The Spring Statement: A fiscal event in a turbulent landscape
Navigating speculation, OBR forecasts, political challenges and the real world economic squeeze
The political world loves a fiscal event. The idea of a Budget or statement to Parliament by the Chancellor generates an outsized level of anticipation.
The ritual of media speculation, strategic government kite-flying and anonymous Treasury briefings has become a familiar prelude to these moments..
As expected the announcement of a Spring Statement has sparked the rumour mill into action. Although Rachel Reeves has consistently said since becoming Chancellor there would only be one Budget statement per year and the statement was just to meet the requirement of presenting the Office for Budget Responsibility (OBR) forecast to Parliament, it hasn’t reduced the speculation.
Whispers of an emergency Budget, potential policy shifts regarding ISAs and the possible need for tax rises have dominated the discourse.
I don’t think we’ll see any of these things. On Wednesday afternoon we’ll see a lot of disappointed public affairs people and campaigners with half filled internal briefings and media quotes bemoaning the missed opportunity from the “Budget” for [insert sector here] gaining even less attention than usual.
What to expect: A minimalist approach
The statement itself is anticipated to be a remarkably concise affair. Reports are suggesting the speech could be just over 20 minutes long, compared to what is generally an hour and a half for a Budget statement. The ream of documents will be replaced by a relatively slim summary.
No substantial policy announcements are expected with decisions around floated proposals such as changes to ISAs expected to be consulted on ahead of a decision later in the year. Tax changes are also not expected but if a change to the UK Digital Services Tax can head off US tariffs due next week that may be included.
Key points are expected to include:
A summary of the OBR forecast which cuts growths for next year from 2% to 1% reflecting the poor state of the economy and lack of business confidence. This instantly removes the Chancellor’s "£10 billion of fiscal headroom, replacing it with a £20bn shortfall.
Spending cuts to make up for this shortfall. The OBR will deliver an assessment of the £5bn package of welfare reforms announced last week. In addition we can expect to see £2bn of savings through civil service efficiencies including job cuts of 10,000 outside frontline delivery teams.
Departmental budgets will also be restricted with below inflation annual increases. Unprotected Government departments, which effectively excludes only the NHS and Defence, have been asked to model 5.7% and 11.2% cuts in their budget over the three year spending review period.
Government will continue to seek to position this as essential to achieving economic growth so we should expect messaging to focus on reducing burdens on business and the cost of the state with the aim of unleashing the UK’s entrepreneurial spirit. The importance of increasing national security is also likely to feature in Government commentary.
The real economic landscape: Beyond the policy thinking
The need for economic growth and the importance of defence spending show the Government’s thinking is to some extent grounded in real world needs. The focus on delivering political and macro stability and a clear programme of structural reforms to support investment is the right approach but it will be some time until we see the positive impacts.
More pressing matters are likely to be dominating the thinking of businesses and those taking the investment decisions that will drive economic growth:
The imposition of 20% US tariffs on countries which charge VAT, including the UK, is likely to have a much bigger impact than the Chancellor’s statement. Dubbed “Liberation Day” by President Trump and “World Tariff Day” by HM Treasury officials, it is uncertain what the full impact might be in the short to medium term.
Businesses will also be focused on the 6th April and how the higher rates of employers National Insurance Contributions (NICs) will impact their business. This will be a significant cost increase so will have an affect on other decisions such as pricing.
Consumers will be focused on increases to regular bills that they will see as price increases kick in at the end of March/beginning of April - in part linked to the higher employer NICs contributions. This includes higher train fares, increased council tax bills and increased costs for other services.
Against this backdrop an OBR forecast and changes to Government spending are unlikely to have too much of an impact.
Potential political reactions: Where will criticism come from?
With everything else that is going on to impact the economy and potentially not many additional announcements there’s a chance the reaction to the Spring Statement could be muted.
As we’ve seen from Prime Minister’s Questions recently the Opposition is having difficulty finding a clear attack line on the Government’s proposals. In part this is because the Government can easily respond by saying they’re just sorting out the mess left by the previous Government. It’s also because the Conservatives would also want to increase economic growth, reduce costs in Government and streamline Government spending.
Stronger opposition is more likely to come from within the Labour Party. benefit reforms are unpopular with some backbench MPs, particularly those from the left of the Party and civil service job cuts are unpopular with trade unions. On top of this the increased focus on defence spending including the shift away from international aid has also been unpopular. Will another Minister follow Anneliese Dodds and resign over the Government’s spending plans?
Finally are the announcements likely to be popular with the general public? The table below shows that broadly spending cuts so far have been in areas people support. At some point this will need to be reflected in positive economic growth and people feeling the benefit in their personal finances. Without that it looks like there is little left to cut.
Managing expectations: Nothing to see here, move along please
The consistent downplaying of the Spring Statement as not a Budget and a simple update on OBR predictions suggests the Government is keen to minimise its significance and therefor media attention. Minimising the impact of the statement will confirm their approach of making it clear it was not a Budget.
If the major cuts, to benefits and government departments, form the bulk of the statement it may well give the media very little or new to report on, again minimising the impact. Other factors such as improving weather, the impending Easter holidays and even the FA Cup Quarter Finals may also help move attention on quickly.
With minimal immediate interest it may be some time until we see the impact of any announcements. It will shape the political discussion over the coming months and set the scene for the Autumn Budget. Which will be a Budget, tax changes, policy announcements and all.