Director Weekly Five takeaways from the Spring Statement

Let’s be clear: Rachel Reeves’ Spring Statement was not the event she would have hoped for at the time of the Autumn Budget.

Since then, borrowing costs have risen significantly, forcing the Chancellor to act to avoid missing her fiscal rule on spending – that taxes should cover day-to-day expenditure in 2029-30 – by £4.1 billion.

And despite the government’s rhetoric on growth, the economy has faltered – culminating in the Office for Budget Responsibility (OBR) halving its growth forecast for this year to just 1%.

Here are five brief thoughts on what we learned from the Spring Statement.

1. The Chancellor has stuck to her plan and prioritised the fiscal rules

Fiscal discipline has been central to the government’s message and Reeves showed on Wednesday that she is committed to her fiscal rules.

The measures taken to restore the planned £9.9 billion fiscal headroom – which had been wiped out since the autumn – shows that the government is prioritising financial stability over other potential policy options.

2. Tax will be a bigger-than-expected part of the solution

While pre-Statement briefings focused on spending cuts, the Statement included a small package of tax changes, which will yield £2.2 billion by 2029-30.

The fiscal headroom will also be boosted by £3.4 billion from so-called “indirect effects” – mostly from the beneficial impact on growth and tax receipts of planning reform.

3. The government has scored a significant win on planning reform

The government has succeeded in getting the OBR to ‘score’ its planning reforms – that is, to quantify their future economic benefit, and mark it as positive. The OBR has been notoriously resistant to factoring in such hypothetical changes, so this is a noteworthy win for ministers.

And they will be delighted with the OBR’s conclusions. It expects housebuilding to be at its highest levels in more than 40 years by 2029-30 as a result of Labour’s changes – and forecasts a 0.2% boost to GDP, around £6.8bn in today’s prices.

4. The impact of employment law reforms remains unknown

While quantifying the benefits of planning reforms, the OBR is still unable to assess the impact of employment law reforms.

As IoD’s Policy Voice research shows, the planned changes are seriously denting employers’ hiring intentions – yet the government still appears to have a blindspot about the impact of its proposals.

5. There’s reason to ask whether the fiscal rules are working as they should

While the Chancellor’s commitment to her fiscal rules should be recognised, it’s worth questioning their impact on policy in broader terms.

Meeting the rules required a raft of hasty measures – not least extending the welfare cuts announced just last week. A substantial amount of government time and energy has been required to restore the fiscal headroom – in effect, finding savings that amount to just 1% of total government expenditure.

At a time when the government as a whole is under pressure to improve its efficiency and productivity, it’s worth asking whether that energy was all expended wisely – or at the very least, how ministers can avoid scrabbling around again in future.

A better approach would be to allow more headroom – creating a wider margin for error, so that Treasury plans are not derailed by modest shifts in borrowing costs or tax receipts. Without that, the Chancellor is likely to be forced to continually tinker with spending plans.

Find the IoD’s latest Policy Voice survey results here.