The Chancellor presented a fiscal update to Parliament as part of the Spring Statement in which she set out the latest economic and fiscal outlook produced by the Office for Budget Responsibility (OBR) and announced a series of policy responses to stay within her fiscal rules. 

The OBR changed its forecast for economic growth for the forecast period from 2025/26 to 2029/30 from 2.0%, 1.7%, 1.5%, 1.5% and 1.6% to 1.2%, 1.9%, 1.7%, 1.7% and 1.8% respectively. This left the average growth rate over the next five financial years unchanged at 1.7% a year, but with a significantly lower growth rate in 2025/26 and slightly higher rates of growth in the following four financial years.

Changes since the Autumn Budget

Table 1 – Spring Statement 2025 forecast changes

Table 1 illustrates how the estimated and forecast current budget and fiscal deficits for 2024/25, 2025/26 and 2029/30 have changed as a result of the OBR’s revised economic and fiscal outlook and the government’s response to those changes.

The estimated current budget deficit for the 2024/25 fiscal year was revised up by £6bn, which when combined with lower capital investment resulted in a £10bn increase in the overall fiscal deficit from £127bn to £137bn. Unfortunately, the OBR’s update was not able to incorporate last week’s monthly public sector finances release for February 2025, which indicated that the 2024/25 deficit could potentially be on course to reach £150bn by the end of the financial year.

Lower tax receipts from a weaker economic outlook and higher debt interest costs were also the main drivers of the £10bn increase in the forecast current budget deficit for 2025/26, and in the £12bn increase in the overall fiscal deficit from £106bn to £118bn.

A similar pattern of lower tax receipts, a slower path of interest rate reductions and a higher level of debt on which interest is payable by the end of the forecast period are expected to comprise most of the £14bn deterioration in the forecast current budget balance for 2029/30, before taking account of the offsetting policy decisions made by the Chancellor that leave the current budget surplus unchanged in the end. 

The Chancellor identified improvements to the current budget balance that rise to £16bn by 2029/30 as follows:

• Higher receipts, rising to £5bn by 2029/30, comprising £2bn from increasing resources allocated to tackling tax avoidance and evasion, and £3bn from the indirect effects of the Chancellor’s policy decisions, including planning reform.

• Welfare savings from 2026/27 onwards that are projected to reach £5bn by 2029/30, combining restrictions in eligibility for disability benefits, an increase in the universal credit standard allowance and a reduction in the universal credit health element.

• Savings of £3bn in 2029/30 from the decision to reduce the overseas development assistance budget from 0.5% to 0.3% of GDP from 1 January 2026 onwards (see also investment below).

• Efficiency savings of £3bn in 2029/30 from planned cuts in the size of the civil service.

These were partially offset by other increases in current spending of £2bn, including an extra £0.6bn for defence by 2029/30.

The overall fiscal deficit in 2029/30 is expected to be £3bn higher, at £74bn instead of £71bn in the previous forecast because of a £1bn reduction from forecast revisions, £4bn in lower overseas development capital spending and £8bn in increased investment. The latter comprises an extra £6bn for defence and £2bn for other areas.

The extra money going into defence should enable the government to meet its new target of spending at least 2.5% of GDP on defence and security.

The table does not show a one-off £3bn in current spending that is allocated to public service transformation in 2026/27 and 2027/28. The government hopes that this funding, in conjunction with technology investments within capital budgets, will help deliver significant reductions in the size of the civil service and in central government administration costs.

Deficits and debt

Table 2 – Spring Statement 2025 summary

Source: OBR, ‘Economic and Fiscal Outlook, March 2025’.

Table 2 set out key fiscal measures for 2024/25, 2025/26 and 2029/30, highlighting how the government aims to turn its current budget balance from a deficit to a surplus while at the same time increasing net investment. 

The table also shows how public sector net debt is expected to increase from £2,813bn on 31 March 2025 (£23bn less than in the previous forecast) to £3,391bn on 31 March 2030 (£30bn more). Net financial liabilities are expected to rise from £2,404bn (£4bn less than in the previous forecast) to £2,919bn (£39bn more) over the same period. 

The government’s secondary fiscal rule is for net financial liabilities to be falling as a proportion of the GDP by the fifth year of the fiscal forecast. Following the Spring Statement this is expected to be achieved with about £15bn of headroom based on a reduction from 83.2% in March 2029 (not shown in the table) to 82.7% of GDP in March 2030.

Conclusion

While this was a Spring Statement fiscal event rather than a Spring Forecast non-fiscal event as the Chancellor had hoped, the tax and spending measures that were announced were each relatively small in the context of total managed expenditure of more than £1.5tn in 2029/30.

In practice, the Chancellor had very limited options given the very difficult economic situation she inherited, with the public finances on an unsustainable path in the long-term and a growing debt interest bill that is continually squeezing the amounts available for government priorities.

The Chancellor is boxed in by a stubbornly underperforming economy, decades of underinvestment in infrastructure and in public services, and the need to maintain the confidence of debt investors in what is an increasingly turbulent world.

What is positive are signs that the government is starting to understand that public sector efficiency savings don’t happen by magic – upfront investment will be needed to transform how public services are delivered, in addition to the technology investment that will also be required. Similarly, it is good that this Chancellor, unlike many of her predecessors, avoided the temptation to cut capital investment to balance the books.