Rachel Reeves has set herself a fiscal ‘trap’ ahead of spring forecast, think tank warns

UK chancellor Rachel Reeves has set herself a fiscal “trap” ahead of this month’s spring forecast statement, the Institute for Fiscal Studies (IFS) has warned.

IFS research economists explained that Reeves has committed to holding one major fiscal event per year, which refers to the autumn budget. Meanwhile, the spring forecast statement — set to take place on 26 March — is intended to be less significant, aimed at giving an update on the economic outlook, as opposed to announcing major policy changes.

They said, therefore, that even a relatively minor downgrade to the Office for Budget Responsibility’s (OBR) economic and fiscal forecasts could force Reeves to choose between policy stability and her commitment to a single fiscal event per year, on the one hand, and her fiscal rules on the other.

The economists said that this was “largely a result of the chancellor’s own earlier decisions — and in particular her decision to leave only the finest of margins against her fiscal rules.”

Reeves’ first budget last year left her with just £9.9bn in headroom to meet a goal of balancing day-to-day spending and tax revenues by the 2029-30 financial year. This was despite announcing Britain’s largest tax hikes in decades. Since then, global borrowing costs have risen, and UK business sentiment and growth prospects have wavered, compounded by the uncertainty created by a £40bn tax rise and the trade tariffs introduced by US president Donald Trump.

Read more: Bank of England expects UK inflation rise amid ‘even greater uncertainty’

Economists have warned that the OBR is likely to conclude that this fiscal headroom has been wiped out.

“The case for acting now to meet the fiscal rules is not unambiguous,” IFS research economists said. “The constant fine-tuning and tweaking of policy brings costs. There is no meaningful economic difference between a forecast for a small current budget surplus in 2029–30 and a forecast for a small current budget deficit in 2029–30. The announcement of any policy changes could be delayed to the full fiscal event in the autumn.”

At the same time, they said that Reeves may be concerned about the message it would send to financial markets if she were to breach her “non-negotiable” fiscal rules “at the first time of asking”. They said that she may also want to act before June’s multi-year spending review sets out departmental budgets for the rest of this parliament.

In addition, the economists said that if Reeves did decide to hold off on policy changes until autumn, that that would almost certainly lead to months of damaging speculation over what taxes will be increased in the budget.