This being spring statement week, the focus is inevitably on what the Chancellor Rachel Reeves may do to safeguard her much maligned fiscal rules. Not easy, given that most forecasts are being downgraded, with the latest OECD Economic Outlook report, which attributes lowed world growth expectations to US tariffs and reciprocity from elsewhere, now suggesting 1.4% growth this year in the UK compared to earlier forecasts of 1.7%.

This may sound more optimistic than most other recent projections. The latest forecast by the British Chambers of Commerce (BCC), where I Chair their Economic Advisory Council , was for growth of just 0.9% in 2025 as ‘firms struggle to invest and export’. Not that much joy is expected during the Spring Statement, given that the Office for Budget Responsibility (OBR) is likely to have halved its own growth expectations for this year from the near 2% figure at the time of the October budget.  And with it will have slashed what headroom Rachel Reeves may have had to meet her self imposed fiscal rules by the end of this parliament despite extra welfare savings they hope to make and the 15% reduction reduction in government departments’ running costs over that same period.   

Lower growth, reinforced by the shocking and unexpected drop in growth in January, has already affected government revenues before the planned employer NIC and other tax rises take effect.  This has kept government borrowing higher than last year and some £15b above for the fiscal year just finishing than what was forecast last October. And uncertainty over President Trump’s tariffs and their impact are muddying the picture ahead. 

But given the tight corner that Rachel Reeves has painted herself in, how much room for manoeuvre is there? Well, it looks like the welfare cuts and the planned move of a chunk of international aid funds into defence to allow for the extra spending promised in the face of geopolitical pressures may not do it by themselves. So cuts in overall spending after next year seem to be mooted, reducing the projected medium term rise of 1.3% per annum in real terms by a fraction or two with substantial cuts envisaged in the civil service payroll. 

I won’t return, at least not in this blog, to my concern about the current government blaming civil servants for US problems. But I will again highlight the rather schizophrenic attitude depending on which part of the community one belongs to, at least on the tax front. It is very likely that to balance the books, given the increased world economic uncertainty, more will be needed. Cue the possible extension of the income tax threshold to the end of the parliament rather than ending it a couple of years earlier. As it is, some 6 million people will have to either pay tax either for the first time this year or find themselves in a higher tax bracket. 

Compare this to a likely drop or even abolition of the digital services tax for multinational (mainly US) IT firms in an effort to negotiate a trade dear with President Trump, bank bonuses being liberated, and deregulation and less supervision for the City promised by the Chancellor via the Financial Conduct Authority (FCA) and the Competition and Markets Authority (CMA). In contrast, the hospitality sector is screaming as hit by the NIC rises, above inflation minimum wage rises  and increases in the business rates bills firms will have to endure as of April. At the same time, of course earlier hoped for Bank of England interest rate cuts now seem to once again be on hold, reflecting the uncertainty while bond yields on which much of lending is determined remain  at multi year highs as all markets adjust to the world needing to borrow more for defence, as the Germans have just demonstrated they are prepared to do in a historic move to abolish, for the moment at any rate, their ‘debt brake’ and spend hundreds of billions of Euros on infrastructure and defence over the next few years. 

So we start this week with this sobering thought from the BCC:   

“The cost of borrowing weighs heavily on businesses every day. In this period of extreme uncertainty, lower borrowing costs will be crucial to boosting investment and growth.”  Very much doubt whether what we will hear on Wednesday will in any way alleviate this gloomy view.  

This post first appeared on the Centre for Brexit Studies blog.