Tom Entwistle reflects on the Spring Statement which he says was not so much an emergency budget, more an update on the state of the economy with a few tweaks.
The Spring Statement should have been a non-event, but Rachel Reeves was forced to announce spending cuts after her £9.9 billion headroom from the October 2024 Autumn Budget was wiped out by high borrowing costs and low UK growth figures.
Now the Chancellor faces having to restore that headroom which will be wiped out again by Trump’s tariffs. The Office of Budget Responsibility has warned that the tariffs at anything like 20-25% over a five-year period would completely wipe out these reserves.
The Spring Statement last week was a good attempt at painting an optimistic picture of what is otherwise a pretty bleak outlook for the UK economy.
What’s more, almost before Rachel Reeves sat down, Donald Trump threw his latest curve ball, announcing a 25% tariff on all car imports into the US. That’s a move that will have a not inconsiderable effect on the UK economy, throwing much of the Office of Budget Responsibility’s (OBR) carefully curated forecasts off course.
Ms Reeves claimed credit for the Government for the Bank of England’s cutting of interest rates 3 times since it was elected last July and blamed much of the Government’s predicament on world events, which she must have repeated more than 15 times her stock phrase: “the world has changed”.
To the relief of most people the statement involved no changes to taxation, so in that sense the event was not an emergency budget but cuts and increased borrowing were a prominent feature.
There were announced planned-for cuts in Government departments’ spending, which will mean cuts to civil service headcount, and cuts in welfare spending relating to disability sickness payments. But, in relation to the UK’s annual national debt repayments and plans for increased borrowing, these cuts seem relatively modest. In fact Reeves’ targeted annual savings of £14bn by the end of this parliament, from welfare reforms and lower departmental running costs with fewer civil servants, is hardly 1pc of government spending.
For all the cries of “austerity”, last week, the Statement leaves Chancellor Rachel Reeves poised to raise public spending to £1.3 trillion by 2029 to 2030, this is some £219bn more than in the current fiscal year – a sizeable real-terms increase that leaves the UK is in danger of losing its fiscal credibility.
Perhaps no surprise - though very concerning - the OBR’s GDP growth forecast for the current year has been cut from 2% to 1%, which in economic terms means virtual stagnation, while its forecasts until the end of this parliament are not much better.
If there’s a repeat of January’s negative growth figure in February, the UK will be in technical recession. As something of a sop to this, Reeves waved the carrot that her management of the economy would mean that everyone would be £500 better off by 2029.
Given the necessity in an uncertain world to increase spending on defence, as well as an ambitious investment programme set out by the Government’s quest for Net Zero by 2050, it’s perhaps not surprising that there was an underlying message that she would be coming back with more tax increases in the Autumn Budget.
The government’s target of constructing 1.5 million new homes in this parliament, to address the housing shortage and to improve affordability, appears to have been quietly revised to 1.3 million. Losing 200,000 homes in the 9 months since the election seems a bit more than misfortune, a bit more like carelessness. - See OBR report
There’s to be a £2 billion investment in affordable housing to support the construction of up to 18,000 social and affordable homes which will contribute to the overall house building target.
Planning reforms to streamline the planning processes will include delegating planning decisions to professional officers, setting national development priorities, and promoting development on underused land. These changes aim to speed up planning approvals and stimulate construction activity.
Hailing the wave of house building across the country as an economic boost to the economy, Ms Reeves said the proposed Planning and Infrastructure Bill will reintroduce mandatory housing targets for councils and loosen restrictions on building on the Green Belt.
By the end of this decade, the OBR forecasts that the plans will boost GDP by 0.2pc or £6.8bn a year, rising to 0.4pc or £15.1bn by 2035. Together with planned spending on other major infrastructure projects, this is forecast to boost GDP by 0.6pc in the next 10 years.
£600 million is earmarked as an investment in construction skills to train up to 60,000 new construction workers through educational and apprenticeship programs, to address labour shortages in the construction industry.
There were no changes to stamp duty (SDLT) following those announced to the October 2024 budget and no mention of any changes to the Renter’s Rights Bill currently in the final states of its progression through parliament, or the Employment Rights Bill, both of which will have far reaching effects on renting and employment respectively.
Ben Beadle, Chief Executive of the National Residential Landlords Association (NRLA), responding to the Chancellor’s Spring Statement, had said:
“Today’s statement was a missed opportunity to support renters across the country. It has done nothing to tackle the chronic shortage of rental housing to meet demand. It has done nothing to reform a broken tax system which is failing to encourage and support investment in energy efficiency improvements. And it has done nothing to address the unjust freeze on housing benefit which is leaving so many renters fearful of how they will afford their rents.”
While the commitment to increasing housing supply and streamlining planning has been welcomed, other industry experts have expressed concerns about the adequacy of funding and the need for additional measures to support first-time buyers and address affordability challenges.
The property industry has been largely lukewarm in response to Chancellor Rachel Reeves’ Spring Statement – especially those announcements related to housing.
Lucian Cook, Savills’ head of research criticised Rachel Reeves’ claim that the Office for Budget Responsibility’s anticipated that 1.3m new homes to be built across the UK by the end of 2029 was “in touching distance” of Labour’s manifesto commitment for 1.5m homes – a target missed by 13.3%, that’s if the revised target can be met.
Mr. Cook posted on social media:
”OBR suggests the delivery of 1.3m new homes over the next five years on the basis of 305k per annum at the end of the forecast period. But that assumes annual housing transactions get back up to 1.48m pa: a long way above the post GFC norm of 1.2m… And the 1.3m appears to be a UK figure; the 1.5m target is for England alone. Planning reform alone is not enough.”
William Reeve, chief executive of Goodlord has said:
“The private rental sector is creaking under intense pressure. A lot of this is attributable to supply and demand; there simply aren’t enough homes to go around. Today’s announcement that £2 billion will be directed towards social house building is welcome, but the planned 18,000 homes barely touches the sides of what’s needed.”
“…the Renter’s Rights Bill that will suffocate market dynamics, such as bans on ‘over-bidding’ and abolishing fixed term student tenancies. Both reforms are anti-market and will actually make things harder for tenants, not easier.”
All in all, a pretty unconvincing argument that the UK Government is fully in control of events, that the economy is likely to grow significantly, or there will be meaningful change in the property sector.
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