Jeffrey Matsu, CIPFA Chief Economist
Chancellor Rachel Reeves’ Spring Statement landed in the middle of a turbulent economic moment. Growth for 2025 has been revised down to just 1%, borrowing costs are up, and the government’s fiscal headroom — its margin for unexpected costs — has been reworked to just £9.9 billion. With little room to manoeuvre, Reeves stuck firmly to Labour’s economic strategy: to kickstart growth and break down barriers to opportunity, while maintaining credibility with the markets.
Stability under pressure
Reeves reaffirmed her fiscal rules, pledging to balance the government’s day-to-day spending with tax receipts by 2029-30 and reduce net debt over time. But given the weakening economic outlook and rising costs of servicing public debt, the challenge has become much harder.
To stay on course, the Chancellor announced almost £5 billion in additional welfare savings and introduced smaller revenue-raising measures like increased visa fees and council tax. But these types of savings have a poor track record of delivering in full. Previous attempts to cut spending through efficiency or tighten tax loopholes often fell short of expectations.
That’s why a review of the current fiscal rules is essential ahead of the Autumn Budget. Rather than abandoning discipline, the rules should evolve to reflect today’s volatile global environment. Building in contingency buffers would give the Treasury more flexibility to respond to future shocks without having to scramble for last-minute savings.
Moderate, targeted tax reforms should also be on the table — such as adjusting capital gains or introducing a time-limited windfall tax on sectors seeing unexpected profits. These could help close the gap without over-relying on spending cuts that fall hardest on vulnerable groups.
Investment that drives growth
One of the most encouraging parts of the Statement was Reeves’ decision to protect the government’s capital investment programme. With growth lagging and regional inequality still persistent, long-term investment in infrastructure, housing, and defence remains critical.
Defence spending will rise to 2.5% of GDP by 2027, while £2 billion has been pledged for new social housing. But these increases — especially in housing — are modest given the scale of need. Much of the country still lives with the consequences of underinvestment in basic infrastructure, from crumbling estates to overcrowded schools.
As borrowing becomes more expensive, it’s crucial that every investment delivers clear and measurable returns. The Spending Review must focus on prioritising high-impact projects — particularly those that improve productivity, support regional development, and create good jobs.
By the time of the Autumn Budget, the Treasury should also introduce a more rigorous system for evaluating major projects. Independent assessments and clear cost-benefit tests would help ensure money is being spent wisely. The government could also consider issuing mission-linked “growth bonds” to finance capital projects in a way that supports both public confidence and fiscal credibility.
Reform with a social mandate
The biggest flashpoint in the Statement was welfare reform. Changes to Personal Independence Payments and freezes to the health-related component of Universal Credit could affect more than three million people. While these policies aim to reduce spending, they risk undermining Labour’s mission to expand opportunity — particularly if they push vulnerable people further from the labour market.
To help offset these impacts, Reeves announced a £1.4 billion fund to support people back into work. It’s a step in the right direction, but more will be needed. The Spending Review should reassess the savings assumptions behind the welfare cuts and identify alternative plans if they prove overly optimistic.
The Autumn Budget will be a key moment to strengthen support services — especially childcare, training, and employment schemes — that empower people to participate in the economy. Fast-tracking planning reform, backed by local government investment, would also unlock housing and regional growth.
Looking ahead
Labour’s economic plan is walking a narrow line: delivering stability without slipping into austerity. The decisions Reeves takes in the Spending Review and Autumn Budget will determine whether Labour can deliver on its mission-led ambitions while keeping the public finances on track.