In defence of a Spring Statement shaped by winds from the East

Stability, efficiency, and productivity were the central themes in Chancellor Rachel Reeves’ Spring Statement. The extent to which any of this can be achieved has been questioned by business leaders and commentators with uncertainty about the state or the public finances and the global economic climate.

High interest rates have increased the costs of servicing the UK’s debt while growth continues to flatline with the Office for Budget Responsibility (OBR) halving their 2025 growth estimate for the UK to 1%.

The speech contained no tax rises, although it did include a number of measures to balance the finances, most notably in cuts to Welfare and to the UK’s Aid budget to fund increases in defence. Significantly, the Chancellor will not be relaxing her self-imposed fiscal rules to allow for extra borrowing.

As Paul Johnson of the Institute for Fiscal Studies commented:

"This was just about the smallest fiscal event Rachel Reeves could have managed in the context of her fiscal rules and the minor forecast downgrade presented to her by the OBR.”

The small amount of headroom available to the Chancellor suggests that uncertainty about future tax rises and spending cuts will roll into the autumn budget, which will undoubtedly affect consumer spending and business investment.

Funding for UK defence is to be boosted by £2.2bn, as Reeves promises to make the country “a defence industrial superpower”. This is good news for the defence industry, which has a significant presence in the East of England with businesses like Marshalls and the ADS group in Cambridge.

The decision to reduce overseas aid to bolster defence is influenced by geopolitical tensions but it is also a policy straight out of Reforms 2024 Manifesto. Ironically it will help improve UK-EU trade terms, with more UK influence over EU foreign policy, and new contracts for UK defence manufacturers.

But the Government could go further with UK defence firms given substantive tax reliefs to put more resources into play quickly with preferential trade offered to countries that commit to meeting future UK defence equipment needs, and longer-term contracts so that domestic defence companies can confidently invest in permanent production capacity. 

Other areas of note which help shift the tax and spend dial is the £3.25bn of investment which the Chancellor has brought forward for a new “transformation fund”, to reduce the cost of running the government by making public services more efficient, beginning with funding AI tools for the probation service.

The Government’s mission is clear: growth. The UK’s long-term success depends on improving productivity and expanding the economy. In January 2025, the Chancellor stated that she will ‘go further and faster to kickstart the economy’. However, growth is continuing to fall below the 2.8% inflation rate, in the 12 months to February. Reliance upon long-term initiatives, such as investment in new homes, green energy and AI, are not helping short term confidence. Businesses are reluctant to invest and the labour market continues to cool.

Following on from the Autumn Budget there is little in the Spring Statement to suggest a transformative effect on investment. Tellingly, Professor Mariana Mazzucato, the architect of Labour’s mission-based approach to economic growth, has joined with a number of other distinguished economists in writing to the Financial Times, pleading for the Government to avoid more spending cuts:

“After 15 years of stagnation, we cannot cut our way to growth. The economy is a product of the decisions we choose to make: While Germany is establishing a €500bn infrastructure fund, the UK's planned welfare cuts risk undermining our economic resilience when investment should be the priority. Substantial public investment is essential for delivering sustainable growth, rebuilding public services, and strengthening our economy.”

While the winds from the East continue to impact the UK’s economic climate, there is a mixed outlook for businesses in the East of England, with clear opportunities for some sectors. But there is no hiding from the fact that the level of infrastructure investment needed to lift all boats is just not happening. Suffice to say, there is still no mention of funding for the Ely upgrade!