What does the 2025 Spring Statement mean for Greater Birmingham businesses?
The Greater Birmingham Chambers of Commerce's policy team, Emily Stubbs and Gemma Dilkes break down what Chancellor Rachel Reeves' 2025 Spring Statement means for businesses.
What is the Spring Statement?
The Spring Statement is presented to the House of Commons by the Chancellor of the Exchequer. The statement updates Parliament and the nation on the economy, public finances and progress against the Government’s economic objectives, and is accompanied by publication of an Economic and Fiscal Forecast from the Office for Budget Responsibility (OBR).
The OBR produce detailed five-year forecasts for the economy and public finances twice a year. The forecasts accompany the Budget Statement (usually in the autumn) and the Spring Statement (which is usually in March). They incorporate the impact of any tax and spending measures announced in those statements by the Chancellor.
Public Finances
In the Autumn Budget, the Chancellor committed to abiding by the following fiscal rules:
- Stability rule: to move the current budget into balance so that revenues meet day-to-day spending.
- Investment rule: to reduce net financial debt as a share of the economy.
In this statement, she reiterated that these fiscal rules remain ‘non-negotiable’ and that economic stability remains a priority for the Government.
The OBR has confirmed that taking into account the announcements made in the Spring Statement, the government is on track to meet its stability and investment rules.
The Chancellor’s previous “fiscal headroom” was eroded by sluggish growth and high borrowing costs, but the OBR forecast that the current budget is in surplus of £0.4bn in 2025/26, £1.8bn in 2026/27, £5.7bn in 2027/28, and £9.9bn by the target year, 2028/29 - restoring headroom to levels held at the Budget last autumn predominantly as a result of public sector spending cuts which have been announced throughout the week.
Net financial debt is anticipated by the OBR to fall in the final year of the forecast with a £15.1 billion buffer. According to the forecast, both the stability and investment rules both continue to be met two years early.
Taxes
The Chancellor has committed to investing in His Majesty’s Revenue and Customs’ (HMRC’s) capacity to cut down on tax avoidance in an effort to raise additional revenue over the course of the parliament. Measures will include investing in HMRC’s capacity to collect more unpaid tax debts, recruitment of an additional 600 HMRC debt management staff and 500 more HMRC compliance staff.
These measures are in addition to consultations announced at the Autumn Budget, on HMRC’s use of third-party data to help taxpayers ‘get tax right first time,’ behavioural penalty reforms, options to enhance HMRC’s ability to tackle tax advisors facilitating non-compliance, and measures to close in on promoters of marketed tax avoidance.
It was also stated that the government will expand the rollout of Making Tax Digital (MTD) for income tax Self Assessment to sole traders and landlords with incomes over £20,000 from April 2028. The government also intends to make further detailed changes to MTD as set out in the technical note “Modernising the tax system through Making Tax Digital”.
With this in mind, it was additionally announced that the government intends to increase late payment penalties for VAT taxpayers and income tax Self Assessment taxpayers as they join MTD, from April 2025 onwards. The new rates will be 3% of the tax outstanding where tax is overdue by 15 days, plus 3% where tax is overdue by 30 days, plus 10% per annum where tax is overdue by 31 days or more.
Workforce and Employment
Earlier this month, the government published Pathways to Work: Reforming Benefits and Support to Get Britain Working. The Green Paper outlined reforms to incapacity and disability benefits which the government anticipates will save £4.8 billion from welfare spending in 2029-30, with an ambition to make the welfare system more pro-work and more fiscally sustainable.
It’s also been announced that further investments will be made in additional employment, health and skills support from 2026-27, intended to help people start or stay in work, and avoid falling into long term economic inactivity, scaling up to £1 billion a year by 2029-30.
In regard to skills, the Chancellor reiterated an announcement made earlier in the week, that the government will bring forward a £625 million package of skills measures to address large-scale skills shortages in the construction sector. It is intended that this will help to enable delivery of plans around housebuilding (see below) and progress critical infrastructure projects.
As part of this, to boost provision, the government has committed to providing an additional £100 million to support 35,000 construction-focused skills bootcamp places, intending to provide a route for new entrants, re-engaging “returners”, and upskilling existing employees.
A further £40 million will be set aside for up to 10,000 additional places on new construction Foundation Apprenticeships, intended to give young people a high-quality entry route into a rewarding career.
Additionally, £165 million will boost funding for providers to deliver more construction courses including through the High Value Course Premium and Free Courses for Jobs. The government is also launching a new Teacher Industry Exchange scheme to attract industry experts to teach in Further Education. Finally, the government plans to also build capacity with £100 million to establish 10 new Technical Excellence Colleges specialised in construction in every region in England.
In support of this package, it is stated that the Construction Industry Training Board (CITB) is doubling their New Entrants Support Team (NEST) programme to support employers, particularly small businesses, to recruit and retain apprentices. CITB has also committed £32 million to top up the government’s £100 million investment to support over 40,000 industry placements in construction each year. The government is also launching an £80 million capital fund to support employers to deliver bespoke training tailored to their needs.
Notably, in their report accompanying the Statement, the OBR stated the following about the upcoming Employment Rights Bill: “…there is not yet sufficient detail or clarity about final policy parameters to allow us to robustly assess the economic and fiscal impacts.
"Many important design elements will only be clarified in secondary legislation following royal assent.
"Employment regulation policies that affect the flexibility of businesses and labour markets or the quantity and quality of work will likely have material, and probably net negative, economic impacts on employment, prices, and productivity. Given these potentially significant impacts, we will incorporate a central estimate of the aggregate impacts of the policy package in our next forecast.”
Defence
The Government’s Plan for Change emphasises the importance of prioritising national security for guaranteeing domestic stability and prosperity given that threats to national security are ever evolving. By spending more on defence, the Government hopes to unlock prosperity through new jobs, skills and opportunity across the country, especially given that the defence industry employs 1 in 60 people nationwide.
The Prime Minister has previously announced intentions to increase defence expenditure to 2.5% of GDP by 2027, equating to an annual increase of £13.4 billion compared to current levels.
This funding aims to enhance military capabilities, including investments in advanced technologies such as artificial intelligence, quantum computing and space capabilities. The Chancellor further outlined her ambition to increase defence expenditure to 3% in the next parliament if economic circumstances are favourable.
Building upon the above, the Ministry of Defence (MoD) will also receive an extra £2.2 billion of funding next year. It will seek to boost Research and Development (R&D) and innovation to drive economic growth, improve the strengthen national security and support the upcoming Strategic Defence Review and Defence Industrial Strategy.
It has previously been stated that the government intends to reduce Official Development Assistance (ODA) budget from 0.5% to 0.3% of Gross National Income (GNI) by 2027 to support an increase in NATO-qualifying defence spending.
The Chancellor acknowledged that this was a difficult choice to make, but one that she claims will modernise the UK’s approach to international development through strong relationships with financial institutions such as multilateral development banks and international partners to raise capital for crucial development projects. The government hopes that ODA expenditure will be able to be increased to 0.7% of GNI when fiscal circumstances allow.
Further, the Government has pledged to channel at least 10% of the increased defence budget into emerging technologies, namely drones and AI. It is hoped that will help to modernise the UK's military capabilities facilitating the technological advancement of defence operations.
The Chancellor stated that a new UK defence innovation body, UK Defence Innovation (UKDI), will streamline and remove red tape from SMEs’ and innovative business’ interactions with the MoD to support them to secure necessary investment. It was set out that UKDI will have an initial ringfenced budget of £400m and is intended to drive significantly faster and more innovative procurement.
As announced earlier this month, the Government has agreed a £2 billion increase to UK Export Finance’s Direct Lending capacity for defence exports, bringing overall lending capacity to £10 billion.
To uphold the above measures and commitments, the Chancellor stated that a new Defence Growth Board will be created and co-chaired by the Chancellor and the Defence Secretary. It is expected to oversee defence spending plans, remove bureaucratic barriers of procurement processes and foster closer collaboration between government and the defence industry.
Planning and Housing
Planning reform featured prominently in The Chancellor’s budget given the government’s commitments to address housing shortages and stimulate economic growth. The OBR forecasts that the planning reforms included in the government’s National Planning and Policy Framework (NPPF) will lead to 170,000 additional homes built over the forecast period (Q4 2024 – Q1 2030). This would increase the level of real GDP by 0.2% by 2029-30, adding £6.8 billion to the economy.
The Government has committed to building 1.5 million homes in England during the current parliament, aiming to alleviate the housing shortage and support population growth. The Chancellor stated that delivery of this will be supported by an additional £2 billion for social and affordable housing for 2026-27. In June, the government intends to follow this with further announcements on wider long-term investment into social and affordable housing through their Comprehensive Spending Review.
Increased Capital Spending for Infrastructure
It was stated that an additional £13 billion will be invested in capital infrastructure over the next five years, equating to an extra £2 billion annually. This funding is intended to enhance the UK's infrastructure, supporting economic growth and job creation. A number of specific infrastructure projects were announced in other regions of the UK, designed to enhance domestic and international transport connectivity and drive regeneration and economic prosperity.
Economic and Fiscal Outlook
The OBR forecasts the economy to grow by 1.0% in 2025, slower than the 2% expected in October. Growth is forecast to accelerate to 1.9% in 2026. The OBR has increased the growth forecast in 2026 and every year thereafter. Cumulative growth across the forecast period is now expected to be 9.4%, compared to 9.2% in the OBR’s October forecast. The level of GDP at the end of the forecast is 0.2% higher compared to the Budget last autumn.
The Government states that volatile global oil prices and higher market prices for gas and electricity have contributed to the OBR’s Consumer Prices Index (CPI) inflation forecast increasing, with a peak of 3.8% in July 2025.
Nevertheless, the same forecast anticipates that inflation will fall close to the 2% target from Q2 2026 until the end of the forecast period. The Chancellor noted that the Government continues to support the Bank of England’s independent Monetary Policy Committee as it acts to return inflation sustainably to target.
Through the Plan for Change, the government is looking to deliver higher living standards across the UK. It is stated that real wages rose at their highest rate in three years at the end of 2024, and the OBR forecasts that real wages, Real Household Disposable Income (RHDI) per capita and GDP per capita will rise by 2.2%, 2.6% and 5.6% respectively over the course of this Parliament (Q3 2024 – Q2 2029).
What is the GBCC’s Response to the 2025 Spring Statement?
Although heavily trailed, businesses will breathe a sigh of relief that the Chancellor hasn’t chosen to hammer them with further tax hikes given the additional cost pressures that many are dealing with following the announcements she made last October.
The Chancellor decided to keep today’s statement high level but the facts remain clear – growth projections for this year are down and spending cuts have been made in order to restore the Chancellor’s self-imposed rules for fiscal headroom.
Firms will be pleased to see a focus on planning reform and increased capital investment in order to unlock growth which align with the recommendations made by the Business Commission West Midlands this time last year.
The additional focus on increased defence spending was accompanied with promising statements on the need for British businesses to directly benefit from the associated procurement opportunities.
Hopefully this will benefit businesses in the West Midlands given our expertise in the field of advanced manufacturing as there was next to nothing announced for our region – the upcoming Comprehensive Spending Review should shed more light on the direction of travel for business support programmes and how these will impact firms in the region.
Ultimately, there was very little announced in today’s statement that will give businesses an extra spring in their step as they approach the summer- for example, no roadmap on reducing business costs and very little on boosting international trade activity.
The Chancellor has got a big job on her hands to restore confidence and unlock firm level investment – as a Chamber we will continue to champion the needs of local businesses and ensure we continue to champion the region as the ideal place to start, grow and scale a business.
