Rachel Reeves has set out her plans for the UK economy, with the Chancellor’s Spring Statement saying that day-to-day Government spending will fall by £6.1bn per year by 2030. Government departments will be given a target to reduce spending by 15% by 2030 and around 10,000 civil service jobs are expected to be cut. It was also announced that defence spending, which had been due to rise £2.9bn next year, will increase by a further £2.2bn. This will be funded in part by reducing overseas aid from 0.5% to 0.3% of gross national income in 2027. Ms Reeves also set out changes to health-related universal credit and the eligibility test for personal independence payments. The spending cuts came as the Chancellor looks to restore her fiscal headroom to around £10bn, with Office for Budget Responsibility analysis having suggested that the Government faced a deficit of £4.4bn.

The Office for Budget Responsibility (OBR) has halved its growth forecast for 2025, saying the UK economy will expand by just 1% this year. However, it has upgraded estimated GDP growth for the next four years, saying it will hit 1.9% next year, 1.8% in 2027, 1.7% in 2028 and 1.8% in 2029. The OBR has also increased its inflation forecast, saying it will average 3.2% this year rather than the 2.6% previously predicted. The revised estimate remains lower than the 3.75% high forecast by the Bank of England. The OBR analysis suggests that inflation will then fall to 2.1% in 2026 before hitting the Bank’s 2% target in 2027. Ian Stewart, chief economist at Deloitte, said: “Despite a major downgrade to the OBR’s growth forecast, the Government is on track to meet its fiscal targets.”

UK inflation fell to 2.8% in February, from 3% in January, data from the Office for National Statistics (ONS) shows, with the decline driven by a drop in prices for clothing and footwear. Economists polled by Reuters had expected inflation to dip to 2.9% in February. Despite the steeper than expected fall, inflation remains above the Bank of England’s target of 2%. Susannah Streeter, head of money and markets at Hargreaves Lansdown, said the Bank is unlikely to cut rates at its next meeting as February’s fall was “not an enormous change” and inflation “is still significantly above target.” Joe Nellis, economic adviser at MHA, said the drop in headline inflation “is unlikely to undo the shift towards caution in the rate-cutting strategy.” Suren Thiru, economics director at the ICAEW, warned that February’s slowdown “is a false dawn as notable near-term price rises are already baked in,” saying higher energy bills and a National Insurance hike are “likely to push inflation perilously close to 4% sooner rather than later.”

The Office for Budget Responsibility (OBR) says housebuilding is set to hit a 40-year high due to reforms to the planning system, with this likely to boost the economy by £6.8bn. While the OBR said the reforms could result in 1.3m new homes across the UK by 2030, the Government says further changes and greater investment will help to meet its target of 1.5m new homes in England over the next five years. The OBR says the number of new homes annually is projected to hit 305,000. It added that the increase in supply will mean a small reduction in house prices, saying the average will fall by around 0.9% by 2029/30.

Major business groups have expressed frustration over the Chancellor’s Spring Statement, arguing that it offered no relief from impending tax increases. Rachel Reeves, delivering her fiscal update, acknowledged the challenges businesses face, particularly with National Insurance contributions rising by 1.2% to 15% and the salary threshold dropping significantly. Rupert Soames, chairman of the Confederation of British Industry, says that government measures have left business leaders frustrated, while Shevaun Haviland, director-general of the British Chambers of Commerce, highlighted that 82% of businesses will be affected by the National Insurance hike, leading to price increases and recruitment cuts. Rain Newton-Smith, chief executive of the CBI, said that business face a “significant regulatory burden” and “damaging consequences for growth, jobs and investment” from the Employment Rights Bill. Meanwhile, Kate Nicholls, chief executive of UKHospitality, said the Spring Statement marks a “missed opportunity to avoid an April cliff-edge.”

According to a survey by Business Leader, nearly a third of medium-sized businesses in the UK are contemplating relocating abroad within the next two years. The survey, which included over 100 businesses, revealed that 42% are reducing hiring and 30% are considering leaving the UK due to factors such as cost inflation and rising National Insurance contributions. Richard Harpin, owner of Business Leader, said the survey “paints a stark picture of the outlook for ‘the forgotten middle’ of UK businesses.”

Experts have warned that taxes may have to rise later this year, despite the spending reductions and welfare cuts Rachel Reeves set out in the Spring Statement. Although the Office for Budget Responsibility (OBR) said the Chancellor is likely to meet her self-imposed rule to not borrow to fund day-to-day spending, analysts say an unexpected hit to the economy could see any headroom wiped out. Tax hikes may then be required as it would be difficult to further reduce spending or increase borrowing. Paul Dale, chief UK economist at Capital Economics, said that in such a scenario, the Government “may have to break its election promises and raise taxes for households,” while Paul Johnson, director of the Institute for Fiscal Studies said there is likely to be months of speculation about which taxes might or might not be increased in the autumn Budget. Rob Wood, chief UK economist at Pantheon Macroeconomics, says the OBR will “almost certainly” have to cut growth forecasts later this year, adding: “So further tax hikes and borrowing are coming.”

While the Office for Budget Responsibility (OBR) has upgraded growth forecasts, businesses remain concerned that the Chancellor will have to increase taxes in the future. Warning that “macro forecasts are still built on an overly optimistic view of growth,” Jefferies economist Modupe Adegbembo said this makes it likely that the Government “will need to deliver further cuts or tax increases later down the line to keep finances on track.” While the Chancellor has vowed to adhere to her “non-negotiable” fiscal rules, Hargreaves Lansdown analysts Sarah Coles said: “The debate has already started on whether there might be a new kind of tax altogether to boost the take without breaking any promises.” Jason Hollands, managing director of Evelyn Partners, argues that the absence of tax increases or reforms in the Spring Statement “should provide only limited comfort as the tax burden is only going to ratchet up from here.”

The Chancellor, Rachel Reeves, has announced plans to raise over £1bn in additional gross tax revenue a year by 2029/30, with tax evaders to be targeted. This will involve recruiting 500 more HMRC compliance staff. Analysis shows that unpaid tax liabilities owed to HMRC were over £44bn at the end of 2024. The number of charging decisions for the most harmful fraud is set to increase by 20% on current levels, from 500 to 600 per year by 2029/30. Robert Salter, a director at Blick Rothenberg, said the “reality is that it is very difficult to tackle tax fraud in a valid, coherent manner,” while Nicky Owen, a tax partner at Crowe, said: “I am concerned whether we have enough technically skilled people to run and deal with the investigations in a timely basis.” Meanwhile, whistleblowers who inform HMRC about tax-dodging will get a cut of any money collected as a result. The Treasury is also considering cancelling passports or seeking a driving ban in the most serious cases of deliberate tax non-compliance.

A proposed overhaul of the UK’s research and development tax incentives aims to address concerns over fraud and accessibility. The Government is considering mandatory assurances for claimants to ensure their projects qualify for taxpayer support before filing claims. Currently, only a small number of companies utilise the voluntary advance assurance option. The incentives, costing the UK approximately £8bn annually, are designed to promote innovation in science and technology. However, a 2022 investigation revealed that dubious claims were being encouraged by advisers, with HMRC struggling to check them effectively.

New forecasts from the Office for Budget Responsibility (OBR) indicate that the UK’s tax burden is set to reach unprecedented levels, rising from 35.3% of GDP in 2024/25 to 37.7% by 2027/28, the highest since records began in 1948. The OBR predicts a peak of 38.3% in 2027/28, significantly above the pre-pandemic level of 33.2% in 2019/20. The increase is primarily driven by personal taxes, particularly income tax and National Insurance contributions. Paul Johnson, director of the Institute for Fiscal Studies, said Britain is approaching “its highest level of tax ever,” adding: “Broad brush, it will remain at record levels – if not for ever, then certainly into the future.”

The Government’s proposed Employment Rights Bill is facing scrutiny from the Office for Budget Responsibility (OBR), which warns it could have a negative impact on employment. Professor David Miles, a member of the OBR’s budget responsibility committee, said that regulations affecting business flexibility may lead to “material and probably net negative economic impacts on employment, prices, and productivity.”

HMRC is set to increase fines for the late filing of VAT and self-assessment. There will be a penalty of 3% of the sum outstanding where tax is overdue by 15 days, plus 3% where tax is overdue by 30 days and then 10% per annum where tax is overdue by 31 days or more. The increase is expected to bring in £105m over 2028/29 and £125m over 2029/30. The ICAEW described the increase as “very significant,” saying that timely payments will be “more critical than ever for taxpayers and businesses.”