Yesterday the Chancellor delivered her Spring Statement to the nation. As promised, there were no further changes to taxes at this time, so the statement focussed on the economic outlook and proposed government spending.
Economic Overview
- Inflation: The OBR now expects it to average 3.2% this year, before falling in 2026 and stabilising around 2% thereafter.
- Growth Forecast: The OBR has cut the growth forecast for 2025 from 2% to 1%, citing economic pressures and global instability.
- Government Borrowing: Revised figures show a higher short-term deficit, but a surplus of £9.9bn is forecast for 2029-30—restoring the Chancellor’s fiscal headroom.
Public Spending and Welfare
- Welfare Reform: The health element of Universal Credit will be cut by 50% for new claimants and then frozen. The overall welfare budget is expected to be cut by £4.8bn.
- Day-to-day government spending will still grow, but more slowly—1.2% a year above inflation instead of 1.3% as previously planned.
- Defence spending will rise by £2.2bn next year, reaching 2.5% of GDP by 2027 with an ambition to increase this to 3%.
Planning and Growth Initiatives
- The government will protect capital spending, increasing it by £2bn annually.
- New planning reforms are forecast by the OBR to increase GDP by 0.2% by 2029/30 and 0.4% within 10 years, the largest forecasted GDP uplift the OBR has ever made from a single policy.
- Additional growth measures include support for a third runway at Heathrow and pension reforms to boost investment.
