Spring statement: Headlines and reaction

The first reactions to Chancellor Rachel Reeves’ spring budget statement are in…

Among her headline statements was a much-previewed £2.2 billion rise in defence spending, paid for by cutting the overseas aid bill, and an extra £1 billion to help get more people back into work.

She also said inflation, which is now back below 3%, was forecast to fall to 2.1% next year.

The Chancellor said she was bringing forward £3.25 billion of investment to deliver reforms for public services in a new transformation fund, designed to bring down the costs of running the government.

She said she was ‘not satisfied’ by the Office for Budget Responsibility’s announcement that it had revised down the UK's growth forecast this year from 2% to 1%.

Professor Joe Nellis (pictured), economic adviser at MHA, the accountancy and advisory firm, said: "Inflation coming in slightly lower than expected at 2.8% for February is a welcome surprise for the Government ahead of the Spring Statement, yet it is unlikely to undo the shift towards caution in the rate-cutting strategy of the Bank of England that has taken place in recent months.

"The drop in year-on-year inflation is also slightly misleading, due to the ONS calculating this value through a direct comparison with inflation in February 2024. With last February seeing a 0.6% monthly rise in inflation — the joint-highest jump since May 2023 — this calms the year-on-year figure, despite inflationary pressures remaining strong. A month-on-month inflation figure of 0.4% this February shows that inflation is not slowing down.

"While international uncertainty driven by President Trump’s tariff war has contributed to this, sticky inflation is now being driven by actions in the domestic economy. With regulated price increases coming as a result of the Chancellor’s own decisions — increased employer NICs and a rise in the National Living Wage are still to come in April — this is an own goal for the Government in their fight against inflation.

"Despite expectations at the turn of the year of at least four cuts, we now expect a cautious rate-cutting strategy from the Bank for the foreseeable future and only be looking at two more cuts before the year is out.

"When delivered at the Spring Statement, the Office for Budget Responsibility’s forecast for domestic growth is very likely to be downgraded, the question is by how much. While the Bank’s previous plan to cut rates more swiftly was largely driven by a need to reignite the economy, the persistence of the causes of inflation means that this may have to be put on hold, at least in the medium-term.

"This is not what the Chancellor will want to hear as the Government looks ahead to dealing with a flatlining economy and high prices — both will put pressure on the budget and hit living standards, an undesirable combination.

Raj Kandola, director of external affairs at Greater Birmingham Chambers of Commerce, said: “Businesses will breathe a sigh of relief that the Chancellor hasn’t chosen to clobber them with further tax hikes given the additional cost pressures that many are dealing with following the announcements she made last October.

“The Chancellor decided to keep today’s statement high level, but the facts remain clear – growth projections for this year are down and spending cuts have been made in order to restore the Chancellor’s self-imposed rules for fiscal headroom.

“Firms will be pleased to see a focus on planning reform and increased capital investment in order to unlock growth which aligns with the recommendations made by the Business Commission West Midlands this time last year.

“The additional focus on increased defence spending was accompanied with promising statements on the need for British businesses to directly benefit from the associated procurement opportunities.

“Hopefully this will benefit businesses in the West Midlands given our expertise in the field of advanced manufacturing, as there was next to nothing announced for our region. The upcoming Comprehensive Spending Review should shed more light on the direction of travel for business support programmes and how they will impact firms in the region.

“Ultimately, there was very little announced in today’s statement that will give businesses an extra spring in their step as they approach the summer - for example, no roadmap on reducing business costs and very little on boosting international trade activity. The Chancellor has got a big job on her hands to restore confidence and unlock firm level investment.”

Nicky Owen, partner and Head of Professional Practices at Crowe, said: "In a 'changing world' it was disappointing to see that the Chancellor has not listened to UK businesses and that there was no U turn in the changes to employers NIC that take effect from 6 April 2025.

"The NIC changes will impact businesses and will stifle much needed growth in the British economy. Businesses have already started reining in costs and looking at ways to reduce the workforce. This will have an impact on working people and the availability of jobs. A growing economy would bring in much needed increased tax receipts. 

"I am all for limiting and restricting tax evasion. However, I am concerned whether we have enough technically skilled people to run and deal with the investigations in a timely basis. An enquiry needs to get to the issue quickly and be dealt with promptly and not to leave taxpayers waiting for responses months on end because there isn’t a technically qualified individual that understands the issue. AI will assist in the process but again skilled people will need to analyse the results."

Chris Sanger, Tax Policy Leader at EY, said: “On tax, it was always unlikely that we’d see any further changes come out of today, particularly given that measures announced last October, such as the rise in employer National Insurance contributions, are yet to come into effect.

"However, what we may hear in the coming weeks are announcements on tax administration and simplification efforts. While not policy changes, these positive steps include consultations on e-invoicing and cost sharing and have the potential to both reduce the tax gap and attract greater investment in the UK.

“The Corporate Tax Roadmap, published alongside the last Autumn Budget, set out to improve the certainty and predictability of our tax regime. The Roadmap provided the foundation for reform, and the Government may now look to develop this document further, delivering on its aims to simplify the UK tax system and create confidence among businesses and investors, for the benefit of the economy.”

Faye Church, Chartered Senior Financial Planner at Rathbones, said: “As so often before, this government is hoping to raise significant sums through cracking down on tax evasion and avoidance. For the most part however, it’s the mass affluent who pick up the bill and we’re already seeing a significant increase in people seeking tax and planning advice. 

"The worry for the government going forward is that the over 60s in particular are already more heavily taxed than almost any other segment, including many older people no longer working and reliant on their pensions - particularly with the change coming in April 2027, when pension pots will subject to inheritance tax."