Chancellor Rachel Reeves is to deliver the spring budget next week against the backdrop of a faltering economy. Reeves set tight fiscal rules in her first budget in October last year – which have now left her with tighter headroom for any attempt at boosting growth. She will be responding to new forecasts from the Office for Budget Responsibility (OBR), after the Bank of England reduced its forecasts for growth this year. The weaker growth figures, combined with higher-than-expected borrowing, are expected to put pressure on Reeves to increase taxes or cut spending in order to meet the financial rules she set at the budget. However, it is believed that changes to the tax regime are not on the agenda. Nevertheless, Reeves will need to make savings – which could result in huge spending cuts. What is the spring statement? The chancellor delivers the spring statement every year in the House of Commons – one of two major financial statements in the financial year (1 April to 31 March). Unlike the budget, when major financial policies are announced for the year ahead, the spring statement is typically for giving an update on the state of the economy and OBR forecasts. When is it? Reeves will deliver her spring statement on Wednesday 26 March at around 12.30pm – straight after PMQs. It will tie in with OBR forecasts, published on the same day, which Reeves will present to MPs. What we know about spending cuts While Reeves is understandably remaining tight-lipped about what she will announce in the spring statement, reports suggest that as she is ruling out tax rises, she will have to set out major spending cuts to claw back money for public finances. This week, the government announced major cuts to welfare, projected to save the government £5bn – and there could be cuts to other areas. According to The Guardian, Reeves will say that certain government departments – such as justice and local government – will be cut as much as 7% over four years, equating to billions of pounds in savings. Additional measures include efficiency drives in Whitehall and possible reallocation of international aid to boost defence spending to 2.5% of GDP by 2027. Officials are not denying reports that they could seek to increase Whitehall budgets by an average of 1.1% a year after 2025-26, rather than the 1.3% announced last year. However, insiders believe that the additional cuts will add pressure on the poorest families. One told the paper: “I don’t know how much longer we can go on pretending this is not austerity, when the reality is we’re making cuts to vital public services such as police and prisons.” What are her fiscal rules? In her first budget last year, Reeves introduced new fiscal rules to underpin Labour’s economic strategy. The first – the ‘stability rule’ – states that day-to-day spending must be covered by tax revenues, ensuring no borrowing for routine expenses. The second – the ‘investment’ rule’ – requires public debt, that was newly defined as public sector net financial liabilities (PSNFL), should fall as a share of the economy. This means that how debt was worked out changed – essentially reclassifying some government debt as assets, creating more room for borrowing. However, these rules are now causing problems due to economic woes this year. Sluggish growth, rising inflation, smaller than expected tax revenues and higher borrowing mean the OBR could announce the UK is set to miss the current budget balance by the end of the decade. Reeves had hoped changing her definition of debt could free up an extra £50bn in headroom to balance the budget. But Paul Johnson, director of the Institute for Fiscal Studies (IFS), said that pledges to not increase income tax, VAT or national insurance means she will be unable to free up additional resources for day-to-day spending. With lower tax revenues and higher borrowing, Reeves is dangerously close to breaking her own stability rule – potentially damaging her credibility beyond repair. Experts believe major spending cuts may be the only answer. UK pay growth stays above inflation ahead of Bank of England interest rate decision (Yahoo News)The spring statement is an opportunity to secure the UK’s economic future (City AM)What is a recession? UK sees 0.1% fall in GDP ahead of Rachel Reeves' spring statement (The Standard)