On Wednesday, the Chancellor of the Exchequer, Rachel Reeves, laid out her Spring Statement to the House of Commons. This followed the Autumn Budget in October 2024, which saw the Chancellor raise £40 billion in taxes, a significant chunk of which (£25 billion) was generated from rises in employers’ national insurance contributions. In the months since, Reeves has seen her fiscal headroom shrink because of sluggish economic growth and increasing costs of government borrowing. Due to these developments, there had been a £14 billion worsening in the current deficit forecast for 2029, which wiped out her previous £9.9 billion of headroom. She affirmed her commitment to ensuring that the public finances are restored under a Labour Government and remained committed to sticking to her fiscal rules around government borrowing and investment.

Reeves announced plans in the Spring Statement that restored the fiscal headroom to £9.9 billion precisely.

Public sector reform and further announcements

Chancellors will always have a ‘rabbit they pull out of the hat’ in their fiscal events and Spring Statements. After days of trailing more politically difficult elements of the Spring Statement, such as cuts to the welfare budget, Reeves did manage to deliver a more optimistic announcement: £3.25 billion for public sector reform. The aim of The Transformation Fund is to drive efficiencies across government and save the Government money in the long-term. Whilst full details of how this money will be spent have not yet been announced, so far it does include £150 million for redundancy schemes to shrink the size of the civil service; £42 million for three Department for Science, Technology and Innovation (DSIT)-led Frontier AI Exemplars; £25 million for the foster system, including funding for 400 new fostering households; and £8 million for new technology for probation officers in the Ministry of Justice (MoJ).

Other headline announcements were the cuts to the welfare budget, with these changes updated since they were previously announced by the Secretary of State for Work and Pensions, Liz Kendall. The welfare reforms package will save £4.8 billion from the welfare bill and the Government is then investing £1.4 billion of these savings into supporting people to get back into work and improving jobcentres. This therefore takes the total savings to exchequer to £3.4 billion. Reeves also announced £2.2 billion in defence spending.

Whilst in this Spring Statement there were no tax rises, Reeves did announce an additional £1 billion in revenue because of investment in HMRC’s ability to tackle tax evasion.

Education spending

There were no specific announcements on education spending or new announcements on investing in skills and apprenticeships. However, Reeves did reference last week’s announcement from the Department for Education that it will be investing £600 million in training 60,000 skilled construction workers by 2029, to tackle industry skills shortages and build 1.5 million new homes. £100 million of this will be used to establish ten new Technical Excellence Colleges, helping deliver top-tier technical education. It also includes £100 million for skills bootcamps in construction, supporting new entrants, those returning to the sector and individuals seeking to upskill.

Conclusion

Overall, there was little change in day-to-day public spending announced. In particular, no new investment in skills and apprenticeships was introduced. In part, this is because the Spring Statement is the prelude the Spending Review taking place in June, which will set out every government department’s funding settlements for at least the next three years.

The OBR’s forecast, which was published at the same time as the Spring Statement, saw the UK’s 2025 growth projection cut from 2% to 1%. Meanwhile, Reeves has left similarly little fiscal headroom as she did after the Autumn Budget 2024. This could mean, if the OBR forecasts change before the Autumn Budget 2025, that there could be more months of speculation as to whether that will include further tax rises or public sector cuts in that fiscal event. All eyes now turn to the Spending Review in June.