MHA delivers spring statement predictions

By MHA

20 Mar 2025

Website
Joe Nellis.jpg.jpg

Professor Joe Nellis — economic adviser to Lancashire-based accountancy and advisory firm MHA and professor of global economy at Cranfield School of Management — provides his predictions ahead of the Spring Statement on 26th March.

How did we get here?

The Chancellor has had her fiscal headroom of an estimated £9.9bn wiped out by the combination of higher borrowing costs and flatlining growth — with some predicting she could miss her fiscal target by as much as £1.6bn due to a rise in bond yields.

Traditionally, the Spring Statement would give a chancellor the opportunity to provide an update on the nation’s economic outlook and public finances, without major policy announcements.

However, since October’s Budget the economic landscape has dramatically changed. The Bank of England has slashed its 2025 GDP growth forecast in half, from 1.5 per cent to 0.75 per cent, and inflation is now projected to remain above 2 per cent until at least 2027. As a result, we can expect to see substantive measures announced by the Government on and in the lead-up to 26th March.

What can the Government do?

Option 1: Changes to borrowing rules

While the Chancellor established the Government’s borrowing rules in the October Budget to allow for greater public sector investment spending, she has the option to change these self-imposed rules again to grow the fiscal headroom.

While current rules mandate that day-to-day spending be financed through revenue (not borrowing), the rapidly evolving international environment means that extra funds are needed to finance vital sectors, notably defence. Friedrich Merz, Germany’s chancellor-in-waiting, is currently pushing for a change in Germany’s debt rules that would facilitate €500 billion of infrastructure spending over 12 years to turbocharge the economy and exempt some defence spending to ensure national sovereignty and Europe’s defence.

With the UK economy struggling and increases in defence spending announced, is it likely that Rachel Reeves follows suit? Not really — the Government have often stressed the point that they will not borrow to fund day-to-day spending, and the fear and repercussions of upsetting the bond market even further is too strong.

Option 2: Tax rises

This Government ran for election on a platform promise that they would not directly raise taxes on working people, and they are unlikely to divert from this strategy by making changes to income tax rates. However, they have shown themselves willing to alter taxes — Employer National Insurance Contributions are one example — and there have been rumours of reforms to Individual Savings Accounts (ISAs). Proposals include capping cash ISA holdings to encourage investment in equities, although these changes are unlikely to happen immediately.

What will almost certainly happen is a prolonged freeze on income tax thresholds, perhaps by an additional two years. By not increasing thresholds in line with inflation, they effectively operate as a hidden tax increase — a ‘fiscal drag’ — allowing the Government to increase tax revenues without breaking their manifesto pledges.

Option 3: Spending cuts

The most likely route that the Government will take to fill the fiscal gap is to cut spending, with reforms to the welfare system — particularly the Personal Independence Payments (PIPs) — already announced in the House of Commons by the Secretary of State for Work and Pensions, Liz Kendall. Through this route, the Government is hoping to save over £5 billion.

While this will undoubtedly spark heated debate around the impact on some of society’s most vulnerable groups, the Government continue to hold the immense political capital that a large parliamentary majority provides them. While many in the Labour Party may feel uneasy with a cut to the welfare state, it is unlikely that there will be any trouble in passing such measures through Parliament.

What next?

As we move ever-nearer to the Spring Statement on 26th March, speculation will be heating up, as the country’s eye returns to the domestic economy after a start to the year heavily dominated by international events.

Enjoyed this? Read more from MHA

Latest news

1

Construction begins on new Civil Service office building in Talbot Gateway Alan McBride Muse Will Town Defence Infrastructure Organisation Jennifer Chard Defence Business Services Cllr Lynn Williams Blackpool Council Garry Bowker Vinci

Construction begins on new Civil Service office building in Talbot Gateway

20 May 2025

2

Skiddle raises over £750,000 for charities Skiddle cheque presentation to Alder Hey Hospital

Skiddle raises over £750,000 for charities

20 May 2025

3

Former Victorian Hotel approved for residential conversion The site

Former Victorian Hotel approved for residential conversion

19 May 2025

4

REVOLUTION PARK: Work starts on Darwen’s new home of advanced manufacturing Oliver Webber, Tracy Clavell-Bate and Tim Webber from Barnfield Group with Cllr Phil Riley, second from right, Leader of Blackburn with Darwen Council

REVOLUTION PARK: Work starts on Darwen’s new home of advanced manufacturing

19 May 2025

5

Two Cuckoo Gins named winners in The Gin Guide Awards 2025 Mark Long

Two Cuckoo Gins named winners in The Gin Guide Awards 2025

19 May 2025

Background image for hub sign up block

LBV Hub

Leverage Lancashire Business View platforms

Post your news
Post your events
Post your offers
Build your network
Improve your SEO
Gain coverage in the magazine
Sign-up
Events
LBV122 May/June Launch Event
121 Lancashire Business View Magazine Launch
Networking
21 May 2025

LBV122 May/June Launch Event

Lancaster and Morecambe College, Lancaster, LA1 2TY

08:30 - 10:30

Sub36 Networking
Networking
11 Jun 2025

Sub36 Networking

British Jewellery School, Scorton, PR3 1BA

15:00 - 17:00

Lancashire Net Zero Carbon Conference
Net Zero Carbon Social 1200pxtrident 2
Networking
18 Jun 2025

Lancashire Net Zero Carbon Conference

Crow Wood Hotel & Spa Resort, Burnley, BB12 0RT

08:30 - 13:00

Lancashire Built Environment Conference 2025
BEC 315 X 315 Px
Networking
25 Sep 2025

Lancashire Built Environment Conference 2025

Blackpool Football Club, Blackpool, FY1 6HX

08:30 - 13:00

CMI Level 5 Management and Leadership Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Management and Leadership Course

Preston Campus, Preston , PR1 2HE

09:00 - 17:00

CMI Level 5 Project Management Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Project Management Course

Preston Campus, Preston, PR1 2HE

08:00 - 17:00

RISE - The Academy for Female Leaders and Managers
WENDY BOWERS RISE Illustrstion copy.jpg.jpg
LBV Hub Seminars
02 Apr 2025 - 08 Oct 2025

RISE - The Academy for Female Leaders and Managers

East Lancashire Chamber of Commerce, Clayton le Moors, BB5 5JR

09:00 - 15:30

Preston Freelancer Meet-Up: May
Freelancer Meet-Up May.png.png
LBV Hub Networking
22 May 2025 - 22 May 2025

Preston Freelancer Meet-Up: May

society1, Coworking Space, Preston, PR1 3LT

10:00 - 11:30

Amber River True Bearing quarterly investment seminar
LBV Hub Seminars
22 May 2025 - 22 May 2025

Amber River True Bearing quarterly investment seminar

Cottons Hotel & Spa , Knutsford, WA16 0SU

16:00 - 18:00

The Business Network Central & East Lancashire
LBV Hub Networking
22 May 2025 - 22 May 2025

The Business Network Central & East Lancashire

Mytton Fold, Langho, BB6 8AB

11:30 - 14:15

Liverpool Business Expo 2025
https---cdn.evbuc.com-images-881365363-4862066883-1-original.20241023-085714.jpeg.jpg
LBV Hub Awards
23 May 2025 - 23 May 2025

Liverpool Business Expo 2025

Aintree Racecourse , Liverpool , L9 5AS

09:00 - 15:00

Advantage: AI – A Workshop for Business Leaders – May 29
Artboard 15.png.png
LBV Hub Seminars
29 May 2025 - 29 May 2025

Advantage: AI – A Workshop for Business Leaders – May 29

Door4 Office, Burnley Wharf, Manchester Road, Burnley, BB11 1JG

09:00 - 11:00

Advertise with us

Reaching 50,000 members, our print, digital and event platforms offer a fantastic way to raise your business profile and help you grow.

Find out more LBV122 Online Graphic
Subscribe now

Weekly news bulletin