Reacting to Rachel Reeves’ Spring Statement, the Institute for Fiscal Studies has warned that the short-term cash injection the government was relying on to rebuild public services will provide less of a real-terms boost than planned.
Due to higher inflation in 2024-25 than anticipated – 3.8%, up from the 2.4% predicted in the October forecast – the IFS’s analysis says day-to-day spending will be 2.6% higher in real terms in 2024-25 than in 2023-24, rather than the 4.2% real-terms increase that was projected in October.
IFS director Paul Johnson said: “Given how much the government was relying on this short-term cash injection to get public services back on their feet, this is significant.”
Johnson said the degree to which the chancellor’s spending plans are “front-loaded” this year is another “striking feature” of the statement.
“After growing by 2.6% this year, day-to-day spending will grow by 2.5% in 2025–26, then 1.8% in 2026–27, 1.0% in 2027–28, and 1.0% in 2028–29,” he noted.
Johnson said these increases are “slightly less generous, on average, than planned in October”, reflecting large cuts to spending on administration and a shift from day-to-day spending to capital spending, but remain “considerably more generous than the plans pencilled in by the last government”.
He added that it was “already evident in October that the Spending Review in June is going to be seriously tough” and that the changes made to spending assumptions yesterday “make it slightly tougher”.
Ministers 'must match rhetoric to reality'
Civil service union chiefs, meanwhile, responded to the chancellor’s statement with concerns about planned headcount reductions and cuts to the public services that civil servants administer.
FDA general secretary Dave Penman said on Bluesky: “Successive governments keep saying they want to cut the size of the civil service, but keep asking it to do extra things and giving it extra money to do extra things.”
He added that “ministers must be prepared to make tough choices to make the rhetoric and reality match up”.
Echoing this, Prospect’s general secretary Mike Clancy said of the planned 15% reduction in civil service administration spending that “this whole agenda risks being overtaken by the target to find billions of pounds of savings in the administration budget. This blunt target could have serious unintended consequences”.
Clancy said that while the government’s planned investment in specialist digital skills is welcome, “this will require flexibility on pay to attract the skilled workers who can deliver on this reform”.
A reformed civil service “must not become simply a target for a cheaper civil service,” Clancy said.
Fran Heathcote, the PCS general secretary, said: “With inflation hitting 3.2% this year, pay settlements must reflect the rising cost of living.”
Policy is ‘seemingly being fine-tuned in pursuit of arbitrary fiscal headroom’
In its analysis of the Spring Statement, the IFS also delivered a warning on Reeves’s approach to fiscal headroom.
Speaking about the chancellor’s announcements on benefit reform, IFS director Paul Johnson described the measures as “much needed”, but said there is a risk of undermining the validity of reforms if policy decisions are made simply to “return the fiscal headroom to exactly where it was last October”. He warned that “policy is seemingly being fine-tuned in pursuit of an arbitrary and highly uncertain measure of ‘fiscal headroom’”.
Johnson referred to the chancellor’s £9.9bn fiscal buffer against her target to balance the budget as a “sliver of headroom” – a fragile situation that is worsened by what Johnson described as “global risks and shoddy UK data”.
The OBR has also made the point that Reeves’ narrow headroom could easily be wiped out by trade and geopolitical tensions alongside volatile borrowing costs. Johnson predicted that the OBR may well have a “bigger downgrade” in store.
The result, Johnson said, is that the next 6 or 7 months will be dominated by “speculation about what taxes might or might not be increased in the autumn”. This uncertainty has an economic and political cost, Johnson said. Looking forward to the June Spending Review, these spending plans will “crystallise into specific choices and start bumping up against reality, and against her cabinet colleagues”.
Given that even a small downgrade to the OBR’s forecast could shrink the chancellor’s fiscal headroom, Johnson predicted: “We might be in for another blockbuster Autumn Budget.”