3 Big Questions Surrounding Spring Budget 2025

When Chancellor Rachel Reeves delivers the Spring Budget 2025, formally known as the Spring Statement, this Wednesday, people will be watching closely to see what policies or updates she will unveil. This interest is also driven by gloomy economic forecasts, fiscal rules coming under pressure, and stagnating living standards.

So, in this context, we have outlined three big questions that you ought to know the answer to. The answers to these questions, we believe, will determine the trajectory of the UK economy and the property sector.

How Will the Spring Budget Shape the Chancellor’s Spending Choices?

The spring statement is an opportunity for Chancellor Rachel Reeves to outline her fiscal priorities. This year, however, it comes against a troublesome backdrop. The Office for Budget Responsibility (OBR) will release its latest assessment of the UK economy, and Reeves must decide how to respond to what is expected to be a gloomier outlook than last autumn.

Since the 2024 budget, higher gilt rates -- the interest the government pays on new debt -- have made borrowing more expensive. Slower economic growth could mean lower tax revenues. But higher inflation might give the public finances a small boost, as frozen tax thresholds drag more people into higher tax brackets.

The big question is how much the OBR will downgrade its forecasts and what that will mean for Reeves’ fiscal rules. The outlook was already dark in October, and conditions have since degraded. Inflation continues to be stubbornly high, and interest rates are likely to stay elevated for longer. This combination is driving up the cost of servicing government debt while slower growth threatens future tax receipts.

Unless she makes adjustments, the OBR’s revisions will likely show that Reeves is in danger of missing her fiscal targets.

What is the Outlook for Living Standards?

One of the government’s flagship promises was to boost living standards across the country. However, the latest OBR forecasts suggest that real household disposable income -- an important measure of living standards -- will grow by only 0.5% per year over the next five years. That is well below the 2.5% annual growth seen before the 2008 financial crisis.

The autumn budget did not help matters. Policies like the rise in Employers’ National Insurance were expected to weigh on wages, while frozen tax thresholds are quietly pulling more people into higher tax brackets.

The Spring Statement could provide clues about how Reeves plans to tackle that. Will she introduce new measures to support household incomes or will she double down on welfare reforms to cut spending? Household income and living standards have a direct impact on property purchases.

What Will Reeves Prioritise?

Reeves has a tough choice to make. Will she stick to the spending envelope she set last autumn or adjust it to reflect the new economic reality? Some reports suggest she could cut the overall envelope, leading to real-term cuts of up to 7% for some departments.

The government is pinning its hopes on savings from digitising public services and structural reforms. Yet such measures are unlikely to deliver the scale of savings needed. The risk is that short-term cuts could mean a repeat of past mistakes: slashing spending now, only to inject cash back into services when performance becomes politically untenable.

Conclusion

Rachel Reeves' spring statement comes at a critical time. Given the struggling economy, sagging living standards and fiscal rules under strain, she must balance maintaining stability with taking action.

This statement will shape the direction of policy for months and even years to come. The pressure is on for Reeves.