No tax rises and no return to austerity, but will it last?

“Definitely not a Budget” is the basic message emerging from the Treasury about Wednesday’s economic statement.

There will not just be no red box outside Number 11, there will only be a “thin book” of new policies with a “light scorecard” of measures with no further tax rises.

So what is the point of this Spring Statement?

It is principally a spring forecast from the government’s official forecasters the Office of Budget Responsibility (OBR). In that process it has had to take into account a slower economy than expected, and higher government borrowing costs.

This OBR forecast has wiped out the room for manoeuvre against the “non-negotiable” rules Chancellor Rachel Reeves has set on government borrowing in the future. She has made a number of further adjustments to keep the numbers on track.

Essentially low growth and higher borrowing costs have blown the budgetary numbers off course.

We will hear a lot from the chancellor about how “the world has changed”.

The reality is this course correction is likely to have been required even before President Trump transformed global diplomacy and trade.

On Wednesday, we will find out whether the chancellor can continue to rule out having to resort to tax rises, even in this “changed world”.

And if there is no return to spending austerity, then where does the money come from?

While no significant tax measures are expected, the chancellor may nonetheless leave the option on the table for the autumn Budget.

Some economists do expect tax rises in the autumn, in particular to meet rising defence spending. There is talk of a “conversation with the public” on this matter.

At her first Budget the chancellor rejected, for example, extending the Conservative freeze to income tax thresholds by another two years. The public could get a clear idea around this Spring Statement if that is back as an option.

The £5bn cut to welfare spending already announced is the biggest single welfare cut for a decade. That is likely to be the biggest saving.

On Wednesday, the number of people losing Personal Independence Payments (PIP) and Universal Credit, how much on average, and the split between current or future recipients should be revealed. Hundreds of thousands will lose thousands of pounds worth of health-related benefits.

There is a £2.2bn cut to civil service admin costs, including staffing by 2029-30. A 15% cut is a significant chunk of what is spent by central government on wages and consultants.

However, the chancellor suggested a loss of 10,000 roles, which is only a pruning of a workforce of over half a million – especially as it sees 30-40,000 leavers every year.

The unions say this cannot be done without harming front line services. There is a lot riding here on deployment of automation and artificial intelligence.

A further fractional trim to the rise in departmental budgets, a crackdown on tax avoidance, and the switch from aid to defence spending should all help restore the chancellor’s room for manoeuvre by another few billion pounds.

It will be difficult to characterise this as “austerity” given the early injection of significant upfront sums into public spending at the Budget.

Divvying up the increase in defence spending will be a key feature of the Spring Statement.

Defence spending (for example, on jets and tanks) is more capital intensive than aid spending, so more of it is exempted from the chancellor’s self-imposed borrowing rules to limit day-to-day spending only to what is raised in taxes.

Understandably there will be a lot of focus on a chunky downgrade to the OBR forecast for the economy in 2025.

The real question for the chancellor has been the extent to which that has carried through to the end of the forecast period, and so permanently dented the economy and tax revenues. It may have not, and therefore not impact the Budget numbers quite so much.

The Treasury has also been trying to get the OBR to give it credit for growth-enhancing reforms such as planning changes.

In theory, higher growth means lower forecast borrowing and more room for manoeuvre – a win-win. But the OBR may have become stricter on this after a recent external review of its methods.

There is a bigger picture here about growth and the government’s strategy. Investors and business are still awaiting the infrastructure, industrial and trade strategies of this government eight months since it took power.

The new global reality means further uncertainty, but also creates a potential significant upside for a stable, rules-based advanced economy with cutting-edge frontier science, research and financial services.

This is particularly the case for a nation that can simultaneously keep its trade and investment connections with the US, Europe, China and the Gulf, even amid the tariff tumult. In Cabinet they call it “the most connected economy in the world”.

Is the world hearing this? UK Government borrowing costs have risen again as markets await the new calendar of bond sales on Wednesday.

UK bond yields went up with the US in January, but when that stopped they also rose in line with Europe after massive debt-fuelled rearmament plans. It’s the worst of both worlds for the borrowing forecast.

The Spring Statement might be an opportunity to project the opposite case – that the UK is uniquely placed to be the best of both worlds. Some sort of economic deal with the US is imminent, and talks over the Brexit reset are also progressing.

There are some small signs of the economy breaking out of its recent rut, especially in the service sector. Small businesses in retail and hospitality fearing the rises to National Insurance and the National Living Wage are holding out for some sort of alleviation of the pain.

So Wednesday, while definitely not a Budget, will answer some important questions about the economy.