Spring Statement: Reassuringly sensible spending or woeful lack of ambition? Discuss
Chancellor Rachel Reeves’ promise to have just one major fiscal event a year has been somewhat scuppered by an unfortunate hole in the public purse. A hole that has opened up, according to Reeves, because of global economic instability.
To give the chancellor a soupçon of leeway, her budget and spending plans were set out just one week before the election of Donald Trump, whose first few months of his second term have been dominated by economically destabilising trade tariffs.
But it was perhaps a bit ambitious to give just 1% of headroom in the budget, given it isn’t just the re-election of a rather radical president which has thrown global economies into disarray. Geopolitical tension has been raging in the Middle East and eastern Europe for several years. While political instability in Europe has been threatening trade ties there well before Trump started using his “favourite word”.
The headline from today’s announcement is that rising borrowing costs (the yield on government bonds) means that without further taxes or cuts, the government will fall short of its target to balance the deficit. That puts Reeves and her team in Labour HQ in something of a pickle - further cuts (or austerity measures) are a solution for the Tories, but further taxes go against what she promised in the Autumn.
The solution - tiny tweaks to spending plans, cuts to welfare spending (dressed up as an altruistic plan to ‘get people back to work’) and the promise to kick the can down the road until June. Speaking to the Financial Times, a senior portfolio manager from Axa’s investment management warned that rebuilding just £10bn of headroom was unlikely to be enough. The spending review in June (another one of the non-major fiscal events the chancellor has planned to keep everyone focused) will likely come with more spending cuts to meet the fiscal rules.
Market impact
The statement received a mixed reaction from the financial markets, with the domestic-focused FTSE 250 dropping sharply as the chancellor started speaking before rallying again.
That rally might have been supported by the share price movement of the defence companies and housebuilders, which were the only sectors to get a direct callout in this review.
Defence (which has had a pretty strong start to the year already) is set to receive an additional £6.4bn of spending by 2027, with £2.2bn due to come in the next financial year. For the UK’s listed defence contractors, the particularly good news is that 10% of the MoD’s equipment budget will be ringfenced for innovative technologies. Meanwhile Barrow-in-Furness (read BAE Systems (LON:BA.)) will get £200m of investment in jobs, technology and infrastructure.
Housebuilding meanwhile has had quite a rocky 2025 to date. Continued high interest rates are keeping the sector’s recovery in check. Has this statement brought any encouragement for more rapid interest rate cuts? Not really. Reeves says that the OBR has forecast inflation of 3.2% on average in 2025, before falling to 2.1% in 2026. But this feels a little like a random number plucked out of the air.
There was the promise of an additional £2bn of investment in social and affordable homes next year, which could deliver up to 18,000 new homes. But that doesn’t seem particularly ambitious when the government has historically invested £2.4bn a year in the sector.
The good news is that UK borrowing costs have dipped slightly in response to this statement, likely on the back of the news that Reeves plans to sell slightly less debt than previously forecast £300bn versus £304bn. The ten-year gilt yields were down 0.05 percentage points to 4.7%.
Reassuringly sensible spending or woeful lack of ambition?
Much like portfolio management, the UK government needs to find the right balance between making tweaks to manage the economy in line with wider macro events and filtering out the noise.
I’d argue that Reeves has done neither. Making a fuss about the challenges of the global economy, but barely suggesting any positive steps to fix them.
Without some exciting stimulus the UK market is going to continue to be a rather challenging place to operate.
Although my main takeaway is that, for now at least, you won’t go far wrong with the defence sector.
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53 comments
I forgot to include some info about 3D printing in last post. Interesting article how Australia are developing 3D printing in construction..
https://www.theguardian.com/au...
How quickly would a surge in house building lead to a significant reduction in house prices? If house prices fall , the value of existing houses will fall, perhaps leading to negative equity and a slowdown in house sales, with sn impact on the economy.
Will house builders price new houses below current house prices? If supply exceeds demand, will they keep building houses that they can’t sell?
I can’t see an achievable way to provide more or cheaper housing quickly
The OBR have forecast a 15% increase in house prices upto 2030 despite a forecast rise in mortgage rates. Go figure
As far as I can figure Paul so long as money supply (government debt) continues to increase then we will keep having inflation so housing/stockmarkets will only long term go one way same as the last 50 years.
"I can’t see an achievable way to provide more or cheaper housing quickly"
I would agree. There is the possibility however that the definition of "housing" might change. Redundant office space could be repurposed to provide housing of sorts with a change to planning and possibly building regulations. Currently many of these type of conversions divide opinion as to whether they would be acceptable for housing.
Also the trend might continue for smaller accommodation. And there is also the possibility of someone making a breakthrough on modular or prefab building which significantly lowers the cost and/or speeds up construction. Modular building has not achieved mass acceptance despite many years of trying - though there are some signs that this might change.
As for house prices, I would suggest that they follow affordability rather than price. If someone can afford the deposit and monthly payments then they will buy the house.
Housebuilders generally build the number of houses which will deliver the best financial return for the company. They either speed up or slow down depending on costs and if the development competes locally with another developer. It's a well honed skill which perhaps unsurprisingly does not produce the number of houses the Government requires in its various targets. I don't expect the situation will change.
The big unknown is the affordability. Killing off cash ISAs for those saving for a house will not help. A rise in interest rates will really hurt - a recent survey of Mortgage Brokers said that 69% of those brokers surveyed expected interest rates to be higher this time next year.
There are a lot of moving parts in the Housebuilding process and it is very difficult to say what might happen. From an investment perspective, I think that some housebuilders look interesting but I am not investing at the moment.
The single greatest change this country should (and could !) do is to lower the cost of energy by pushing the cheapest possible options and not subsidising any of them. The answer is for now probably gas and oil, the real cost of wind power is very high once the necessary back up is costed in ( Lazards much quoted levelized cost is not relevant) . Amazingly, we actually still have the prospect of more North Sea resources and it is vital that we get out of the way of companies that want to exploit these. Meanwhile we order ( not prevaricate over) new nuclear power stations based on SMR designs from Rolls Royce. SMRs may not even be the most efficient way to get nuclear power but they promise to get it reliably and in an acceptable time. They also, by being locatable nearer to demand, reduce some of the cost of grid changes that accompany the current wind power plans.
If the government signs up for this now the assurance of a credible future energy strategy will take some of the pressure off sterling and the government’s spending plans. It also declares, more than any other single measurement, that government is grounded in reality.
Is it all in the chart... the market is happier when she is either not speaking or says nothing (much) . Which is I guess why you chose that chart :)
BOE still paying interest on QE deposits. Could have done something there, but she’d rather pick the pockets of pensioners instead.
But on the flipside the BOE is estimated to have lost north of £45 bil over the past year due to Quantative Tightening.
I like this snapshot for the simplicity of the current problem the UK is facing.
Now you could raise income taxes by 40% across the board to balance the books or.....
You could cut spending by 10%.
not sensible or woeful, just completely missing the point imo.
Improve productivity (1):
Most of the flexible capital we have is human. for better or worse, factories and offices are big, expensive and hard to move. Bringing work to the home is great, but is for a lucky minority. Improve public transport so that the bus / train / tram system within 20m of bristol / manchester / birmingham / any UK city is as good as it is inside the M25. I see many talented young people in this town (13m outside bristol) who end up in min wage jobs because the transport links are too slow and (crucially) unreliable. There are studies out there that show the main difference between Lyon and Birmingham (similar in many ways but Lyon's per capita income > 25% bigger) is that Lyon has a good public transport system and Birmingham does not so the right person simply cannot get to the right - better- job in Birmingham.
Improve productivity (2):
Adult education. Most of the capital we have is human. Improve it. Investing in - and implicitly believing in and valuing - a person would probably also improve general well-being.
Reduce immigration:
(yes, clickbait) People dont have many children because they cannot afford a stable home. Because we dont have enough children we need a lot of immigrants (actually we always will need immigrants to do the jobs we dont want to (nhs support staff) and jobs we dont seem to be able to do (nhs doctors and other high skill professions) but if we had 500k more children pa, you need 500k fewer immigrants). Until the mid 90s a couple could just about afford a 3 bed semi a commutable distance from london, and have kids etc. Now you need to be the FD of a mittlestand. Houses need to be a *lot* cheaper (especially in a commutable distance from a city). Yes, this means re-drawing the greenbelt, it is a choice.
Inflict the biggest cuts on the treasury:
These are the people who thought HS2 was a job well managed. It is structurally unable to invest in a sustained manner. There is the BoE and the OBR and the Audit commission and House of commons committees. The spending departments should know how to spend money more efficiently and effectively. Cabinet can set overall spending levels. Not sure why the treasury does anything more than obtaining the funds the spending departments require (tax or borrowing) in the most efficient manner.
I agree with all your points bar immigration.
We’ve created a bloated tertiary education sector that just doesn’t serve the UK economy and many of the kids that attend uni would have been better off being guided into apprenticeships at 18, especially in sectors we now find ourselves with labour shortages.
Let’s face it, most uni leavers aren’t going into 6 figure salaried jobs. Getting into £40-£50k of debt by 21yo just kills aspiration imo. Why would a young person chase that promotion with its increased accountability when they pay 9% of their student loan on earnings above c.£26k,
Right size uni placements, get young people into apprenticeships and close labour shortages.
As for NHS, we cap medical students so supply doesn't meet demand and burden them with loans.
Remove the cap and depreciate the loan as long as they Ramin working within the NHS.
I can’t help but think the above reduces the requirement for migrant labour in crucial industries, whilst providing better life outcomes for homegrown people, possibly even giving them the wherewithal to start families.
I can recommend the book Through the Looking Glass by Tim Price.
As the interest bill on government debt rises we end up borrowing money to pay the interest on the money we borrowed previously. I don't see how this can end well.
US have the same problem they are paying over a trillion a year in interest and have trillions of deb maturing the next 1-3 years that again will need rolling over at rates double what they are currently on.
Labour talk a lot about growth but most of their actions have had a negative impact on growth. Productivity is very low and there doesn't seem to be a long-term vision for the future. Where is the big picture thinking to inspire the population with a common goal? Last time that happened was the 2012 Olympics, despite all the criticism and negativity beforehand. I am opposed to everything Trump and his acolytes stand for but one thing you can say is that he is a disrupter, and our drab government could learn from this.
I'm surprised by the amount of empathy on this thread for Reeves. Given the country has maxed out its credit card to the limit and is having to borrow money every year to make the interest payments alone I would say she is 'not doing fine' rather in fact the opposite.
Drastic cuts required but who's going to vote for that? And that's why you get the politicians you deserve.........this is the economics of death by a thousand cuts.
Who maxed out the credit card?
Governments of the last 25 years, living far beyond our means, and still it goes on
You can't blame economic mismanagement of the past on her then. If as you say there's no money left, surely she should be raising taxes?
No because we are already on the wrong side of the Laffer curve, there are more millionaires and wealth creators leaving the UK than any other country in the world outside of China, raising taxes would do nothing positive at all.
I do hold her accountable because her last budget was the most diabolical anti business budget I have ever seen from a UK Chancellor. Economic growth is the only solution to the country's miserable finances and she has killed that dead.
Ah, the Laffer curve! The economic theory that's often dragged out to justify tax cuts for the wealthy. Here's the thing: the idea that raising taxes is inherently bad because it supposedly drives millionaires away is like saying we shouldn’t bother fixing potholes because drivers will just buy better suspension. Sure, some may leave, but for the vast majority of businesses and workers, the right tax policies—especially ones that invest in public services and infrastructure—help create the conditions for growth.
As for Rachel Reeves' 'diabolical' budget, it’s funny how economic growth is the answer to everything, but no one seems to have a solid definition of how it magically happens without any investment or structural change. The truth is, businesses thrive when there's stability, a clear plan, and when the government isn’t stuck playing catch-up with one economic crisis after another. A 'business-friendly' approach shouldn’t just mean tax cuts for the top—it should mean investing in innovation, education, and fairness across the board.
And before we get too lost in the idea that the super-rich are packing their bags and fleeing the UK, let’s remember: economic success isn’t just about the few at the top—it’s about the many. Maybe the solution isn't ‘tax cuts for billionaires’ but something a little more grounded in the idea that, when you help the middle and working classes thrive, the economy grows from the bottom up, not just the top down."
It's all about balance, not a race to the bottom. The Laffer curve may look good on a graph, but it doesn't always translate into real-world results.
Lol, sorry Viz but that reads like a load of idealogical clap trap.
Capital goes to where it is treated best and that's why it is fleeing the UK. Next time people complain about the lack of liquidity in markets and investment in the real economy just remember that....
You're still here, I'm still here and so are most ;-o)
Whereas the Laffer curve isn't a load of ideological clap trap at all!
We're in this mess due to successive governments borrowing too much to fund their own ideological clap trap. At the end of the day we're all collectively to blame for believing the nonsense that is regurgitated, I hate to think what will happen next it appears to be a race to stupidity.
Those who make their lives here do so for many reasons, the marginal tax rate is probably not that important. If money is the main reason for leaving, I am pleased they are going and hope they do not come back. I do not want this country shaped for the convenience of a tiny minority of v.v. rich people. That is a race (to the bottom) that we should not compete in.
Funny how we think giving v.v. rich people more money is a good thing, and at the same time taking money away from poor people is also a good thing. By all means apply the rules (something that seems to have been deprioritised in the Pandemic) but reducing benefits in the expectation that the claimant will get a job is truss-level policy. If that is really the outcome, it wont end well.
but Reeves is happy to blow
£22bn on some carbon capture crap, £12bn on African climateaid (most of which will end up in private swiss bank accounts!), £13bn Foreign Aid to countries like India & China, (who have their own space programmes!), £9bn on GB Energy to produce nothing, a further £3bn on Ukraine, £9bn+ to give away the Chagos Islands to a country that never owned them!!
I'm not a Reeves apologist. I just don't like the way that the economies woes have been placed at her doorstep and providing some balance. BTW a lot of the spending you have listed was already in place and as a side point, what the UK are doing to the Chagos Islands is the very minimum that the UK should be doing. This was already in the pipeline.
I agree, its not all her fault, but she seems to be making things worse...
Tories maxed the CCard by shutting the whole country down for a virus!
We are all surprised that you think a new administration could turn round a debt ridden supertanker in 12 months. Its a 10 year + problem. Minimum wage workers will be better off in April than they have been in years and most of that money will be spent. Some housebuilders see green shoots and there is lots of M&A in property IT's. For a Government that sadly lacked a detailed plan on day one they have done quite a lot.
That's the problem Mr Onions the debt issue has been probably 30 years in the making and we are now most likely at the maxed out limit. From memory the top 10% of earners pay roughly 60% of the entire income tax take so in my opinion they are doing their bit.
The issue I think is the 25% of the total population aged 16-67 who are economically inactive either paying very little or nothing in.
As you say if they try and cut benefits to hard there will probably be riots and the country in flames I don't think furlough helped as people got used to being paid for doing nothing.
We now pay roughly 10% of total income tax take just to service debt interest and I would imagine the 400 bil printed during covid which was probably on sub 1.5% rates will need rolling over shortly at north of 4%.
The only way out for any Government is to get rates back down to sub 1% but they can't do that with inflation where it is currently so no good/easy answers.
Hi Phoenix, yep, I agree with all of that (unfortunately!)
I personally think the UK is in checkmate sadly, the US can most likely stumble on for a while yet as the worlds reserve currency despite Donalds best efforts to blow up the entire Western system.
It was a lacklustre mini budget, doing just enough to keep the public finances on a footing to avoid the gilt markets imploding. (Which would be a political disaster.)
The silver lining is the expected relaxation in planning laws. The difficulty of building 'stuff' is a self inflicted and serious drag on UK economic performance and one of the few levers in the control of our own governments.
I wonder if the Government is quietly planning to do more on the extraordinary growth in disability related benefit? There are the headline nearly £5bn p.a. overt cuts, which have provoked bankbenchers' ire and perhaps the plan is to make it harder to claim for those with the least serious conditions.
A fair analysis Megan. In view of the Trump turmoil I think Rachel is doing fine. I just wish the Government would get even closer to the EU for all our sakes.
Are you kidding?
The EU is our major market. Successful businesses get close to their customers.
Maybe Trump's tariffs, Ukraine/Russia outcome will provide excuses to eventually rewrite the financial rules.
Meanwhile getting a handle on spending including the ballooning benefits, sorting housing and defense should be applauded.
There is no substitute to making the right choices, and Rachel choices are patently wrong. Stammer needs to fire her and appoint someone with experience and intelligence, maybe Alexander Douglas he is back on the benches, only Labour MP I could think of that fits the job brief
Anyone who has worked in Barrow knows its in major need of investment and rejuvinating - hotels, housing and attractions in the city centre. Would be keen to keep an eye on who wins any contracts for the construction work required for any new car parks, office buildings etc. And heres hoping they will put some money into improving the one road out of Barrow!
Or the road in!
Tax the rich not penalise the poor and vulnerable
Get the poor back to work, the benefits level discourage gainful employment. Nothing to be gained by disincentivising the rich who are already leaving, better to get some tax than no tax
Yeh but the rich keep their assets here if they leave and continue to buy up assets. A small tax on those assets wouldnt even be noticed by the wealthy and would free up resources for us mere mortals
Realised assets are taxed at 40% agree this could be more and they could be charged a fee for being given Non Dom status. Non doms pay normal income for income earned in UK or on Dividends paid into the UK from overseas.. Sad reality there are lots on countries who offer zero tax. Whether we like or not we need to compete for their business for investment & tax
Totally agree in some respects - too easy to claim free money. See the astonishing and quite upsetting increase in young claimants.
The rich, however, must be made to contribute far more than they do so . And if they feel the single most important factor in their lives is how much money they have, then it would be best if they went elsewhere anyway. They are not needed or welcome.
Anyway, apologies for the political stuff.
"The rich, however, must be made to contribute far more than they do so . And if they feel the single most important factor in their lives is how much money they have, then it would be best if they went elsewhere anyway. They are not needed or welcome."
More socialism isn't the answer Lochinver. Anyway how do you define "the rich"?
Remember that the top 10% of earners already disproportionately pay far more income tax than anybody else in the economy. That is to say, the top 10% of earners are already shouldering the majority of income tax revenue.
Note that the bottom 50% of earners pay just 9.2% of total income tax, while the top 50% pay 90.8%
If people don't think they are being taxed sufficiently enough then they can elect to overpay their taxes in the form of a donation, HRMC will be more than happy to receive the additional revenue from you.
The Equality Trust Charity :
“Using inflation-adjusted wealth data from archive copies of the Rich List, it said the combined wealth of Britain’s billionaires had risen from £53.9bn in 1990 to more than £653bn in 2022. “This represents an increase in billionaire wealth of over 1,000% over the past 32 years,” the report said.
“That we have allowed the very richest few to accrue such a staggering amount of the nation’s wealth since 1990 is a national disgrace,” Wittams said. “The UK’s record on wealth inequality is appalling, grossly unjust, and presents a real threat to our economy and to our society.
“Every year we are invited to celebrate the very richest individuals and families in the UK, while food bank usage continues to increase, 3.9 million children are living in poverty and 6.7m households struggle to heat their homes. That these are two sides of the same coin is very rarely mentioned.”
Its a complex situation Alpha, no doubt.
But this surely cannot be an acceptable state of affairs
I'd welcome higher taxes on people like me. I have gained quite undeservedly from the rise in asset prices caused by housing inflation, QE, and by the triple lock on state pensions. England is rich in assets, especially perhaps in land and housing assets, and £T of this wealth will pass down the generations in the next 30 years and generate tax revenues and more consumption. Why not find a way to incentivise that wealth transfer sooner?
I have suggestions, but this isn't the forum for a detailed discussion.
Great article Megan many thanks government just chipping around the edges I feel
Yes, very sound synopsis Megan.
Within the constraints she had I think she’s produced the budget people expected.
Bluntly, they need a little bit of ‘luck‘
So in just 6 months taxes are up, borrowings are up and growth is halved (if that) and the outlook statement is we need a bit of luck........there are AIM nano caps with zero revenues that would have a higher stock ranking then that of Reeves.
That was before Trump slapped tariffs on car imports, if he adds tariffs on medicines, then we will be in negative growth.
Part of the problems are self inflicted by the budget.