking strategy to meaningfully encourage economic growth.
“Creating the right conditions for investment should therefore be the government’s top priority if it hopes to attract both domestic and international capital. This means not just stabilising the economy and filling the fiscal blackhole, but fostering an environment where businesses and investors feel confident to commit to the UK for the long term.
“But the government can’t do it all on its own, so specialist lenders have a key role to play in facilitating overseas investment into UK property and contributing to a growing economy. By offering a tailored approach to lending and bespoke financial products, they can help international investors navigate the market with greater confidence, while reinforcing the UK’s position as a prime destination for investment.”
Hamish Martin, Partner at LAVA Advisory Partners, said: “The Chancellor was true to her word that today’s announcement would be more of an economic update than delivering a raft of tax reforms or spending commitments. For businesses, hopes of u-turns on previously-announced policies such as National Insurance hikes did not materialise, meaning no relief for the escalating costs that are creating headaches for many of the UK’s 5.5 million SMEs.
“To help bolster public spending in the future, and to allow for greater defence spending, the Chancellor made clear her focus on scything government running costs. With a plan to reduce those costs by 15% by the end of this Parliament, it will be interesting to see if professional services firms are called upon to help the government restructure departments and deliver efficiency gains – there could be some major opportunities for consultancy firms if so.
“More broadly, the challenging economic landscape for SMEs – higher inflation, wages and borrowing costs – points towards a potential spike in M&A activity. The extremely modest forecasts for the UK economy could make life challenging for small companies, in turn opening the door to more consolidation across various industries. Whether it’s private equity firms seeking new opportunities to inject capital they’ve raised and need to deploy, or larger firms targeting smaller competitors to acquire particular skills, IP or specialisms, we should expect players with stronger finances and bolder ambitions to remain active through M&A activity while others focus on survival.”
Professor Neil Greenberg, President-elect of the Society of Occupational Medicine (SOM), commented on the need for increased workplace support:
“SOM understand the need to encourage people off benefits and into employment, as outlined in the Spring Statement, and doing this is a win-win for the Government and people who have unfortunately been unable to work because of health concerns .
“As a leading authority on workplace health and wellbeing, SOM support the government’s approach to facilitate/encourage people to embark on a return-to-work journey rather than unhelpfully simply removing benefits from people who currently rely on them.
“Achieving the Government’s laudable aims requires explicit recognition of the benefits of occupational health (OH).
“Being in good work is generally supportive of mental health, as well as providing a source of social support and a routine, in addition to improving financial status. It is, however, vital and critical to success that both the Government and employers up their game to provide high-quality support for those coming off benefits as they rejoin the workforce, especially as many of these individuals will have a variety of health conditions.
“Such an approach will require incentives for employers to provide OH services; investment in growing the OH workforce to meet rising demand, and employer education on the return on investment of OH to drive wider adoption.
“Failure to provide universal and timely access to expert OH support will only prolong the challenges that the nation currently faces in bringing people back into the workforce. If we are truly serious about keeping Britain working, we must ensure that OH professionals are part of the solution, supporting and protecting individuals in employment.”
Luke Bartholomew, Deputy Chief Economist, at Aberdeen, comments;
“The Chancellor has restored her initial headroom of nearly £10 billion pounds following some well trailed welfare and day-to-day spending cuts. Crucially the debt management office said it is planning slightly less gilt sales this fiscal year than expected and skewed towards shorter issuance, which is helping gilt markets perform well.
But the key point from today’s announcement is that the £10 billion headroom the Chancellor has restored is very small and remains highly sensitive to adverse market moves or growth developments.
Indeed, depending on how the market responds to the US tariff announcements scheduled next week, the extent of UK inclusion within those tariffs, and any concessions the UK government makes as part of a deal with the US, this headroom could quickly be wiped out again.”
Matthew Amis, Investment Director, at Aberdeen, comments;
“Aided by this morning’s better inflation data, the gilt market should be relatively happy this afternoon.
OBR forecasts show GDP growth in the medium term slightly higher and inflation slightly lower. But more importantly the amount of gilts issued this year is well below market consensus. To add to the gilt positive tone the reduction in long maturity gilts has far exceeded market expectation. This should give the much-beleaguered gilt market the opportunity to perform in the short term.
This should buy some breathing space before June’s spending review.”
Faye Church, Chartered Senior Financial Planner, Rathbones said:
“As so often before, this government is hoping to raise significant sums through cracking down on tax evasion and avoidance. For the most part however, it’s the mass affluent who pick up the bill and we’re already seeing a significant increase in people seeking tax and planning advice.
“The worry for the government going forward is that the over 60s in particular are already more heavily taxed than almost any other segment, including many older people no longer working and reliant on their pensions – particularly with the change coming in April 2027, when pension pots will subject to inheritance tax.”
Mayor of West Yorkshire responds to spring statement
Tracy Brabin, Mayor of West Yorkshire, said: “The Government is getting on with its plan for change and the growth mission is rightly its top priority.
“Global uncertainty has made this task more difficult, and we must now double down on our efforts to boost living standards and support public services.
“Mayors are best placed to help achieve this and I welcome the Chancellor’s focus on housing, skills and infrastructure as we build a country that works for all.”
