2025 Spring Statement
Chancellor Rachel Reeves delivered the UK's 2025 Spring Statement.
No changes to tax rates announced and little fiscal content.
The Statement largely confirmed the government’s existing economic strategy, which the Chancellor sought to back up with updated statistics from the Office for Budget Responsibility (“OBR”).
Economic Outlook
The Office for Budget Responsibility (OBR) revised the UK's economic growth forecast for 2025 downwards from 2% to 1%, citing a sluggish economy.
Inflation is projected to average 3.2% this year, dropping to 2.1% next year.
The budget deficit is expected to shift from £36.1 billion in 2025-26 to a surplus of £9.9 billion by 2029-30, with the tax burden reaching a record 37.7% of GDP by 2027-28.
Welfare Reforms
To address fiscal pressures, the Chancellor announced £14 billion in welfare cuts. Key measures include halving and freezing the Universal Credit health element for new claimants and tightening eligibility criteria for Personal Independence Payments (PIP).
These reforms aim to save £4.8 billion but are projected to push 250,000 individuals, including 50,000 children, into relative poverty.
Public Service Efficiency
A £3.25 billion Transformation Fund was introduced to modernise public services through digital technology and artificial intelligence. The fund aims to reduce government running costs by 15% by the end of the parliament.
Defence and Innovation
An additional £2.2 billion has been allocated to defence for the fiscal year 2025-26, with £400 million earmarked for defence innovation. The government aims to position the UK as a "defence industrial superpower," with at least 10% of the Ministry of Defence's equipment budget dedicated to novel technologies.
Housing and Infrastructure
To tackle the housing crisis, a £2 billion investment will fund 18,000 social and affordable homes, contributing to the goal of building 1.3 million homes over the next five years. Additionally, £625 million is allocated to train 60,000 construction workers, addressing skills shortages in the sector.
Tax and Compliance
The government plans to raise over £1 billion by 2029-30 through enhanced measures against tax avoidance, including hiring additional compliance staff and deploying advanced technology to detect and prosecute tax fraud.
These measures reflect the government's efforts to strike a balance between fiscal responsibility and investments in critical sectors, thereby stimulating economic growth and enhancing public service efficiency.
Focus on Plymouth
Plymouth was mentioned as a 'world-class defence industrial centre'. We do not know how much of the £2.2 billion budget will go to the city, but we should expect investment in its dockyard, infrastructure, military homes, and the local high-tech marine industries.
In January 2025, the Council proposed a draft budget for the 2025/26 fiscal year, emphasizing the protection of essential services amid rising costs in social care and other statutory obligations. The budget includes a £395.8 million five-year capital program, allocating funds for various initiatives:
£65.9 million for projects aimed at achieving a net-zero Plymouth.
£47.7 million dedicated to creating a sustainable city center and waterfront.
£40.7 million for developments in the Derriford and northern corridor areas.
£30 million allocated for sustainable housing projects within the city.
£97 million focused on fostering a sustainable economy.
These investments are funded through a combination of grants, borrowing, developer contributions, and asset sales.
Furthermore, the Council has outlined a Medium-Term Financial Strategy (MTFS) to address a projected budget shortfall of £24.5 million over the next five years. This plan involves identifying savings and exploring avenues to increase income, ensuring the sustainability of local services.