The Chancellor Rachel Reeves delivered the Spring Statement against a backdrop of weakening public finances and a downgraded growth forecast from the Office for Budget Responsibility (OBR). Notwithstanding criticism by the Speaker of the tendency to release Budget related information, there appears to have been some carefully placed leaks; not to mention the often repeated “tough choices” message. As a result, the element of surprise had largely been taken away from the actual fiscal event.
The full picture is now brutally clear: Britain is facing serious economic headwinds, with little sign of economic growth. The OBR has halved GDP growth expectations for 2025 to 1% although the Bank of England has forecast a mere 0.75%. Although the public and business had been braced for bad news, the scale of the cuts, coupled with the absence of any credible growth strategy, has left many wondering whether the economy will face a prolonged period of stagnation. Many will, however, be relieved that there would be no new tax rises.
The Chancellor confirmed several key measures that had been trailed in the press over the last few days. Welfare reforms had been announced ushering in stricter eligibility criteria for Personal Independence Payments (PIP) and a potential freeze on incapacity benefits. The Resolution Foundation estimates that some claimants could lose nearly £10,000 annually by 2030[1]. In addition to the moral dilemma, this reduction squeezes disposable income. In total, welfare reform is expected to save £4.8 billion annually after “final adjustments”.
Public spending is also set to be slashed, with government running costs facing a 15% reduction, translating to around 10,000 civil service job losses. Every fiscal event includes a cursory mention of adopting technology to improve efficiency and cut the cost of running the government – today, the Chancellor also announced a £3.25 billion Transformation Fund to modernise public services and embrace digital technology.
Earlier in the week, the Chancellor had announced a sweetener in the form of a £2 billion fund for new social housing. Although, this will not have immediate economic impact let alone offset some of the cuts, house building and planning reform will yield economic growth in the long-term. The OBR estimates that planning reform will increase GDP by 0.2% by 2029/30 and by 0.4% within 10 years.
Another area the Chancellor spoke a lot on – more than 5 minutes of a speech lasting just 25 minutes – was defence spending. Headlining with an additional £2.2 billion for 2025/26 and a commitment to increase defence spending to 2.5% of GDP by 2026/27, the Chancellor positioned this additional spend as a means to boost defence manufacturing and create new jobs. From the defence budget, a ring-fenced £400 million fund for defence innovation was announced to support R&D in partnership with UK defence companies and universities. In addition, 10% of the MoD’s defence budget will be dedicated to cutting-edge technologies such as drones, artificial intelligence and building cybersecurity capability. It is possible that Greater Manchester based universities and companies could benefit from these initiatives.
The OBR’s gloomy forecast has wiped out the fiscal headroom the Chancellor had in October. The Chancellor announced that without the spending cuts announced today, the current budget would have been in a deficit of £4.1 billion by 2029-30 as opposed to a £9.9 billion surplus during the time of the Autumn Budget in October 2024. The forecasts are still predicated on a growing economy, and should there be no growth in the next few months, the prospects of deeper public spending cuts and/or higher taxes loom large. The Comprehensive Spending Review could see the axe fall on unprotected departments like Justice and the Home Office. Local government funding could also suffer, which means council taxes may keep going up – another hit to disposable income.
Greater Manchester Chamber’s Quarterly Economic Survey shows that customer demand and cash positions have deteriorated in Q1 2025. Business confidence remains low and with interest rates staying high, there is little inducement for businesses to invest. In the long term, the UK's anaemic growth and lack of a long-term economic vision risk damaging its competitiveness.
The government's strategy in the lead-up to the Spring Statement was clear: manage expectations and prepare the ground for public spending cuts. That the Chancellor didn’t announce any new growth orientated measures is glaring. Ultimately, the success or failure of the government’s economic strategy hinges on what comes next. Over the next few months, the industrial strategy, local growth plans and a new trade policy are due to be published, and we hope that these will finally offer the regulatory and policy certainty that businesses desperately need to unlock investment and drive economic expansion. Without a long-term vision, we risk squandering our economic potential and sleepwalking through continued stagnation.
[1] https://www.theguardian.com/world/2025/mar/20/some-disabled-people-could-lose-10k-a-year-in-benefits-by-end-of-decade