It’s been an eventful six months since the Chancellor’s first Budget. Donald Trump’s re-election has fuelled economic tensions, and global pressures have driven a push for increased defence spending. Meanwhile, businesses have been bracing for the National Insurance Contributions hike announced last autumn, which comes into effect in the next few weeks.
What was meant to be a low-key ‘Spring Forecast’ – simply responding to the latest OBR (Office for Budget Responsibility) figures – has turned into something rather more significant.
But with the Chancellor’s new measures, the outlook is perhaps less gloomy, with a full restoration of headroom to £9.9bn by 2029-30.
Economic growth has halved this year, but stronger growth is forecast from next year onwards. The deficit is now expected to shrink into a surplus by 2027-28.
So, what are the big takeaways from this year’s Spring Statement?
- Welfare reform: a tough pill to swallow?
Welfare reform was always going to be one of the trickiest bits of choreography for Labour to navigate today, coming off the back of sweeping welfare reforms announced last week. However, the OBR wasn’t convinced by the sums, leaving the Chancellor looking for an extra £500 million in savings. Key changes include a restructuring of Personal Independence Payments, a 50% cut to the Universal Credit health element for new claimants, and scrapping the Work Capability Assessment by 2028. Under-22s will also lose access to sickness benefits.
On the flip side, £1 billion is being invested in employment support, plus £400 million to modernise job centres and help people back into work. However, with many Labour MPs already uneasy about cuts to benefits, this part of the statement could cause some internal friction.
2. A strong offence is a good defence
Defence sat at the heart of today’s announcements, with Defence Secretary John Healey facing the morning media round rather than a Treasury spokesperson. Framing the UK as a “defence industrial superpower,” the Chancellor pledged an extra £2.2 billion for the Ministry of Defence in the next year. This includes £400 million ring-fenced for defence innovation in areas like AI and advanced manufacturing. A new Defence Growth Board will also be set up, reinforcing Labour’s commitment to national security and economic security sitting side-by-side.
3. Leaner government
Labour’s promise to chop the civil service is now in full swing. The Chancellor reaffirmed plans to cut 15,000 civil service jobs and drive efficiency through AI and tech. The so-called “new bonfire of the quangos” is already underway, with NHS England’s abolition announced two weeks ago. These reforms aim to cut government running costs by 15%, saving around £2 billion, which Labour say will be redirected to frontline public services. A £3.25 billion transformation fund will also help cover redundancies and tech investments: spending in the short-term to save in the medium-term, essentially.
4. Safe as houses
Also pre-announced, but a key part of the Chancellor’s statement today, was a £2 billion boost to deliver 18,000 new social and affordable homes. The OBR’s outlook seems cautiously optimistic about Labour’s “get Britain building” strategy, predicting housebuilding alone could generate an extra £3.4 billion in growth by 2029-30 and add £15 billion to GDP over the next decade. The Chancellor also spoke about Labour’s plan to deliver 1.3 million new homes – just short of their manifesto promise of 1.5 million (a slight (downward) readjustment, perhaps). Alongside all of this, £600 million has been earmarked for training skilled construction workers to help meet these challenges.
5. Tech vs the tax dodgers
While no tax hikes were announced today, the Chancellor took the opportunity to highlight Labour’s crackdown on tax avoidance. A new “cutting-edge” technology deployment at HMRC is expected to recover an extra £1 billion in unpaid taxes – another feather in Labour’s cap for raising revenue without raising taxes.
Final thoughts
The Spring Statement was originally billed as a routine update, but it ended up being something more significant. Labour has set out its economic vision with a new – and rather hefty – focus on defence, positioning it at the heart of both industrial strategy and national security. Alongside this, the Government is pushing for greater efficiency, increased investment, and big welfare reforms. As the Spending Review looms in June, and remember, this is a ‘back-to-brick’, department by department review of all spending from the ground up, Labour will be faced with even more tough choices in the next few months. Businesses and individuals alike will need to navigate the shifting landscape as the government balances lower spending with long-term growth.
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