The UK Spring Statement 2025, delivered by Chancellor Rachel Reeves on 26 March 2025, outlined key economic and fiscal policies amid ongoing global uncertainties. The Office for Budget Responsibility (OBR) revised GDP growth forecasts downward, reflecting economic challenges. Key announcements included increased defence spending, welfare reforms, and a £3.25 billion Transformation Fund for public services. Infrastructure investment was also a priority, with £13 billion pledged over five years. The statement aimed to balance economic stability with long-term growth initiatives. The following sections will briefly discuss the details of the Spring Statement.
Economic outlook
• The Office for Budget Responsibility (OBR) revised the UK’s economic growth forecast for 2025 downward from 2% to 1%, attributing the slowdown to global economic tensions and domestic challenges. However, it upgraded growth forecasts for following years. It predicts GDP growth of 1.9% in 2026, 1.8% in 2027, 1.7% in 2028 and 1.8% in 2029.
• The OBR has considered government’s planning reforms and has established that they will permanently increase the level of real GDP by 0.2% in 2029-30, an extra £6.8bn for the economy. This will reach to 0.4% by 2030, an additional £15.1bn.
• The Chancellor emphasised the government’s commitment to fiscal responsibility, aiming to reduce the budget deficit from £36.1 billion in 2025/26 to £13.4 billion by 2026/27, with a projected surplus of £6 billion by 2027/28, rising to £9.9bn in 2029-30, compared with the previous government’s £6.5bn.
Inflation forecasts
• The Chancellor highlighted the Inflation fell in February to 2.8% from 3% in January, Wednesday’s data showed. OBR forecasts show consumer price inflation will average 3.2% this year before falling “rapidly” and meeting the Bank of England’s 2% target from 2027 onwards.
Welfare reforms
Significant changes to welfare policies were announced to ensure sustainability and encourage workforce participation:
• Reeves confirms huge cuts to the welfare budget, which the Office for Budget Responsibility (OBR) says amount to £4.8bn of savings for the Treasury.
• Universal credit adjustments: The standard allowance is set to increase from £92 per week in 2025/26 to £106 per week by 2029/30. However, the health element will be reduced by 50% and frozen for new claimants. Health-related universal credit for new claimants will now not rise with inflation until after 2030. Under-22s will no longer be able to claim the health-related element of universal credit.
• Personal Independence Payments (PIP): Stricter eligibility criteria will be introduced from November 2026 to ensure support is directed to those most in need.
• Employment support: An investment of £1 billion will be made to assist individuals in returning to work, complemented by £400 million allocated to modernize job centres and enhance service delivery.
Public service modernisation
To improve efficiency within the public sector, the government plans to:
• Reduce running costs: Implement a 15% reduction in government running costs by the end of the current Parliament, saving £2.2bn by the end of the decade. There will be £3.5bn of day-to-day savings on the cost of running government by 2029-30. Public sector net financial liabilities will be 83.5% of GDP in 2026-27, falling thereafter and coming down to 82.7% by 2030.
• Transformation fund: Establish a £3.25 billion fund to support the reform of public services, leveraging digital technology and artificial intelligence to enhance frontline delivery and achieve long-term savings.
Defence spending
The government wants to make the UK a “defence-industrial superpower”, placing defence at the heart of economic growth. In response to evolving global security concerns, the government committed to:
• Increased funding: An additional £2.2 billion will be allocated to the Ministry of Defence (MoD) for the fiscal year 2025/26, with a goal to raise defence expenditure to 2.5% of GDP by 2027. An extra £2bn to increase the lending capacity of UK Export Finance will aim to help finance overseas purchase of UK defence equipment.
• Defence innovation: Allocate £400 million specifically for defence innovation, focusing on areas such as artificial intelligence and advanced manufacturing. The government will spend a minimum of 10% of the MoD’s equipment budget on tech such as drones and AI, boosting production in places such as Derby, Glasgow and Newport.
Housing and infrastructure investment
To stimulate economic growth and address housing shortages, the government announced:
• Affordable housing: A £2 billion investment to deliver 18,000 social and affordable homes, contributing to the broader ambition of constructing 1.5 million homes by the end of the Parliament.
• Managing the housing shortage: The OBR has said that housebuilding will reach a 40-year high, hitting 305,000 homes a year by the end of the forecast period. That amounts to 1.3m homes in the UK over the next five years, which Reeves says takes the government “within touching distance” of its manifesto promise to build 1.5m homes in England within this parliament.
• Construction skills training: An allocation of £625 million to train up to 60,000 additional construction workers, addressing skills shortages and supporting the housing initiative, in addition to investing further £2bn in social and affordable housing.
Tax avoidance measures
The government is intensifying efforts to combat tax avoidance by:
• Enhanced technology: Investing in advanced technology for HM Revenue and Customs (HMRC) to detect and prosecute tax fraud more effectively.
• Increased prosecutions: Aiming to raise an additional £1 billion annually by increasing the number of tax fraud prosecutions by 20%.
Conclusion
The 2025 Spring Statement reflects the UK government’s strategy to balance fiscal responsibility with targeted investments in key sectors. By implementing welfare reforms, modernizing public services, increasing defence spending, investing in housing and infrastructure, and tackling tax avoidance, the government aims to navigate current economic challenges while laying the foundation for sustainable long-term growth.
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