Spring Statement 2025

Last week’s Spring Statement, which contained a range of announcements, the net result of which conveniently brought her fiscal headroom back precisely to the £9.9bn figure she had in October’s budget. At the time of that Budget, the OBR projected that her fiscal targets would be met with that exact margin of £9.9bn.

The Economic Background

The Chancellor presented her first Budget on 30 October, six days before the US presidential election. The world has changed considerably since that pre-Halloween day – as she has regularly remarked. Thanks largely to the result of that stateside election, the global economic outlook is unclear, whether the view ahead is measured in weeks, months, years or even hours.

Last October’s Budget was the first to be judged under the new set of fiscal rules introduced by the Chancellor, Rachel Reeves, and they were designed to give her more scope to borrow for public sector investment. The main rule that made the headlines, which was legislated for in January 2025, is the so-called “Stability Rule”. This was to have the current budget at least in balance in 2029/30, i.e. tax and other revenue should be equal to, or more than, day-to-day government expenditure. Borrowing would then, in theory, be available for capital expenditure.

However, the OBR’s projections, based on a wide variety of assumptions, have seen some important changes between October 2024 and March 2025. For instance, GDP Growth projections for 2025 are down from 2% to 1% and CPI inflation 2025 projections are up from 2.6% to 3.2%. These figures including many others changed in an unfavourable direction.

Without the measures announced in the Spring Statement, the OBR calculated that Rachel Reeves’ headroom would have flipped from a £9.9bn current budget surplus in 2029/30 to a £4.1bn deficit. However, the Chancellor has recovered that £14bn by the measures revealed in her Statement. The bottom line is that once again she has the £9.9bn of headroom going into the Autumn Budget 2025.

Measures and Announcements

In her speech, the Chancellor said, “As I promised in the autumn, this Statement does not contain any further tax increases”. However, with a £14bn 2029/30 gap to fill, that meant a variety of other financial measures were announced including:

Government running costs

The October 2024 Budget envisaged annual real growth in day-to-day government spending for 2025/26-2029/30 of 1.3% a year. This will now be cut to 1.2% a year. In addition, all departments will be expected to reduce their administrative costs by 15% by 2030.

If achieved, these cuts are projected to yield £2.2 billion a year.

Welfare

There will be cuts to welfare benefits. The OBR has projected the initial proposals as producing savings of £3.4bn by 2029/30.

Taxation

There was an announcement of raft of clampdowns on tax avoidance, evasion or non-payment.

ISAs

Hidden in the main Spring Statement, with no other supporting material, was a paragraph that said, “The government is looking at options for reforms to Individual Savings Accounts that get the balance right between cash and equities to earn better returns for savers, boost the culture of retail investment, and support the growth mission.”

While dressed up as helping savers, in reality this is a measure to bolster government finances. Tax relief on cash ISAs cost the Treasury an estimated £2.1bn in 2023/24.

The Autumn Budget

A cynic might note that by reclaiming fiscal headroom of £9.9bn, the Chancellor has left herself with a sum that did not even survive for the five months from the date of her last Budget.

She now must hope that the same amount will not disappear in the next seven or eight months. In the meantime, there is the risk that further tax increases will subdue the economic growth which is the government’s ultimate get-out-of-jail card.

The period to the next Budget is a long time in the disruptive world of Donald Trump! This could lead to much speculation about potentially more tax rises in the Autumn.

Investment Portfolios

Wednesday 2 April, a week after the Spring Statement, is Trump’s ‘Liberation Day’, when he is due to reveal further tariffs. Even if the UK escape, its economy could still suffer from the tariffs’ impact on global growth.

I don’t think there’s any doubt that the unpredictable nature of US policy under Trump and his, shall we say, unconventional style could significantly impact the outlook for global growth and international trade – to the frustration of Rachel Reeves. Recent events have confirmed this with considerable market volatility now becoming a reality.

When faced with short-term volatility, it’s always best to adopt a pragmatic approach. Do I believe the risk of a US recession has increased? Yes. Is it my assumed scenario? No. However, undoubtedly the risk to growth is higher and inflation has continued to hang around for longer than we would have liked.   

In the coming weeks and months, I expect more headlines and continued volatility. As always, we will stay aware of the changing conditions whilst not overreacting to any short-term fluctuations. Remember, you are invested over the longer term and therefore short-term volatility can often bring with it opportunities to invest at lower prices.

Anyway, back to Trump - I’m comfortable with the way our recommended portfolio managers have positioned their portfolios in response to the new President and his policies. As always, the key is active, on-going management with the ability to adapt and make changes as required.  Any concerns, please do get in touch, that’s what we are here for. Call 0117 3636 212 or email office@haroldstephens.co.uk

Richard Higgs