On Wednesday 26 March, Chancellor Rachel Reeves gave an update on her plans for the UK economy during the first Spring Statement of the new Labour government.
The statement provided a follow-up from the Autumn Budget in October, which saw taxes increased by a record £40bn.
Academic experts from the University of Derby have shared their reactions to the announcements made in the House of Commons.
Economic impact
Dr Eugene Michaels, Senior Lecturer in Economics at the University of Derby:
“Overall, the scale of the numbers involved, the precise accounting of (relatively) minute amounts (in terms of GDP size) speak volumes about how difficult the UK’s fiscal situation is.
“The Chancellor managed to create a fiscal headroom of £9.9bn which, as critics have pointed out, is a slim margin, especially when compared to the £31.3bn average headroom kept in previous years mentioned by the OBR. This could herald an agonising period until the Autumn budget speculating on future tax rises, spending cuts and potential increases to borrowing. Sticking to the lower planned new borrowing (£304bn over the year) focused on short-term issuance will be needed to help manage, if not bring down, borrowing costs.
“While real GDP growth was halved for this year to 1%, the OBR upgraded its forecasts from 2026 onwards. However, these higher growth forecasts remain surrounded by substantial uncertainty. Much of the growth forecast relies on future construction stemming from changes to the planning system and assumptions on productivity growth averaging to the 1% trend rate. Imposition of US tariffs threatens to reduce UK GDP growth.”
Defence spending
Fahad Kazmi, Lecturer in Economics at the University of Derby:
“The government has announced its ambitions to increase defence spending to 2.5% of GDP by 2027 (currently sits at 2.3% of GDP for 2024/2025). To achieve this 2.5% target, the government will need to either raise more taxes or reduce spending, something that remains to be seen and will likely be discussed in more detail during the Autumn statement. The plan to increase spending is good for the defence industry and will increase jobs in that sector.”
Housebuilding plans
Fahad Kazmi, Lecturer in Economics at the University of Derby:
“The OBR has forecasted housebuilding will increase, with an aim of 300,000 houses per year by the end of 2030 (40-year high). This is a welcomed and much-needed move as this boost in housebuilding will increase the size of the economy by increasing jobs in the construction sector and putting downward pressure on housing prices. The government must continue to ensure that the construction industry has an adequate supply of skilled construction workers by investing in their training programmes to achieve their target. It also needs to support first-time buyers by offering favourable interest rates for their mortgages and subsidised support schemes.”
Welfare cuts
Dr Denise Baker, Pro Vice-Chancellor and Dean of the College of Health, Psychology and Social Care at the University of Derby:
“Following the announcement of a reduction of funding to Integrated Care Boards and the abolition of NHS England, further funding cuts to the civil service are not unexpected. The reductions in funding for welfare are, however, just as likely to adversely impact health and social care.
“One of the main contributors to poor health is poverty and while the desire to encourage people into work is understandable, the impact on their quality of life should not be underestimated. For example, the University of Derby is undertaking research into long Covid – the impact of which is debilitating and distressing. Until more is understood about how long Covid can be treated, there will be a number of individuals reliant on welfare payments. This has to be concerning for this group and millions of others in similar situations who want to work, but their current poor health or disability means they are unable to.
“Whilst there is no doubt that the health of the nation needs to be improved, good quality employment, housing, education and healthcare are key contributors to ensuring a reduction in preventable illnesses and more healthy lifestyles. Any reduction in funding these sectors or individuals’ ability to afford to eat healthily and live in suitable accommodation will be detrimental. In particular, children and young people will be adversely impacted.
“The University of Derby is currently exploring how people could be helped into work in critical areas such as health, education, construction or engineering. It is disappointing that there is still no real clarity on the proposed growth and skills levy which will be integral to facilitating employers’ and training providers plans.”
Hospitality
Leonard Cseh, Senior Lecturer in Hospitality and Events at the University of Derby:
“Rising energy costs, business rates and the increase in National Minimum Wage have all compounded financial difficulties for businesses within the hospitality sector; a sector which has been vocal about the increasing pressures of unsustainable costs, declining consumer spending and a growing tax burden.
“It has had to pivot significantly since the Covid-19 pandemic, implementing operational changes to remain viable such as AI-driven booking systems, self-service kiosks and mobile ordering.
“The industry has, though, shown resilience during these tough times – but additional government intervention is necessary to ensure long-term sustainability.
“Without targeted relief, the mounting cost pressures could lead to further closures and job losses affecting the wider economy.
“Chancellor Rachel Reeves has stressed the importance of continued collaboration between the government and industry to ensure the successful design and delivery of its reforms. However, I believe that a temporary cut in VAT for hospitality to 10% could have incentivised consumer spending, and more funding for struggling SMEs would have helped sustain jobs and services.
“Moving forward, collaborative efforts between the government and industry stakeholders will be crucial in fostering recovery and growth.”
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