Understanding the Spring Statement 2025

Alongside each of the government’s fiscal statements, the independent Office Budget Responsibility (OBR) released its latest set of forecasts (Opens in new window) for the economy and public finances. To some extent, these forecasts are very educated guesswork – but do they have real-world implications. They help the government come to its decisions about tax and spending.

The bad news for the government – and for the rest of us – is that the OBR has significantly downgraded its forecast for economic growth this year. The UK economy is now expected to grow by just 1% in 2025, compared to the 2% predicted at the time of the Autumn Budget.

The slightly better news is that the growth forecasts for subsequent years, up to 2029, have either stayed the same or increased slightly. These are all shown in the following chart:

This means that the government faces a challenge to meets its own fiscal rules around borrowing and debt unless it does more to cut spending or raise taxes.

Indeed, the head of the respected Institute for Fiscal Studies think tank has already said that “We can surely now expect six or seven months of speculation about what taxes might or might not be increased in autumn.”  

There were no announcements specific to motorists and fleets in the Spring Statement – but there was a surprising omission.

To explain it, we need to go back to 2017 and the introduction of the “Expensive Car Supplement” on top of Vehicle Excise Duty (VED). According to that policy, cars worth over £40,000 need to pay an extra annual surcharge – currently £410 for the each of the first five years after the car’s registration year – in addition to the standard VED payment. It originally only applied to conventional petrol and diesel cars.

But, in 2022, the former chancellor Jeremy Hunt announced that the Expensive Car Supplement would be extended to include electric vehicles (EVs) – starting on 1 April 2025. Given that EVs tend to be more expensive than their fossil-fuelled counterparts, with many costing more than £40,000, this would be a significant and disproportionate new tax on cleaner motoring.

However, there was another twist in the tale. In the Labour government’s first Budget, last October, it was written that “The government recognises the disproportionate impact of the current VED Expensive Car Supplement threshold for those purchasing zero emission cars and will consider raising the threshold for zero emission cars only at a future fiscal event, to make it easier to buy electric cars.”

Hence the expectation that something would be announced in the Spring Statement to ease the pressure on EVs – particularly with the 1 April deadline looming. However, there was no announcement. As it stands, EV owners face hikes in VED and the Expensive Car Supplement.

Why is this? We can only speculate, but perhaps the government is less enthusiastic to reduce taxes after the OBR’s most recent economic and fiscal forecasts.    

Of course, the Spring Statement contains other non-motoring policy announcements – the biggest (and most controversial) being cuts to various benefits. These include reductions to health-related Universal Credit and stricter eligibility criteria for Personal Independence Payments (PIPs).

These cuts were heavily trailed in advance of the statement, so they do not come as a surprise – but we do now have additional detail from the OBR. According to their  supplementary document, the government’s decisions will “decrease [welfare] spending by an average of £1.9 billion a year, reaching £4.3 billion in 2029-30.” 

Why has the government done this, particularly in the face of fierce opposition from some of its own MPs? Again, the answer lies in the OBR’s economic and fiscal forecasts: without these cuts, the government would have been perilously close to breaking its own fiscal rules; with them, things are still looking tight for in future.

More spending cuts – whether to benefits or elsewhere – and tax rises may be on the way.