The spring statement offers an opportunity for Rachel Reeves to talk about progress since last October’s budget, the government’s growth agenda and how it is attempting to raise living standards. However, the chancellor’s message is likely to be defensive after being blown off course in recent months.

Last year she promised “no return to austerity”. But after stalled tax receipts denied her the income she expected, and concerns over the global economy and Donald Trump’s antics raised the UK’s borrowing costs, Reeves is being forced to make cuts to stay within her budget rules. Here is what to expect from Reeves’s speech, which is predicted to be relatively short at just 25 minutes.

What spending changes will there be?

Reeves is looking to save a further £5bn through public spending cuts, but the details are not due until this summer’s spending review. She had already promised to stay within the spending limits laid out in her October budget. She will say that her fiscal rules are sacrosanct for the rest of the parliament.

It is a rebuke to many in the economics profession who argue that such self-imposed constraints unnecessarily restrict the chancellor’s policy options.

One of the rules, forcing the chancellor to balance the books for day-to-day spending and borrow extra funds only to support investment, has put pressure on Reeves.

At the October budget, Reeves had just £9.9bn in headroom – compared with the average of £26bn over the past 15 years – to meet that fiscal rule.

The Office for Budget Responsibility is predicted to tell Reeves that October’s projections have veered into the red, leaving a £10bn shortfall from higher debt financing and a boost to the defence budget from 2.3% of GDP to 2.5% by 2027, at a cost of about £6bn.

Several key announcements have already been made: the shuffling of the spending pack meant that international aid took a £6bn hit to cover higher defence costs. The gap from higher debt financing will be filled by £5bn worth of welfare cuts and a reduction in civil service jobs that will save £2bn by 2030.

Reeves will use the Treasury reserve to fund an extra £2.2bn of defence spending this year, in addition to the £2.9bn agreed last October, pushing spending as a proportion of GDP to 2.36% in 2025-26 – up from 2.3% in 2024-25.

How will the OBR revise its forecasts?

The spending watchdog’s predicted growth rate of 2% this year is expected to be cut to about 1%. The forecast by the increasingly powerful arbiter of the Treasury’s sums was based on ministers spending lots of the extra funds set aside for investment and a rise in consumer spending, which hasn’t happened yet.

A rate of growth of 1.8% and 1.6% in the subsequent two years could be upgraded to compensate. Inflation will be slightly higher than previously forecast this year and unemployment roughly the same.

October’s forecasts for tax receipts in 2026 and 2027 were upgraded from Jeremy Hunt’s March budget, and these could now be downgraded if growth is seen to be weaker. The potential impact of Donald Trump’s tariffs are a significant unknown.

Will Reeves address the spending review?

Reeves is likely to talk about the tough choices ahead, but without setting out specific government budget changes planned in the three-year spending review, due to be announced in June.

In a move some will say is akin to reinstating austerity, spending reductions will mean that unprotected departments such as justice, transport and the Home Office coping with a smaller amount of money than previously expected over the second half of the parliament.

Cuts to the Department of Justice will come at a time when the prison population is set to rise. Potential cuts could leave the government’s building programme at risk, given how it expensive it is to run and build prisons.

What tax changes will there be?

Labour’s election manifesto pledged no changes to income tax, national insurance and VAT. So, tax changes are off the agenda.

Speculation that a freeze on income tax thresholds introduced by Reeves’s Tory predecessor Rishi Sunak, and extended by Jeremy Hunt, will be extended again were last week dismissed as untrue by Treasury officials.

What will help reduce the overall deficit is another crackdown on tax avoidance and evasion. After a period of success that has clawed back hundreds of millions in tax, Reeves will say she plans to go further, generating an extra £1bn by 2029-30. This project will involve recruiting an extra 600 staff to HMRC’s debt management teams.

Changes already announced in October’s budget mean some taxes are due to rise steeply, including inheritance tax. The income from IHT, after private pensions were brought within its scope, is projected to rise from £7.5bn in the current financial year to £9.7bn in 2029-30.

Will borrowing go up?

There will be an increase in debt financing after a rise in interest rates on government debt. Reeves will blame the deteriorating public finances on the global rise in borrowing costs.

Most governments have suffered an increase in their borrowing costs since January, when Trump began threatening trade tariffs on many of Washington’s biggest and most important trading partners.

In the UK, the yield on 10-year gilts – effectively the cost of government borrowing – has risen from 4% a year ago to 4.7%, with some blaming domestic factors as well as the global trend. In 2020, it was exceptionally cheap to borrow after the yield on 10-year gilts fell to 0.3%. Reeves will be keen to keep bond markets calm with memories still fresh of the meltdown following Liz Truss’s mini-budget in 2022.

How are Labour’s investment plans working?

Reeves will spend a large chunk of the statement talking about initiatives to promote growth and how there are many more to come.

She will champion the newly approved Lower Thames Crossing – a road tunnel joining Essex and Kent – as well as other projects noted in January’s growth speech.

There will also be more cash for 18,000 new social and affordable homes, which Reeves will allocate £2bn to build.

Will local government spending be covered?

Reeves is not expected to directly address the extreme pressure on local government budgets. Services are struggling after years of underfunding from previous governments. Local authorities are concerned that the looming cuts could strip adult and child social care provision, which are already facing high levels of demand. Cuts to road maintenance budgets would affect rural communities.