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What Does the Spring Statement Mean for Business?

Ben Johnson

24 Mar 2025

This week’s Spring Statement was not meant to be a big moment.

Rachel Reeves has been clear that she wants to have just one major fiscal event each year (the Autumn budget) – not least to avoid creating further uncertainty for business.

However, the OBR is expected to confirm that almost £10bn in ‘fiscal headroom’ – the amount the Chancellor can borrow from down the back of the Exchequer sofa before hitting the self-imposed limits of her fiscal rules – has disappeared since the Budget just five months ago.

So, as the Chancellor looks to reassure business and the markets that she is in full control of the fiscal situation, the Spring Statement will have to do some heavy lifting.

In other words, we can expect to see spending cuts. Big ones. Much of the substance is already out there – scrapping NHS England and cutting the welfare bill are the first steps in a wider programme of savings the Government will look to make, with unprotected departments being asked to model up to 11% cuts in day to day spending.

Much of this will be difficult for backbench Labour MPs – under pressure from their constituency party members, as well as trade unions – to get behind, and the Chancellor and her team are spending much of their time making the case to PLP members, as well as the media and wider public.

The Chancellor’s top line message this Wednesday will be that she is in control of public finances – it’s a message aimed at both the electorate and the financial markets.

But there are two further key arguments that Rachel Reeves wants to land on Wednesday:

That the loss of fiscal headroom is a result of global economic headwinds. The opposition will argue that sluggish growth and rising borrowing costs are a result of a loss of business confidence, and the direct impacts of the Autumn Budget NICs and Living Wage rises.

That cutting spending – rather than tax hikes on business or wealth, or changing her fiscal rules – are the right medicine. Labour backbenchers and internal stakeholders will put pressure on the Chancellor from the left. To an extent the PM and Chancellor will tolerate this, as it does their reputation for fiscal discipline no harm. But they will want to avoid more moderate members of the PLP being drawn into rebellion.

At a glance – what we can expect:

Tax:

The Chancellor has been clear that this is not a formal fiscal event, therefore we can’t expect any formal tax rises. However…

…the income tax threshold freeze is likely to be extended beyond 2028, meaning more people will become higher rate taxpayers (which many people would call a tax rise). Worth up to £7 billion annually to the Treasury.

With the Chancellor keen to offer some news for businesses to welcome, there could also be an update on business rates reform, and potentially a re-extension of rate relief for retail, hospitality and leisure premises.

Some have speculated that the Chancellor could adjust the policy of increasing employer national insurance contributions announced in the budget, in response to significant backlash. But the Treasury have made no noises in this direction.

Spending:

An update on the Spending Review – which will be announced in full in June.

While Government spending will continue to rise overall year on year – with health and defence budgets in line for increases – other departments will be required to make significant cuts.

Unprotected departments have been asked to model day to day spending cuts of up to 11 per cent. Speaking on Sunday, the Chancellor revealed her expectation that reductions in administrative costs could mean up to 10,000 civil service jobs, and a reduction in overall government running costs by 15 per cent.

Overall, unprotected departments will need to find on average about 5 per cent savings – details of which will be announced in the Spending Review in June.

Confirmation of £5 billion cuts to welfare – mainly from reducing eligibility for Personal Independence Payments.

So what comes next?

This all depends on whether these cuts are enough to enable the Government to deliver on its priorities within the bounds of the fiscal rules, as we rumble on towards the Spending Review in June, and beyond it, to the next Autumn Budget later this year. Given the full impact of Donald Trump’s tariff wars are yet to be known – all eyes will be on April 2 when reciprocal VAT tariffs kick in – making confident predictions is a mug’s game.

And could there be more yet to come on welfare? Whilst the PLP were up in arms about PIP cuts, some with insider knowledge of the scale of the welfare challenge say there is much more scope for further reform to deliver savings while incentivising work.