Spring Statement Preview

Chancellor Rachel Reeves is braced for a challenging picture of the UK economy to emerge in the latest Office for Budget Responsibility forecasts at her Spring Statement next week.?

In her House of Commons speech on Wednesday, the Chancellor will run through the key points in the forecast before outlining the Government’s response. Shortly afterwards, the OBR will publish its full report, giving journalists, academics and the wider public the opportunity to pour over the data and then scrutinise the Chancellor’s announcements in detail.

The Chancellor had hoped that this would be a minor statement simply responding to the OBR forecasts. Due to the lack of fiscal headroom, she is now having to make savings to welfare budgets and cuts to Whitehall department budgets for the next financial year.?

However minor, a fiscal event plays a crucial role in setting the tone for the government's economic strategy, with even tweaks to government policy having significant implications for businesses and individuals.

Some measures are likely to emerge in the media in the days running up to the Spring Statement, in keeping with the usual practise of advanced briefings. Trails like this aim to either prepare the way for difficult decisions or to test the reaction of key stakeholders, giving the ministers the option to soften or row back on planned announcements.??

After the Chancellor’s speech, the fallout from Labour’s internal divisions to welfare cuts is likely to take centre stage. Rumours have been circulating in Whitehall for months that the Treasury wants to make significant cuts to the benefits budgets and has effectively taken the policy out of the hands of the Department for Work and Pensions. Any U-turn on social security policy will be considered a major climbdown for a party with a 167-seat majority that has spent the past eight months highlighting the public finances blackhole it inherited.

Ms Reeves’s primary audience this far out from the next general election is the global money markets. Speculation indicates that OBR is set to announce that the country is effectively at the limit of what the Government can credibly borrow because of her fiscal rules. Reeves sees international investment as the only way for the economy to grow out its way of the hole it is in.?

Ministers know they can afford some short-term unpopularity in the opinion polls if the Chancellor’s current economic plan stabilizes the economy. If that plan works, they can look to turn the polls around in three years’ time.???

Stay tuned for the Spring Statement next week, and feel free to reach out to the Arden team for further advice or to discuss how the changes might affect your business.