Definitely not a budget

Rachel Reeves’ Spring Statement on Wednesday is only expected to last 25 minutes. This is in line with the Government’s insistence that the Spring Statement is definitely not a budget – simply an update on the Office of Budget Responsibility’s (OBR) growth forecast.

The Treasury has good reasons to manage expectations. The Spring Statement may be relatively short – but it will pack in a lot of bad news. The OBR’s forecast is expected to show that slow economic growth and higher borrowing costs have wiped out the Chancellor’s £9.9 billion headroom against her own fiscal rules.

Violating her commitment to balance current spending with tax receipts by 2029-30 risks damaging the Government’s credibility and spooking markets. Increasing taxes is also challenging – as the Government found in business’ reaction to the National Insurance rises in last autumn’s budget.

This leaves the Chancellor making cuts. A £5 billion cut to welfare payments has already been heavily trailed: tomorrow’s announcement will be accompanied by an impact assessment of the cuts, which is likely to be a focus for reaction from Labour’s own MPs. Welfare cuts are likely to be backed by a further £5 billion in cuts to wider public spending.

That the strongest critics of these moves are likely to come from the Chancellor’s own party will be of limited comfort. She may be relatively sanguine about noises off from the left of the party – but the string of defections at a local authority level point to the potential for the Spring Statement to damage Labour on the ground.

All this has already generated ministerial nervousness, with a number of ministers reported as raising concerns about the impact of cuts to departmental spending in Cabinet. The Chancellor’s announcement of a £2 billion plan to boost delivery of social housing may be an attempt to sweeten the pill here.

The cuts also increase the stakes at the upcoming local elections. The elections left in May after delays in some areas for devolution are not generally make-or-break for Labour: it is only defending one council. There are, however, a number of local authorities where the results of elections might indicate trouble to come – such as Doncaster and the East Midlands, where Reform put in a strong showing at the General Election.

The fallout has the potential to influence Government thinking in the longer term. The headwinds which have made life difficult for the Chancellor are unlikely to go away by the time she sets the next Budget in the autumn: the spectre of US tariffs will continue to loom large. Her options may well still all be bad: reaction to the Spring Statement will help indicate which will be least painful.