Spring Statement: Reflections

The challenges for the UK economy are mounting

George Lagarias, Chief Economist at Forvis Mazars

 

 

Like the Bank of England before it, the OBR halved British growth estimates for 2025 to 1%, transferring “lost” growth onto the next financial years, however.

Slower 2025 growth means less tax receipts even as higher inflation means reticent consumers. All against a backdrop of sharply increasing defence and healthcare needs, as the NHS faces the realities of an ageing demographic. Meanwhile, public finances have deteriorated by roughly £14bn.

In these -far from ideal- circumstances, Chancellor Reeves produced a sensible budget. She prioritised defence and healthcare and maintained a fiscal buffer of roughly £10bn. At the same time, she managed market reactions, dare we say, to a T. Ms Reeves knew she could withstand a market disappointment (in the form of higher Gilt yields during the past few days) but not a panic. Gilt issuance at £299 bn was roughly in line (and slightly below) median market expectations, which allowed borrowing costs to come off their recent highs. During her speech, she insisted multiple times that she would adhere to her fiscal rules. Even more importantly, she reduced some benefits. While it may have caused a stir with Labour’s voters, Ms Reeves sent a very powerful signal to financial markets: “We will shoulder some of the pain to do the right thing, we don’t expect markets to pay for everything”.

This was a budget that delivered as much as it absolutely could, without risking a market backlash. Having said that, there are significant risks to implementation, which are only rising.

The £10bn buffer, about 1% of government spending, is the third smallest on record. The OBR suggests that there’s about an even chance that it will be missed. Meanwhile, global economic and financial headwinds are blowing harder. Policy uncertainty is at all-time highs, affecting policymakers, businesses and consumers. And we have yet to see the extent and full consequences of America’s trade war. This is an environment that breeds market volatility. Britain’s borrowing costs are already trending higher and jittery bond markets may be swift to “punish” countries that miss spending targets.

 

 

Reeves’ Spring Statement does nothing to stem flow of HNWs out of UK

 

Chancellor Rachel Reeves’ Spring Statement on Wednesday will do nothing to stem the flow of job and wealth-creating high-net-worth individuals and families out of the UK.

 

 

The stark analysis from Nigel Green, CEO of deVere Group, one of the world’s largest independent financial advisory and asset management organizations, comes after Reeves delivered her fiscal update to parliament yesterday.

 

 

“Far from reversing course on punitive tax rises, such as the NI hike that was introduced in the Budget, which as a tax on jobs threatens to hollow out the UK’s economic dynamism, the Chancellor doubled down.

 

 

“The only honesty came in her admission that UK growth is on life support—projected to be just 0.2% in 2029. And we know how inaccurate projections of this nature can be. It appears that Britain is becoming an increasingly unattractive base for global citizens who have the means to choose otherwise.

 

 

“We saw a surge in enquiries in HNWI relocation after the Budget—and we fully expect another wave now.”

 

 

The UK’s tax burden is already on track to hit a record 37.7% of GDP by 2027-28. Worse still, the Office for Budget Responsibility warned that the Chancellor faces a 50-50 chance of needing to impose yet more tax hikes just to remain within her own fiscal rules.

 

 

“This isn’t speculation. It’s a forecast with consequences,” notes Nigel Green.

 

 

“The writing is on the wall. HNWIs are looking at the government’s agenda—capital gains, inheritance, pensions, employer contributions, and moves to abolish non-dom status albeit with a now a more generous phase out of tax benefits—and they’re making plans,” he explains.

 

 

“These are not idle threats. Many already own properties abroad. They are globally mobile and financially fluent. They are ready.”

 

 

Popular destinations such as Spain, Italy, Switzerland, Malta, Dubai, and Singapore are seeing a swell of interest from UK-based wealth holders. “And it’s not just about tax—it’s about clarity, consistency, and an environment that sees private capital as a force for growth, not a target.”

 

 

The scale of this movement is growing. Private client advisors, wealth managers and family offices across Europe and the Middle East are reporting a marked uptick in British HNWIs initiating relocation plans.

 

 

The UK has much to lose. “High-net-worth individuals contribute disproportionately to public revenue, both directly through taxes and indirectly through investment, innovation, job creation, and philanthropy.

 

 

“Their departure punches holes in government revenues and leaves gaps in capital formation. These losses are not easily replaced.

 

 

“This week’s announcement should have moved to repair Britain’s competitiveness, and to project a message to the world that the UK wants to lead in innovation, entrepreneurship, and private wealth creation.

 

 

“We can’t tax our way to prosperity. And we certainly can’t afford to lose the people who build it. Reeves missed an opportunity in the Spring Statement to fix some of her mistakes.

 

 

“As things stand, we expect the flow of HNWs out of the UK, where the economic forecast is grim and the political agenda punitive, will not slow—it will accelerate,” concludes Nigel Green.

 

 

Response to the Spring Statement – Francis Truss, Partner, Carter Jonas

£2bn top-up for the Affordable Homes Programme

 

The boost to affordable housing grant funding is very welcome, particularly at a time when many Registered Providers are prioritising improvements to the quality of their existing stock and therefore their appetite for taking on additional stock via Section 106 agreements is proving limited.

It is clear that the government’s priority is affordable housing for rent and there is a noticeable absence of support for first time buyers in the open market. Help to Buy was an important part of the growth in housing delivery pre-Covid (2015-2020).

While on the face of it the new money is welcome, it will be ring-fenced for sites that will be delivered in this Parliament. We are yet to hear whether there will be long term grant support for the government’s aspiration for twelve new towns (which will inevitably have a significant affordable housing requirement). Realistically, none of the new towns will come forward this Parliament but viability assessments, which will be taking place already, will not be able to assume the equivalent level of affordable housing grant funding.

The £2 billion package should be considered in the context of £2.1 billion in affordable housing grants which were made available via Homes England in 2023/2024. So as ‘new funding’ this represents £0.5 billion for each remaining year of this parliament or an increase of 25% per annum. The Government calculates the impact as being that of delivering 18,000 additional affordable homes or roughly 4,000 per remaining year of this Parliament. In comparison to previous government policy – most recently, the Help to Buy programme – this new approach may have a more limited impact. Indeed, it equates to just a tenth of the additional housing delivery which came forward under that programme.

 

Absent from the Spring Statement

 

As a priority, if the 1.5 million homes target is to be met, there will have to be greater incentives – fiscal and otherwise – to attract private funding for development. Specifically, support for large-scale housing developments including new towns and other infrastructure must be encouraged. It goes without saying that expanding and growing the quantum of development will rely on new sources of finance. This requires a long-term commitment from the government which gives investors the necessary security, and must be put in place swiftly to facilitate the delivery of such schemes.

 

 

Tariq Attia, CEO of leading growth investor IW Capital, said:

“The announcement that the government is investing a further £2.2bn into defence, particularly into technologies that will build the UK’s defence capabilities, presents a huge opportunity for the UK’s tech sector at large. It will be interesting to see if the investment into our biggest defence companies filters down into the wider tech industry; we know that in the US, Silicon Valley grew thanks to defence spending in the 1960s and 1970s. Will this be a similar watershed moment for the UK’s tech industry?

“If we truly want to build a “defence-industrial superpower” and place defence at the heart of economic growth, this investment must be underpinned by solid tax policies, training plans, and asset allocations to support its growth.”