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Labour officials have announced that Chancellor Rachel Reeves will refrain from raising taxes in the upcoming Spring Statement, countering Conservative claims that she is preparing an “emergency Budget.” Instead, Reeves intends to focus on public spending cuts, including reductions in welfare and planned budgets of Whitehall departments, to maintain adequate fiscal headroom in line with her fiscal rules.
Allies of Reeves stressed her commitment to maintaining reasonable financial headroom to reassure the markets, noting that higher borrowing costs and slow economic growth have eroded much of the £9.9 billion headroom previously assessed by the UK fiscal watchdog during her October Budget.
Government representatives dismissed the idea that Reeves would significantly increase the fiscal cushion, which would necessitate more extensive spending cuts than currently anticipated. They stated that while they aim to maintain a buffer, their approach is not to play a “numbers game.” Reeves’ fiscal rule mandates that current spending must be covered by tax receipts by the fiscal year 2029-2030.
In the House of Commons, Conservative leader Kemi Badenoch suggested that Reeves’ fiscal plans are inadequate, prompting an “emergency Budget” next week. However, Labour officials have clarified that the Spring Statement will not include any tax increases, reserving any fiscal measures for an autumn Budget. An aide to Reeves emphasized that such measures are typically announced during major fiscal events, of which the Spring Statement is not one.
The Chancellor has already identified methods to restore her fiscal buffer, including a £5 billion reduction in welfare spending, disclosed by Work and Pensions Secretary Liz Kendall. Additionally, the government’s decision to allocate a portion of its overseas development budget to defense, aiming to increase military expenditure to 2.5% of GDP by 2027, provides Reeves with additional flexibility. Defense expenditure is partly classified as investment, which is exempt from her budget rules.
Reeves plans to announce a new reduction in departmental spending from 2026-2027, as briefed by sources familiar with her strategy. This timeline includes the period covered by the forthcoming government spending review, outcomes of which will be revealed in June, coinciding with the final year of the current parliamentary term.
Reducing the annual real-terms growth in day-to-day departmental spending to approximately 1.1% from 2026-2027, juxtaposed with the 1.3% rate projected in the October Budget, could potentially save billions. According to the Institute for Fiscal Studies, a growth rate of approximately 1.1% in real-terms spending could result in savings of £5 billion a year by the end of the parliament, according to inflation forecasts by the Office for Budget Responsibility (OBR).
Reeves has faced criticism from some economists for not securing a larger fiscal buffer since the £9.9 billion figure estimated by the OBR last October was the third smallest of the 28 fiscal assessments made since the OBR’s establishment in 2010.
