Things may have changed, but not because of the Spring Statement

In some ways, Rachel Reeves’ statement was a bit of a throwback – but not for good reasons. Much like the 2020 Budget, published just after Covid hit the UK, or the 2022 Spring Statement, immediately after Russia’s invasion of Ukraine, there are doubts as to how much we can infer from headline figures that were produced prior to the Iran crisis that unfolded over the weekend.

This is no fault of the OBR or the Chancellor, of course – events can and do overtake even the most carefully laid out plans. But with oil and gas prices spiking, a likely upward tick on inflation and the duration of the conflict unknowable at this point, we are again reminded that international developments can and do affect the UK’s economy and fiscal position significantly.

No news is good news

The Spring Forecast statement didn’t disappoint in being largely news-free. The forecast for GDP growth is down this year, but largely unchanged in the medium term. Unemployment is forecast to hit 5.3%, higher than previously projected, but the OBR expect it to return largely to the same place as before. Debt remains around 95% of GDP, and is projected to hover around that level for the whole of the forecast period.

Borrowing is essentially unchanged from November, as is the difference between hitting and missing the fiscal rules – the ‘fiscal headroom’, as it’s known. It is still around £24 billion, so higher than this time last year, but just below the average forecast error by the time the rules hit. So it’s not unthinkable that they would be broken.

The OBR did not comment on the probability of meeting the fiscal rules, but disappointingly the Chancellor could not resist mentioning her slightly improved headroom in her speech. Let’s hope this is not the start of a backslide towards an obsession with that particular number again.

The resolve about the fiscal rules and a single fiscal event was not tested

All the policy measures incorporated by the OBR in its forecast had already been announced – nothing new was put forward by the Chancellor. This is good news: fiscal volatility has been a big problem in UK policymaking, and the announced move to a single policy event a year was welcome.

But the jury is still out as to whether the Chancellor will stick to this. These were very benign OBR forecasts, with little changed since November and crucially still showing the Chancellor meeting her fiscal rules. Her determination and ability to withstand pressure will really be tested in a situation when the forecasts show her missing the targets – and whether she really will decide to put out a set of forecasts without corrective action.

Barnett consequentials

The Chancellor and Scottish Secretary announced that the Spring Statement would mean £921m extra for the Scottish Government.  This is mostly driven by the announcements related to Special Educational Needs and Disabilities (or SEND) spending in England. There are two elements to this:

• An exceptional item (in 2026-27) to write off the debts accumulated by local authorities for SEND provision;
• Increased spending in 2028-29 (and in subsequent years) for improved SEND provision.

As at previous fiscal events, there was a frustrating lack of detail about how this was spread over the years of the spending review period. Through various people (including ourselves and media outlets) asking the Treasury our understanding is that the consequentials are in the region of £500m for 2026-27, very little for 2027-28, and around 300-400m for 2028-29.

We remain mystified as to why the UK Government will not just publish this as part of the information it puts out at fiscal events. There is a clear demand for it, and it promotes accurate and transparent reporting of the impact of decisions.

This boost to 2026-27 is likely to be welcome for the Scottish Government given the tightness of the budget figures we saw presented in January, including the use of the reserve and other exceptional items. However, there is no relief for what already looked like a tricky settlement for 2027-28 – a challenge for whoever forms the government after May.