What will be in Chancellor Rachel Reeves’s plan?

The chancellor will give an update on her plans for the UK economy and an economic forecast in Parliament on Wednesday 26 March.

Rachel Reeves has previously ruled out further tax rises, but faces difficult choices because of the performance of the UK economy and world events.

Reeves has committed to one major economic event – the Budget – each year, to “give families and businesses stability and certainty on tax and spending changes”.

That means no big policy announcements are expected on 26 March, but that’s not stopping them being made beforehand.

On Tuesday, the Treasury revealed plans for major changes to the benefits system aimed generating savings of £5bn a year in response to the UK’s growing welfare bill.

Policies include stricter tests for personal independence payments, which will affect hundreds of thousands of claimants, and a freeze on incapacity benefits in cash terms at £97 per week until 2029/30.

Other government department budgets cuts have also been announced. Last week, Prime Minister Sir Keir Starmer said NHS England will be scrapped and took aim at other quangos and regulators.

In the Spring Statement, Reeves may confirm details of how international aid funding will be reallocated to defence, following the decision to increase defence spending to 2.5% of national income by 2027.

However, government sources have been keen to state that this event is not a major one because it will not include tax rises, only spending changes.

The chancellor could also decide to delay any announcements of cuts to the Spending Review in June or even the next Budget in the autumn.

Though some argue that, if Reeves decides to extend the freeze on the thresholds at which people start to pay different rates of income tax, she is putting up taxes.

This is known as a hidden tax rise or stealth tax as it takes effect over time as people are dragged into paying more tax as their pay goes up without the tax rate rising at all.

Thresholds were frozen by the previous Conservative government until April 2028, but the chancellor could decide to extend the freeze, though she has previously said doing so would “hurt working people”.

The Office for Budget Responsibility (OBR), which monitors the government’s spending plans and performance, will publish its forecast on the UK economy.

It will also provide estimates on the cost of living for households and whether it thinks the government will stick to its self-imposed rules on borrowing and spending.

Reeves will present the watchdog’s main findings to Parliament and make her Spring Statement on her plans the economy alongside this.

After she has spoken, the opposition, likely to be either Conservative leader Kemi Badenoch or shadow chancellor Mel Stride, will respond.

The economy is seen to be underperforming thanks in part to global factors indirectly affecting the UK, such as US trade tariffs.

This has fuelled speculation over whether the chancellor will break her self-imposed rules on borrowing.

The OBR’s forecast is expected to confirm that the £9.9bn financial buffer to meet her budget rule by the 2029-30 financial year has been wiped out.

Reeves has repeatedly said her rules are “non-negotiable”. She has two man ones:

• Not to borrow to fund day-to-day public spending
• To get debt falling as a share of national income by the end of this parliament

Recent figures show UK economic growth has been weak.

The economy grew by just 0.1% between October and December 2024, while the latest monthly figures show it contracted by 0.1% in January.

When an economy grows, more businesses can employ extra workers or give pay rises. Firms making higher profits also pay more in tax to the government, which can be spent on public services.

In addition to slow growth, prices are also rising faster than wanted.

The current inflation rate of 3% is higher than the Bank of England’s 2% target and is forecast to go higher.

Inflation could affect whether interest rates are lowered further from 4.5% as the Bank moves rates in response to inflation.

Higher rates mean higher borrowing costs for loans, credit cards and mortgage deals, but it also provides better returns on savings.

Costs for businesses are expected to jump further in April, when National Insurance contributions paid by employers rise. These could be passed on to consumers.

Pressure has also increased on the chancellor’s tax and spending plans after a surplus in government finances missed official forecasts, prompting speculation that she could break her fiscal rules as things stand.

UK government borrowing costs surged in January, in part due to concerns over the UK’s economic outlook, threatening Reeves’s economic plans. The costs have since fallen back but remain higher than this time last year.

Reeves has also warned that a potential global trade war, despite tariffs not directly targeting the UK, would lower growth and raise inflation.