Chancellor of the Exchequer Rachel Reeves will make her second fiscal announcement since last year’s general election next Wednesay 26 March, against a backdrop of constrained fiscal headroom, high borrowing costs and sluggish economic growth.
Initially, the statement was intended to be a routine economic update from the Office for Budget Responsibility.
However, mounting pressures on public finances and a potential breach of Reeves' own fiscal rules sees the spring statement carry greater weight than anticipated, with speculation that it might contain announcements of additional spending cuts and/or tax increases – though some such as former Bank of England deputy governor Charlie Bean warned the chancellor against making kneejerk cuts.
Here are six key areas to watch.
1. The OBR's forecasts
Deficit and debt projections (3.6% and 96.9% of GDP, respectively) are likely to be revised up, UBS forecasts.
From a market perspective, the "key focus" is likely to be on the 2025 fiscal year's gilt remit (the government's annual plan for issuing government bonds to finance its borrowing needs), said UBS economist Anna Titareva, which she estimates at £312 billion.
In her October budget, Reeves set out two new fiscal rules: 1) a "stability rule" of a balanced current budget, and 2) an "investment rule" of falling net financial liabilities, both on a five-year horizon.
According to the OBR's assessment in October, the budgetary measures left fiscal headroom (additional fiscal space without breaking the rules) of £9.9 billion (0.3% of GDP).
"The key question going into the March fiscal event is whether the government's plans are still compliant with the fiscal rules."
2. Spending cuts
To compensate, the Chancellor may need to announce spending cuts or revenue-raising measures totalling £10-15 billion.
Reports suggest that welfare cuts, including possible restrictions on disability benefits, are under consideration, alongside further departmental budget constraints.
With just over a week ahead of the statement, the government unveiled cuts to the UK’s benefits system, which are expected to cut £5 billion of spending bill by the end of the decade.
3. Extended tax threshold freeze
Despite previous pledges to end the freeze on income tax thresholds in 2028, there is speculation that the Chancellor may extend the measure as an alternative to raising headline tax rates.
According to estimates from the Institute for Fiscal Studies, extending the freeze in National Insurance and income tax thresholds by two years could raise £5 billion in 2028 and £10 billion in 2029.
Additionally, the rise in the state pension under the ‘triple lock’ could push many pensioners into the tax system, adding complexity and raising concerns about the fairness of taxing individuals on minimal incomes.
4. Reforms to capital markets and ISAs
The UK government has signalled an intent to revitalise domestic capital markets and encourage investment in UK equities. One avenue under discussion is reforming Individual Savings Accounts (ISAs) to promote equity investment over cash savings.
Rob Morgan at Charles Stanley suggests: “The Chancellor could consider cutting stamp duty on UK-listed share purchases or adjusting ISA allowances to encourage investment in UK businesses.
"The government has indicated openness to some form of ISA reform, potentially aimed at simplifying the current fragmented structure.”
5. Regulation and financial services innovation
Regulatory reform is expected to feature, with an emphasis on streamlining oversight to foster innovation.
Mike Ayres, director of Menzies, argues that facilitating financial services growth should be a key priority.
"The Spring Statement must address regulatory efficiency – for example, by increasing FCA staffing to accelerate application processes and extending regulatory sandboxes to allow new ideas to be tested longer before full authorisation is required."
Further clarity on the UK’s regulatory approach to cryptocurrency is also anticipated. Ayres adds: “A government update on the UK’s crypto roadmap, including plans for merging stablecoin and broader crypto regulations, would be welcome.”
6. Pension reforms and employer NICs
Further pension reforms could free up capital for domestic investment, potentially building on proposals for a UK-focused ISA.
Concerns over employer National Insurance Contributions (NICs) have been raised by retail and hospitality industries, which could see Reeves offer some leeway for SMEs.
“With businesses adjusting hiring and pay strategies to offset higher costs, the NIC increase has ultimately impacted individual taxpayers. Some form of tapered relief for SMEs could help mitigate the impact,” says Ayres.