The 2025 Spring Statement
What Rachel Reeves’ Spring Statement and the OBR’s March 2025 forecast meant for the fiscal rules
Rachel Reeves made her Spring Statement on 26 March 2025, alongside new forecasts from the Office for Budget Responsibility. The brief explained the Chancellor’s fiscal rules, what the OBR now expected for growth, inflation, incomes, borrowing and debt, and the welfare, spending and tax decisions she took to keep within those rules ahead of the June Spending Review.
Without those decisions, she would have missed her main rule. The OBR’s pre-measures forecast showed a £4.1 billion current budget deficit in 2029/30, largely because debt interest was about £10 billion higher. Welfare cuts, lower day-to-day departmental spending and action on tax avoidance restored a £9.9 billion surplus: the same margin as in October 2024, low by past Chancellors’ standards, and given a 54% chance of being met.
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Get the full reportWhat we found
1. Policy changes restored the Chancellor’s £9.9 billion headroom
Before measures, the OBR had the current budget £4.1 billion in deficit in 2029/30, around £14 billion worse than in October 2024, mostly because debt interest was about £10 billion higher. Welfare savings of £4.8 billion, departmental day-to-day cuts of £3.6 billion, £1 billion from reducing tax avoidance and £3.4 billion of indirect effects, mainly from planning reform, turned that into a £9.9 billion surplus (0.3% of GDP). The OBR put the chance of meeting the rule at 54%.
2. The OBR halved its growth forecast for 2025 to 1.0%
Weaker growth than expected led the OBR to cut its 2025 forecast from 2.0% to 1.0%, while raising 2026 slightly to 1.9%; it expected inflation to peak at 3.8% in July 2025 and unemployment at 4.5% during 2025. In its most severe tariff scenario, a 20 percentage point rise in tariffs between the US and the rest of the world with retaliation, UK GDP would be 0.7% to 1.0% lower from 2026/27 to 2029/30.
3. Welfare reforms cut planned spending by £4.8 billion in 2029/30
Building on the Pathways to Work green paper of 18 March 2025, changes to incapacity and disability benefits cut spending by £6.4 billion, partly offset by £1.9 billion for a more generous Universal Credit for all claimants. The Universal Credit health element for new claimants was to fall from £97 a week to £50 in 2026/27 and then be frozen at £50 for four years.
4. Defence rose as aid was cut, leaving other budgets tight
The Statement added £2.2 billion to the Ministry of Defence budget in 2025/26, the first step towards 2.5% of GDP by 2027, paid for by cutting overseas aid. With the overall spending envelope barely changed, the OBR estimated that budgets outside the NHS, defence, aid and core schools faced real-terms cuts of 0.8% a year from 2026/27, ahead of a Spending Review due on 11 June 2025.
What’s in the report
- The fiscal rules and how the OBR assessed them before and after the Statement
- The OBR’s forecasts for growth, inflation, incomes, unemployment, borrowing and debt
- Spending changes, the £3.25 billion Transformation Fund and the Spending Review ahead
- The policy announcements on benefits, defence, housing and tax
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