The Spring Statement and Office for Budget Responsibility Forecast
The top line analysis
The Chancellor has been forced to plug a £14 billion shortfall in the fiscal headroom that has emerged following the Autumn Budget, through a combination of welfare cuts and wider reductions across non-protected departments.
The OBR has cut the UK’s growth forecast in half for this year, from 2% to 1%.
Growth is expected to creep up marginally to 1.8% by 2029, with the OBR having positively scored some of the Government’s flagship reforms to planning.
The Government has prioritised defence spending through capital investment, which it hopes will also drive economic growth. It is striking how little the Government is now talking about its previous commitments on net zero driven growth.
Labour MPs will be uncomfortable with the scale of welfare cuts they are being asked to support, but most will toe the line and are aligned with No.10’s focus on facing down the Reform threat.
The Chancellor’s room for manoeuvre remains exceptionally tight in the lead up to the Autumn Budget, and Reeves could yet be forced into a difficult choice to either rewrite her fiscal rules or raise taxes again.
What have we learned today?
Rachel Reeves set out two ‘iron-clad’ fiscal rules before becoming Chancellor, which have dictated the Labour Government’s agenda in the eight months since the General Election. The first (the “stability rule”) requires a balanced current budget by 2029-30, while the second (the “investment rule”) requires a falling public sector net debt-to-GDP ratio by the same period. The Chancellor was clear today both that these rules remain “non-negotiable” and that they will be met, almost whatever the political cost.
Today’s Spring Statement, which the Government insists is not a fully-fledged “fiscal event”, underlined that the Treasury is now straining to keep within those fiscal rules and, more worryingly for the Government, to meet the reality of the political choices that they dictate. The Chancellor today told MPs that the Government has had to update its spending plans in light of “a changing world”, driven by economic and geopolitical insecurity.