Spring Statement March 2025

Status: Information Only

Introduction

On the 26th March 2025, Rachel Reeves announced the Spring Statement.

The Government last week unveiled changes to the benefits system, aimed at saving £5bn a year by 2030. However, after being advised that the proposed reforms would save £1bn less than planned, it was feared further cuts would occur.

Summary: Spring Statement reflects 'slowing outlook for global growth'

Downing Street has released a readout of the Cabinet meeting earlier today in which Rachel Reeves described her upcoming Spring Statement as reflecting a 'slowing outlook for global growth'.

“The Chancellor welcomed the fall in inflation this morning and said the spring statement followed choices the Government took in the autumn budget to fix the foundations of the economy, put record investment in the NHS – delivering five months in a row of falling waiting lists – the rolling-out of free breakfast clubs to all primary schools, a £1,400 increase in the national living wage for three million workers coming in next week, £100 billion of increased capital investment and a £190 billion increase in day-to-day spending for public services.

The Chancellor said the spring statement would reflect a slowing outlook for global growth, which underlined the importance of the Government’s growth agenda which had already seen the Government back key projects including Heathrow, East-West Rail, the Old Trafford regeneration and yesterday’s decision to approve the Lower Thames Crossing”.

Main Points:

Pensions / Tax

No changes

Investments – ISAs

The government is looking at options for Isa reform to get more people investing. It said alongside this, it will work with the Financial Conduct Authority to “give people the confidence to invest”.

The Statement document reads: “The government is looking at options for reforms to Individual Savings Accounts that get the balance right between cash and equities to earn better returns for savers, boost the culture of retail investment, and support the growth mission.”

Fiscal rule would have been missed by £4.1bn due to increased borrowing

Reeves says that according to the OBR forecast, the current budget would have been in deficit by £4.1bn in 2029/30, having been in surplus by £9.9bn in the autumn.

The chancellor says that due to her steps today, she has restored in full our headroom against the “stability rule.

She says this means "moving from a deficit of £36.1bn in 2025/26 and £13.4bn in 2026/27, to a surplus of £6.0bn in 2027/28, £7.1bn in 2028/29 and £9.9bn in 2029/30". Reeves says the country will therefore meet the stability rule two years early.

Tax evasion crackdown

There will be a further to crackdown on tax evasion.

There will be no tax increases as a result, and she added that when working people are paying their taxes, it is not right others are avoiding doing so. They will set out plans today that will increase the number of tax fraudsters charged each year by 20%. This will take the total revenue raised from reducing tax evasion to £7.5bn, which has been verified by the Office for Budget Responsibility (OBR).

Universal credit – a boost and a freeze

Referring to the OBR statement today, it estimates the package will save £4.8bn in the welfare budget. The chancellor adds that the Universal Credit standard allowance will increase from £92 per week in the financial year 2025/26 to £106 per week by 2029/30.

The Universal Credit health element will be cut by 50% and then frozen for new claimants until 2030.

The Department for Work and Pensions' estimate of the impact of the cuts to welfare benefits, is much larger than expected. Overall, it estimates that by 2029/30 there will be 3.2 million families – some current recipients and some future recipients - who will financially lose as a result of the changes, with an average loss of £1,720 per year once inflation is taken into account.

This follows last week’s controversial decision to cut £5bn from sickness and disability benefits – with major changes to Personal Independence payments (PIP).

Total savings from reform welfare £3.4bn

Reeves says welfare spending as share of GDP will fall between 2026/27.

The total savings from the package will be £3.4bn, originally, the government said it would be £5bn

Defence spending will increase to 2.5%

The chancellor then sets out two steps the government is taking in its spending plans.

First, she says defence spending will increase to 2.5% of GDP, by reducing overseas aid to 0.3% of gross national income. This will save £2.6bn in day-to-day spending in 2029/30".

Transformation Fund - £3.25bn of investment

£3.25bn of investment to deliver reforms for public services in a new transformation fund. It will bring down the costs of running the government by the end of the forecasting period.

The first allocations from this fund will go to voluntary exit schemes to reduce the size of the civil service, pioneering AI tools, investment in technology for the ministry of justice for probation services and up-front investment to support children in foster care. Ultimately, this work will help deliver a further £3.5bn of day-to-day savings by 2029/30.

Government cuts

Spending across government will not increase as much as expected - meaning cuts for departments with unprotected budgets. Overall day to day spending will be cut by £6.1billion from what was previously planned by 2029/30. Day-to-day spending will rise by 1.2% above inflation each year, not 1.3% as previously planned.

Departments like the Ministry of Justice - which is facing a major crisis in its prisons and courts - and the Home Office - which is trying to fix a spiralling immigration situation and depleted police forces - will now face effective cuts in what they had previously expected their budgets to be.

OBR revises down UK growth forecast to 1%

The OBR has revised down the UK's growth forecast for 2025 from 2% in the autumn to 1% today.

Capital spending gets average boost of £2bn a year

Capital spending to be increased by average of £2bn a year compared to the autumn, to drive growth in the economy and to meet vital defence commitments.

Defence gets boost of £2.2bn

An additional £2.2bn in spending for the Ministry of Defence next year.

• A minimum of 10% of the Ministry of Defence's equipment budget will be spent on new technologies including drones and AI-enabled technology.

• Areas like Glasgow, Derby and Newport will see advanced manufacturing production with new business opportunities and skilled jobs demand.

• The "Plan for Barrow" - a town at the heart of the country's national security - will also see thousands of jobs created. Housing planning reforms

Changes to the national planning policy, will help build over 1.3 million homes in the UK within the next five years.

This will take Labour within touching distance of its promise to build 1.5 million homes in England this parliament. Education training – Construction Workers

Earlier this week the education secretary announced more than £600m to train up to 60,000 more construction workers. This includes 10 new technical excellence colleges across every region of the country.