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The State of Integrated Care Systems: Finances
The State of Integrated Care Systems: Finances

Posts Tagged ‘Spring Statement’

Spring Statement 2025 – tough choices and tighter margins

The Chancellor’s Spring Statement, delivered under mounting fiscal pressure and growing political tension, marked a particularly delicate balancing act for Rachel Reeves. Being framed as tough but necessary, the Chancellor’s decision to push through sweeping welfare reforms and deepen spending cuts reflects both the gravity of the economic situation and a clear pivot for the Labour Government.

Economic backdrop

Reeves’ statement follows several weeks of pre-briefing and speculation over anticipated heavy cuts to public spending in response to limited fiscal headroom, and this has been compounded by this morning’s decision by the OBR to downgrade the UK’s economic forecast for 2025, reducing it from 2% to 1%, with no expectation of a return to 2% growth during this Parliament. This downgrade brutally illustrates the Chancellor’s challenge: stagnant growth, spiralling debt interest payments, and worsening global conditions have all but erased any fiscal wriggle room.

In this context, Reeves’ emphasis on restraint was unsurprising. She reaffirmed the Government’s commitment to achieving a surplus within two years, rising to nearly £20bn by 2030. She also leaned heavily on OBR analysis that planning reforms will deliver a 0.4% uplift to GDP within the decade – the “biggest positive growth impact” the OBR has ever forecast for a cost-free policy. However, even with this optimistic framing, the broader economic picture remains challenging.

Winners and Losers

Three pillars defined the Chancellor’s approach: accelerating defence spending, reforming public services, and driving economic growth. Reeves framed the Statement as a response to a world in flux and name-checked geopolitical instability, namely Ukraine, the uncertainty of American foreign and economic policy under Trump, and growing NATO obligations.

But the most politically sensitive decision came in the form of welfare reform. Reeves confirmed £4.8bn in cuts, including a halving of the Universal Credit health element for new claimants and tightened eligibility for disability and incapacity benefits. These measures were immediately and fiercely contested.

While the Government insists these cuts are necessary to restore sustainability, outside Westminster the consequences are already being felt. As Reeves delivered her speech, disability rights campaigners staged protests outside Parliament, branding the cuts “cruel” and warning of devastating real-world impacts. The optics were stark: a Labour Chancellor defending welfare reductions while allocating billions more to defence.

Political implications

Politically, this is one of Reeves’ first true stress tests – and the consequences will echo beyond the fiscal arithmetic. Labour’s traditional social justice instincts now sit uneasily beside a more Blairite economic realism, and this tension was laid bare in the Chamber and across the country. The challenge is whether Labour can satisfy both its internal factions, balancing the expectations of its traditional base with the priorities of its more centrist wing, while maintaining the trust of voters who will decide its future at the next election.

The Treasury may claim these changes are modest in budgetary terms, but politically, they cut deep. Backbench discomfort is already simmering, and murmurs of rebellion could flare into something more disruptive if left unaddressed. With further spending decisions to come in the Autumn Budget, Reeves has little margin for error and even less political slack.


To find out more about what today’s announcements mean for your sector, get in touch at contact@wacomms.co.uk.

 

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The calm before the cuts? What to watch in Labour’s first spring statement

The Chancellor’s Spring Statement this Wednesday was initially framed as a ‘forecast’ – a technical and routine fiscal update. However, with growing pressure over the performance of the economy, it’s now shaping up to be a far more politically charged and consequential moment for the government.  

In this blog, we share what to expect from the Statement – including the emerging political tensions, the departments and priorities likely to be affected, and how this sets the tone ahead of June’s Comprehensive Spending Review (CSR).  

The context  

The Spring Statement will serve as a bellwether for Labour’s fiscal strategy and a prelude to the high-stakes CSR in June. Rachel Reeves is expected to set out the broad spending envelope that will guide departmental budgets – effectively signalling who wins and who loses in public spending over the coming years. 

Politically, this is being cast as Reeves’s toughest test yet, as she must reassure markets (and voters) of Labour’s economic credibility while addressing mounting pressure within her party over potential “austerity” measures. What began as a routine update has taken on outsized importance as a signal of Labour’s priorities going into the summer’s comprehensive budget reset. 

All signs point to Reeves doubling down on fiscal restraint. She has ruled out any major tax rises on Wednesday, meaning any effort to shore up the public finances will come largely from spending cuts. Indeed, reports indicate she will announce the biggest spending cuts since the austerity era, with overall Whitehall budgets set to be billions lower than previously planned. Early estimates suggest this could translate to reductions of roughly 7% over four years for “unprotected departments”. 

Crucially, Wednesday’s statement will reveal the average spending growth government-wide and the assumptions for protected areas – with detailed allocations for each department held back until the June review. In other words, the Chancellor will outline how much money is available, leaving ministers to haggle over the specifics in the coming months. 

Four things to watch out for 

1. Who gets hit – and what that means for the CSR 

By design, Labour has chosen to shield a few key priorities – notably defence and health – from deep cuts. In practice, that means many “unprotected” services face real strain. For example, the Department for Transport is reportedly preparing to scale back or delay projects – even ones the government only recently green-lit (East West Rail, a new Oxford–Cambridge line, is one such project now under review). Departments have been asked to model cuts as steep as 20% in some scenarios, underscoring how stark the trade-offs could become. 

Notably, even the Department for Education – a clear winner from the Autumn Budget – is understood to be modelling potential cuts. Reports suggest this could include means-testing free school meals for infant pupils and scaling back creative subjects in the curriculum – options that would carry significant political risk. We’re cautious about whether this is a genuine direction of travel or an attempt by DfE to use the media to signal the political cost of further cuts to the Treasury ahead of the CSR. 

We’ll be watching whether Reeves’s speech confirms this harsh outlook for “non-priority” departments – and how explicitly those tensions are acknowledged. Either way, the scale and shape of the Statement will be a strong indicator of how aggressive June’s CSR will be in reallocating limited resources. 

2. The politics behind the pain 

The political calculations behind these choices are increasingly apparent. Labour is keen to avoid any suggestion it will tax or borrow profligately, so sticking to tight fiscal rules has been the order of the day. Reeves has pointedly kept pledges like the state pension triple lock and vowed not to raise headline taxes this spring – moves aimed at bolstering voter trust, but which severely limit her options. Even some usually sympathetic observers worry the government has “hemmed itself in” with these commitments. 

3. Will Labour hold together? 

The political tensions are already visible. Reports suggest Reeves’s recent Cabinet discussion was the “most tense” so far, with senior ministers – including Angela Rayner, Ed Miliband, Yvette Cooper, and Shabana Mahmood – raising concerns about the impact of cuts on their briefs.  

Beyond the Cabinet, Labour MPs across the party – including those in newly-won marginal seats – are worried. Some fear a return to austerity; others worry the government risks looking indistinguishable from its predecessors. As one Labour MP bluntly put it: “What are we doing that the Tories wouldn’t be?” If Wednesday’s Statement doesn’t offer clarity – or cover – expect tensions to rise. 

4. How this shapes the story 

Reeves is walking a tightrope. She wants to be seen as serious, stable, and economically credible. But she also has to show that Labour is doing things differently and delivering for those who voted for change. If she lands it, the Statement could strengthen Labour’s economic credentials amid a period of relative success for the government.  

But if the Statement is seen as austerity by another name, it risks undermining the party’s promise of change. The real test will come in June when budgets are set in full, but the narrative begins now – and may be hard to shift once it takes hold. 

What next?  

With departments preparing to defend their budgets, and tough trade-offs ahead, evidence of contribution to growth, resilience and essential services will be more important than ever.  

Join our post-Statement webinar on Thursday at 9am to discuss the implications for the wider operating environment. RSVP to events.rsvp@wacomms.co.uk

 

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Tax Rises Now, An Income Tax Cut To Come

Rishi Sunak has just delivered one of the oddest economic statements in recent years. Sunak punctuated his speech to MPs with warnings from the Office for Budget Responsibility that we were living through a period of “unusually high uncertainty”. Indeed, as confirmation of the gloomy economic climate, the OBR’s growth forecasts for the coming years were revised downwards. Ominously, the Chancellor made clear that these forecasts had not considered the consequences of the war in Ukraine. Sunak was blunt. He acknowledged the economic situation could “worsen”.

Yet he felt the need to stride through the foggy future and announce a cut to the basic rate of income tax in 2024. The strange announcement is illuminating for several reasons. For businesses wondering when the next election will be here is a big clue. Boris Johnson and Sunak are targeting 2024 and not an early election next year. They seek a campaign following a tax-cutting budget.

Usually a pre-election tax cut is kept as a surprise until the very last minute to propel a governing party towards a campaign. But, given today’s announcement, two years before implementation, there will now be no surprise in 2024. The far-off pledge shows that Johnson and Sunak are alarmed by the commentary about their tax-rising policies over the last couple of years. As worried Tory MPs have noted, the duo have presided over more tax rises already than Blair and Brown did in ten years. For different reasons both Johnson and Sunak needed some good news now about a cut in income tax. As a result, they announced it early. Johnson wants to keep his job; Sunak would like to be Prime Minister. They tried to give Tory MPs some distant good news, but the pledge is both politically and economically risky. Will they have to find other surprises by 2024? Will the cut seem credible then?

The measures that take immediate effect are broadly unsurprising: a cut in fuel duty and the lifting of the threshold before National Insurance is paid. Some Tory MPs were delighted that the threshold was raised by £3,000, higher than they had anticipated.

But on the whole Sunak did the least possible in the short term. He knows he will have to do more in the autumn when he delivers his official annual Budget. This was only meant to be an economic update, but there has not been a single statement from Sunak during a period of economic calm. This was no exception. He had no choice but to deliver in effect a mini budget.

Looking ahead Sunak could not have been clearer as to how businesses can engage with government in the run up to the Autumn Budget. If he has had a distinctive theme as Chancellor, it is his search for a ‘business-led recovery’. This was the main topic in his Mais lecture, delivered on the day Russia invaded Ukraine and therefore largely overlooked. Sunak had spent huge amounts of time on the lecture, traditionally regarded as the address that defines Chancellors. In his statement to MPs, he expanded on the Mais lecture, telling them he was exploring “tax cutting options” that encourage the private sector to “innovate”, invest in vocational training, spend more on R and D, and on capital investment. He plans a big package of fiscal reforms this autumn and will be consulting with businesses in the coming months. Sunak sees these reforms as a way of addressing the UK’s relatively low productivity and to boost economic growth when the economy is weak.

I sense he genuinely wants to engage with businesses as to how this can be brought about. He has not yet decided on the tax policies that he plans to unveil in the autumn budget.

For businesses wondering how Labour will approach the next election, the Shadow Chancellor, Rachel Reeves, provided several answers in her response. She adopted a similar approach to that of Gordon Brown when he was Shadow Chancellor in the run up to the 1997 election. In her case she attacked Sunak’s National Insurance rise and accused him of wasting taxpayers’ money in spending billions on useless equipment during the pandemic. Brown did the same in 1997, arguing for ‘fair’ taxes rather than ‘higher’ taxes and pledging ‘competent’ spending rather than wasteful expenditure. Reeves also accused Sunak of ignoring the needs of businesses. Like Brown, Reeves wants to be seen as a pro- business Shadow Chancellor. She is keen to engage with business and is struck by how businesses are increasingly keen to engage with her.

For now, the return of inflation has some advantages for Sunak. Higher prices mean higher tax receipts. This has given him some wriggle room to play the fiscal conservative that also intervenes by spending money. But those benefits do not last very long. Soon public sector pay claims will soar in order to meet rising prices. High inflation can also undermine already low levels of economic growth. Inflation – more than any other economic factor -tends to destabilise governments. Sunak is keeping his fingers crossed that he has done enough in the short term. Some Conservative MPs are not so sure. The OBR’s official forecast is that this year, real household disposable income per person – or living standards – will fall by more than at any time since reliable data was collected. His promotion shortly before the pandemic means that Sunak has endured a turbulent time as Chancellor. Arguably the biggest storms are still to come.

 

 

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