Rachel Reeves steps up for her first Spring Statement on Wednesday, with perhaps even more pressure on her shoulders than for her Autumn Budget.
There are big questions about what the Chancellor will say as well as the forecasts she will unveil from the Office for Budget Responsibility, which is expected to lower its near-term growth forecasts but upgrade its inflation projections.
Markets have been a bit twitchy about government debt and spending in the UK and other countries, which has pushed up bond yields and is predicted to have wiped out much of Reeve's wiggle room, meaning she will have to walk a fiscal tightrope tomorrow.
Here are 10 things to watch:
1. The OBR’s growth forecasts and Reeve's fiscal rules
Why it matters: Every sliver of fiscal space hinges on what the OBR thinks about growth and inflation, so these are the first things to watch.
Saxo’s Koen Hoorelbeke expects 2025 growth to be revised down from 2% to nearer 1%.
According to the OBR's last assessment, in October, the budgetary measures left fiscal headroom for Reeves of just under £10 billion of spending, or 0.3% of GDP.
2. Public debt interest costs – the silent killer
Why it matters: The Chancellor’s £10 billion of fiscal headroom has been eaten up by rising gilt yields and higher debt servicing costs.
This is partly a self-inflicted squeeze. In her October budget, Reeves introduced two new fiscal rules: a stability rule requiring a balanced current budget, and an investment rule demanding falling net financial liabilities – both measured on a rolling five-year horizon.
Economist James Smith at ING says Reeves rules are designed to limit the Treasury’s ability to game the system.
"The flip side of that is that it does increasingly limit the Treasury's ability to avoid painful decisions on spending this year. Cuts could see per capita, real terms spending stay broadly flat."
3. Welfare cuts and departmental savings – fiscally tempting, politically perilous
Why it matters: Now the numbers have to add up sooner – and spending cuts are back on the menu, with the government this week setting out plans to claw back £5 billion a year through welfare reforms, particularly around disability benefits and jobseeker rules. Plans are also forming to slash departmental budget growth from 1.3% to below 1% in real terms beyond 2025.
Kathleen Brooks, head of research at XTB, notes that the cuts could make Elon Musk's "DOGE blush in the US", while Myron Jobson at Interactive Investor warns they risk "pushing vulnerable individuals into financial hardship".
However, economist Paul Johnson at the Institute for Fiscal Studies says accusations that Reeves is pursuing austerity policies is "way overblown" in the context of what the government announced in October and by comparison with the stated plans of the last Tory government, due to the funding announced at the Autumn Budget.
4. Tax rises – delayed but not dodged
Why it matters: Reeves has ruled them out for now, but expect business taxes to bear the brunt come autumn.
Smith predicts a repeat of October’s strategy – going after employer National Insurance rather than touching income tax or VAT. “Tax hikes look inevitable,” he says.
5. Fiscal drag – stealth tax by freeze
Why it matters: Existing measures like freezing income tax rates and thresholds are expected to be extended, potentially to 2030.
This will help to raise additional revenue without increasing tax rates directly, known as the "fiscal drag" effect, which could quietly pad Treasury coffers for a few years. It’s unpopular but effective.
"Whilst generally touted as ‘not raising tax rates’, it is publicly regarded that this causes stealth taxation by bringing more people into taxation and higher rates than previously as the effect of inflation on salaries is not met with increases in tax bands or allowances," says Phil Kinzett-Evans, partner at UHY Hacker Young.
6. Defence spending – politically safe, economically strategic
Why it matters: With global tensions and a UK election looming, defence is one of the few spending areas set to rise.
XTB's Brooks says Rolls Royce and BAE Systems are already surging in the FTSE 100, and Reeves may look to fuel that momentum.
7. Capital markets reform – revive the corpse
Why it matters: The UK’s equity markets are underperforming. Policy tweaks could redirect pension and ISA money back into domestic stocks.
Phil Jenkins at Centrus wants stamp duty scrapped on UK shares and the National Wealth Fund empowered to act. “Intervention is needed to arrest the decline,” he warns.
8. Potential giveaways - businss NICs or crypto?
Why it matters: With Reeves having to take with one hand, politics 101 means she will want to give a little with the other, even if its not in cash terms. This could see some pension reforms to free up capital for domestic investment, or providing a boost somehow to consumers and the retail and hospitality sectors.
Concerns over employer National Insurance Contributions (NICs) have been raised by retail and hospitality industries, which could see Reeves offer some leeway for SMEs.
Other potential relief measures for businesses are reportedly being considered, including targeted support for some sectors like agriculture and charities, with the aim of mitigating supporting economic growth.
“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 Mike Ayres, director at Menzies.
Further clarity on the UK’s regulatory approach to cryptocurrency is also anticipated, he says. “A government update on the UK’s crypto roadmap, including plans for merging stablecoin and broader crypto regulations, would be welcome.”
9. Other tax tweaks – small print, big impact
Why it matters: Inheritance tax thresholds, capital gains tax and ISA contribution limits are all under the microscope – quieter levers that Reeves could pull to bring in revenue without the political fireworks of headline-grabbing tax hikes.
Adjusting inheritance tax thresholds might sound like a populist play, but with house prices ballooning across the UK, it risks catching middle-class homeowners in the crossfire.
"Be careful what you wish for," says Kinzett-Evans, as even modest estates could soon fall into the IHT net.
Higher CGT rates are already baked in from the Autumn Budget, reinforcing the theme: raise revenue, but quietly.
10. Trade and tariffs – Trump-shaped shadow
Why it matters: US reciprocal tariffs kick in on 2 April. Reeves may hint at tech and bank tax reliefs to avoid escalation.
There's a chance for the UK to strike a deal if it plays its cards right, but it's questionable how much the Chancellor can say in this statement. But Brooks believes if Reeves keeps Washington sweet the pound “could be a top FX performer” on the day.