Spring Statement: No tax rises and no return to austerity, but will it last?

The UK Treasury has stated that the upcoming economic statement from the Chancellor of the Exchequer is "absolutely not a budget." This statement will not feature the traditional red briefcase outside 11 Downing Street, as seen with conventional budgets; instead, it will be a "thin booklet" containing new policies and a "lightweight scorecard" of measures, with no further tax increases anticipated.

So, what is the significance of this spring statement? Its primary purpose is to release the spring forecasts from the government's official forecasting body, the Office for Budget Responsibility (OBR). In doing so, the OBR must consider factors such as lower-than-expected economic growth and rising government borrowing costs.

The OBR's forecasts have already eroded the "non-negotiable" headroom that Chancellor Rachel Reeves has set for future government borrowing. To keep the numbers in order, she has made a series of further adjustments. Essentially, low growth and higher borrowing costs have knocked the budget figures off course. We will hear the Chancellor repeatedly emphasize that "the world has changed."

In fact, this adjustment may have been necessary even before U.S. President Donald Trump altered global diplomacy and trade. As Reeves begins her statement at the dispatch box, we will discover whether the Chancellor can continue to rule out tax increases, even in this "changed world." If fiscal austerity is not restored, where will the money come from?

While no major tax measures are expected, the Chancellor may still keep options open for the autumn budget. Some economists do anticipate tax increases in the fall, particularly to meet growing defense spending. A "conversation" with the public on this issue is possible. In her first budget, the Chancellor ruled out extending the Conservative freeze on income tax thresholds for another two years. The public may gain a clearer understanding from this spring statement as to whether this will become an option again.

The already announced [£5 billion cut in welfare spending](https://www.bbc.co.uk/news/articles/c89y30nel59o) is the largest single welfare cut in a decade. This is likely to be the biggest saving. Later on Wednesday, it will be revealed how many people will lose Personal Independence Payments (PIP) and Universal Credit, the average loss, and the distribution between current or future recipients. Hundreds of thousands of people will lose thousands of pounds worth of health-related benefits.

A [£2.2 billion cut in civil service administrative costs](https://www.bbc.co.uk/news/articles/cy5nzy403l0o) is also planned, including staff numbers by 2029-30. A 15% cut is a significant chunk of central government spending on wages and consultants. However, the Chancellor's suggestion of cutting 10,000 jobs is merely a trim of a workforce exceeding 500,000, especially considering the 30-40,000 departures each year. Unions argue that this cannot be done without harming frontline services. Much here depends on the deployment of automation and artificial intelligence (AI).

Further small cuts in the growth of departmental budgets, cracking down on tax evasion, and shifting spending from aid to defense should all help the Chancellor to restore billions of pounds of headroom. Given the significant upfront commitments to public spending in earlier budgets, it is difficult to describe this as "austerity."

Allocating increased defense spending will be a key feature of the spring statement. Defense spending (e.g., jets and tanks) is more capital-intensive than aid spending, so more defense spending can be exempted from the Chancellor's own borrowing rule, which only limits day-to-day spending to tax revenues.

Understandably, there will be considerable focus on the OBR's significant downward revision of economic forecasts for 2025. The real issue facing the Chancellor is the extent to which this downward revision persists to the end of the forecast period, thereby permanently damaging the economy and tax revenues. It may not, and therefore the impact on the budget figures may not be so great.

The Treasury has also been working hard to get the OBR to recognize its pro-growth reforms, such as planning reforms. In theory, higher growth means lower forecast borrowing and more headroom—a win-win. But after a recent external review of its methodology, the OBR may have become more rigorous.

There is a larger picture here about growth and government strategy. Investors and businesses are still awaiting infrastructure, industrial, and trade strategies eight months into this government's term. The new global reality means further uncertainty, but also creates potentially significant advantages for a stable, rules-based developed economy with cutting-edge frontier science, research, and financial services.

This is especially true for a country that can simultaneously maintain trade and investment links with the U.S., Europe, China, and the Gulf, even amidst tariff turmoil. In the Cabinet, they call it "the world's most connected economy." Has the world heard this? As markets await Wednesday's new bond sales calendar, the UK government's borrowing costs have risen again.

UK bond yields rose with the U.S. in January, but when that stopped, they rose with Europe, too, due to a massive debt-driven rearmament program. This is the worst-case scenario for borrowing forecasts. The spring statement could be an opportunity to demonstrate the opposite—that the UK has unique advantages and can have the best of both worlds. Some sort of economic deal with the U.S. looms, and negotiations on a Brexit reset are also progressing.

There are small signs that the economy is emerging from its recent doldrums, particularly in the service sector. Small businesses in retail and hospitality, worried about National Insurance and Social Living Wage increases, are awaiting some degree of pain relief. Therefore, while Wednesday is absolutely not a budget, it will answer some important questions about the economy.