Key Changes in the Spring Budget
- TBA
- Apr 23
- 4 min read
Updated: May 29
On the 26th March 2025, the Chancellor Rachel Reeves delivered the highly anticipated Spring Budget statement.
It is important to note that this statement is not a formal Budget—Labour has pledged to release only one Budget per year. The Spring Budget statement serves as an update and supplement to the current economic situation and any progress made since the Autumn Budget in October 2024.
Earlier, the Office for Budget Responsibility (OBR) indicated that by the 2029-30 financial year, Labour's £9.9 billion fiscal buffer, which underpins its budgetary rules, would be depleted.
As a result, compared to the Autumn Budget, Reeves faces tougher choices in this Spring Budget.
Taxes
No tax increase in spring budget
After what has been described as the ‘biggest tax-hiking Budget in history’, the Chancellor has not announced further tax increases in the Spring Budget. However, she emphasised plans to take strong measures against tax evasion.
Although specific details have not yet been disclosed, the government aims to recover an additional £1 billion by targeting 20% of potential tax evaders through a series of measures, including a newly proposed reward scheme.
While no new tax adjustments were announced in the Spring Budget, it is important to remember that changes to water bills, energy bills, council tax, employer National Insurance contributions, Capital Gains Tax (CGT), and the National Minimum Wage will take effect from April, marking the start of the new financial year.
Economy
Growth forecast downgraded
The OBR has revised the UK's 2025 growth forecast downwards from 2% to 1%. Meanwhile, the government’s budget deficit projections have shifted:
2025-26: £36.1 billion deficit
2026-27: £13.4 billion deficit
2027-28: £6 billion surplus
2028-29: £7.1 billion surplus
2029-30: £9.9 billion surplus
Regarding living standards, household disposable income per capita is expected to grow by an average of 0.5% per year (approximately £500) from 2025-26 to 2029-30. This is largely due to strong wage growth and inflation easing in the later years of the forecast period.
Welfare
Universal Credit Cuts
One of the most significant welfare changes is the 50% cut to the Health Element of Universal Credit, which provides additional financial support for individuals with health conditions or disabilities that limit their ability to work.
Currently, eligibility for this support is determined through the Work Capability Assessment (WCA). For new applicants, the benefit will be frozen at £97 per week until 2029-30, rather than increasing with inflation.
Additionally, due to tighter eligibility criteria, 800,000 people will lose access to the Daily Living Component of Personal Independence Payment (PIP). While the new welfare savings plan is expected to save £4.8 billion, over 3 million households will lose an average of £1,720 per year.
By 2030, 250,000 people (including 50,000 children) are expected to fall into poverty due to these welfare cuts.
Housing
Housebuilding at record levels
The government has reaffirmed its commitment to increasing housebuilding, with projections indicating that by 2030, new home construction will reach its highest level in 40 years. Planning reforms are expected to increase housing supply by 170,000 over the next five years, bringing the total to 305,000 new homes per year.
By the end of this Parliament, this would increase the UK's housing stock by around 1.3 million homes, a 16% rise.
Additionally, in the new tax year, the government will allocate £1 billion to accelerate the removal of dangerous cladding and reduce Right to Buy discounts. Local councils will also be allowed to retain all revenue from the sale of social housing to reinvest in new housing supply.
Departmental Cuts
Voluntary Civil Service Redundancies
The Chancellor aims to make the government ‘leaner and more flexible’ by introducing a voluntary redundancy scheme for civil servants, with the goal of saving £3.5 billion by 2029-30.
Further details on departmental spending cuts will be revealed in the June Spending Review.
Defence
Increased funding for defence
The Chancellor confirmed that UK defence spending will rise to 2.5% of GDP by 2027. In 2026, an additional £2.2 billion will be allocated to the Ministry of Defence to fund:
New high-tech weaponry
Upgrades to Portsmouth Naval Base
Renovation of military housing
These investments are aimed at strengthening the UK’s defence industry and establishing the country as a global defence powerhouse.
Market Reaction to the Spring Budget Statement
The financial markets’ reaction to fiscal policies is crucial.
The good news for the Chancellor is that gilt yields (the premium investors demand for holding UK government debt) slightly decreased following the Spring Budget speech.
30-year UK government bond yield: Fell by nearly 0.1 percentage points to 5.283%
10-year and 2-year bond yields: Also saw slight declines
According to the OBR, inflation is expected to average 3.2% this year before steadily declining to 2% in 2026-27, aligning with the Bank of England’s target.
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