The Chancellor, Rachel Reeves, prefaced the Spring budget with a reminder that Labour was elected “bring change, provide security for working people and deliver a decade of national renewal”.
This has been made more difficult in recent months amid weaker-than-expected growth, and uncertainty in US markets pushing up borrowing costs. She said that the “global economy has become more uncertain.”
Overview for businesses
This budget has fewer direct implications for small businesses than the Autumn budget in October 2024. Importantly, there are no changes to tax.
The main focus of this budget is to cut the welfare budget and find money for new homes, government efficiency and defence.
Taxes
There are no further tax increases. However, the chancellor stressed the importance of detecting fraudulent behaviour, and highlighted the use of new technology to help HMRC crack down on tax avoidance. This could raise £1bn to the treasury.
Welfare cuts
The aim of benefit changes is to save £4.8bn by 2029-30. The health element of universal credit will be frozen for existing claimants until 2029-30 and reduced to £50 for new claimants in 2026-27, and subsequently frozen.
Personal Independence Payments (PIPs) will be reviewed and the government will introduce an additional eligibility requirement for the daily living element of the benefit.
£1bn has been allocated to employment support to help people back into work, plus £400m for jobcentres.
Spending
Defence spending is to rise to 2.5% by April 2027, funded by international aid cuts. The scrapping of NHS England will pass on savings for patient care.
£3.25bn is being invested in a new “transformation fund” to bring down the cost of running government. The first allocation from the fund is in AI tools to drive modernisation. Initial projects will look at the probation service and the foster care system.
The government is allocating £2 billion towards affordable housing next year. House building is predicted to hit a 40 year high, with 305,000 houses built a year, reaching a total of 1.3 million over the next five years.
To deliver this plan and to tackle trades skill shortages, the government is also allocating £600 million to train the next generation of construction workers in the UK. This will include creating new technical excellence colleges.
Inflation and growth forecasts
Inflation fell in February and is expected to average 3.2% this year before falling “rapidly”, in line with the Bank of England’s 2% target from 2027 onwards.
Growth measures include the third runway at Heathrow, planning and pension reform, and deregulation.
Defence
Following on from the government’s pledge to increase defence spending to 2.5% of GDP, Reeves will provide an extra £2.2bn for the Ministry of Defence in the next financial year to address increasing global uncertainty.
The government will spend a minimum of 10% of the MoD’s equipment budget on tech such as drones and AI, boosting production in places such as Derby, Glasgow and Newport.
There will be a protected budget of £400m within the MoD for UK defence innovation, rising over time.
Reforms to defence procurement will aim to make it quicker and give small businesses better access to MoD contracts.
There will be £200m to support nuclear submarine jobs in Barrow and funds for military homes and naval ports such as Portsmouth and Plymouth.
An extra £2bn to increase the lending capacity of UK Export Finance will aim to help finance overseas purchase of UK defence equipment.
Reeves wants to make the UK a “defence-industrial superpower”, placing defence at the heart of economic growth.
Planning and growth
The OBR has considered Reeves’s planning reforms and has concluded that they will permanently increase the level of real GDP by 0.2% in 2029-30, an additional £6.8bn for the economy. This will reach 0.4%, or £15.1bn, by 2030.
She says this is the biggest positive growth impact the OBR has ever predicted for a policy with “no fiscal cost”.
The OBR have said that housebuilding will reach a 40-year high, hitting 305,000 homes a year by the end of the forecast period. 1.3m homes over the next five years, close to the manifesto promise of 1.5m within this parliament.
The government will launch a construction training package to train up to 60,000 workers to build the homes, as well as investing an additional £2bn in social and affordable housing.
