Chancellor Rachel Reeves is set to deliver her Spring Statement on Wednesday (26 March), having explicitly said she will not “tax and spend”.
The chancellor has also hinted she might offer a tax break to US tech companies as a way to avoid tariffs on UK imports into the US by president Donald Trump.
When questioned on BBC’s Sunday with Laura Kuenssberg, she said that talks on the Digital Service Tax (DST) were “ongoing”, while her deputy, Darren Jones, said that he was in “no doubt” that the tax would be included in discussions over the tariffs.
‘Looming cloud’
Grace Thompson, UK public affairs lead at the Chartered Institute for Export & International Trade, said:
“Wednesday’s Spring Statement will arrive with the looming cloud of US tariffs floating overhead, and with the UK economy generally underperforming.
“Over the weekend, the chancellor hinted that she may authorise the abolition of the £1bn-per-year DST which affects US tech companies, in order to negotiate with the Trump administration on trade tariffs.
“Whether or not this will feature in the upcoming Statement, or rather be included in the Autumn Budget, remains to be seen. It could be confirmed later in the year, depending on whether a trade deal is agreed with the US.”
Civil service ‘reform’
Reeves has also committed to cutting 10,000 civil services jobs, with the aim of reducing civil service running costs by 15% by the end of the decade.
According to the Office for National Statistics, the Civil Service employed 542,840 people, 510,125 on a full-time equivalent basis, as of March 2024.
Cabinet Office minister, Pat McFadden, told the BBC last month that the government was planning a “radical” shakeup of the way Whitehall was run.
Criticism
A number of Labour MPs told the Guardian that they were uncomfortable with the idea of a Labour government cutting tariffs on US companies as a way to placate Trump.
Liberal Democrat leader, Ed Davey, told his party’s annual conference that: “Appeasement never works with bullies, and it doesn’t work with Trump – as his tariffs on British steel already show.”
Reeves has also confirmed she will stick to her fiscal rules on tax and spending, including self-imposed restraints on public debt and the deficit.
For this, she will need to depend on the Office for Budget Responsibility’s (OBR) estimates on the economy, due to be released Wednesday (25 March), the day before the Statement.
Thomas Pope, deputy chief economist at the Institute for Government, urged the chancellor to wait until the Autumn Budget to make any major new fiscal announcements, even if OBR data showed she would narrowly miss her self-imposed targets.
Economic boost
Reeves’ plans received an unexpected boost from newly released economic data, which appeared to show tentative signs that the UK might be exiting a months-long period of stagnation.
According to S&P’s flash purchasing manager index (PMI), the UK economy grew to a six-month high, powered by the services industry.
The flash PMI scored 52.0, above the 50.5 registered last month. Anything above 50 indicates growth.
While services expanded to a 53.2 – a seven-month high – manufacturing shrunk to 44.6, the worst result for 18 months.
Reeves official portrait provided by UK Parliament.
