Having listened to Rachel Reeves’ Spring Statement today, it struck me that little if anything had been held back for live announcement – possibly a deliberate strategy to reinforce the impression of stability.
We knew there would be no major tax changes, as the Government have confirmed their intent to focus the budget in to one annual event. There will be a spending review next June with the benefit of the OBR data, followed by the actual budget next autumn.
That said, economic pressure had been created by lower expected GDP growth and sticky inflation and borrowing costs, reducing the headroom available in meeting the stability rule and investment rule set out by the Chancellor last November. As to these fiscal rules, this was another lady “not for turning”.
Having had advance notice of the forthcoming OBR report, the Government has been hard at work cutting costs, the package of measures including:
- reductions to incapacity benefits;
- a stricter eligibility test for personal independence payments;
- a continued crackdown on tax evasion;
- reduction in the running costs of the NHS and Civil Service; and
- a cut in overseas spending from 0.5% to 0.3% of GDP.
The downgrading of the OBR’s growth forecast for 2025 was expected and widely reported, down from 2% to just 1%.
What I hadn’t appreciated until today was that the forecast for the following years would remain robust in comparison to historic forecasts, at 1.9%, 1.8%, 1.7% and 1.8% between 2026 and 2029. In the context of recent global news, economic and otherwise, those figures actually made me feel cheery! I said last November that the OBR’s predictions provided some feeling of stability and enabled businesses to plan with some level of confidence. I still feel that way today.
Rachel Reeves picked out the OBR’s assessment of the impact of changes to planning policy, which are estimated to improve GDP growth by an additional 0.2% in the period to 2029/2030 and 0.4% over ten years. I see that as a real positive. I would certainly hope that streamlined planning and reduced interest rates will lead to a boost in construction.
Whilst it is for troubling reasons, the redirection of spending to defence budgets across the western world will be of obvious benefit to that sector. The sector is significant to the UK and it could see material inward investment from other countries. Our own Government spending was boosted by a further £2.2bn for next year alone. The long term increase already announced is for defence spending at 2.5% of GDP by 2027.
The OBR’s assessment that the fiscal rules would be met, taking in to account these measures, also contributed to my feelings of optimism. The opposite, failing to meet rules set only a few months ago by a new government, would have created real doubt in our country, and we have seen what that will do to our economy and prospects previously.
Inflation looks set to be higher on average than previously expected in 2025, with CPI at 3.2%. That is a shame for all of us, given for how long the cost of living has eroded pay value, but at least the predictions for 2026 and onwards are far better, with the Bank of England’s 2% target being virtually met throughout, assuming of course the predictions come to pass.
Whilst we all know and were told this was not a budget, it is still a shame that nothing new was shared as to how the Government might actually provide better growth.