Rachel Reeves will deliver her inaugural Spring Statement on Wednesday and give an update on the country's finances.

The Chancellor had committed to holding only one budget a year, in the autumn, with the Spring Statement an update on the economy. 

However, the changing economic and geopolitical backdrop means that Reeves' fiscal headroom has been wiped out.

The Treasury has already announced wide-ranging cuts in a bid to recoup some of the fiscal headroom lost to higher debt interest forecasts.

Reeves ruled out 'tax and spend' policies over the weekend, meaning tax increases are unlikely to be on the cards.

We look at what could be in Wednesday's spring statement, and how Reeves will balance the books.

Will Reeves meet her fiscal rules?  

Reeves committed to a new set of fiscal rules, which restrict how much the Treasury can spend and tax.

It means the current budget should be on course to be in balance or surplus by 2029/30; net financial debt should fall in the same tax year; and some types of welfare spending will be capped.

After the Budget, she left around £10billion of headroom against the rules, which was below the OBR's forecast of around £15billion.

Since then, geopolitical issues and rising gilt yields have brought Reeves' fiscal rules into sharp focus and she has much less room to play with.

Last month, government borrowing was much higher than expected. OBR figures show it came in at £10.7billion, higher than the forecast £6.5 billion, leaving the Chancellor with much less headroom than anticipated.

ING economists predict the Treasury has likely lost all of its headroom following the increase in borrowing costs, but spending cuts will help to meet fiscal rules.

Meanwhile, inflation and gilt yields - the interest paid on new debt - have both increased. Some experts now predict that the Bank of England will choose to keep rates higher for longer than anticipated to combat higher inflation, which is above the central bank's 2 per cent target again.

All of this will make government borrowing a lot more expensive and therefore harder for Reeves to keep to her fiscal rules.

How is the economy faring? 

Alongside the spring statement, Reeves will also give an update on the economy from the OBR.

The economy isn't in great shape but hasn't 'materially worsened since October' beyond higher debt interest costs, according to ING economists.

'Growth has disappointed, and the OBR's 2 per cent 2025 GDP forecasts; frankly, always looked too optimistic. 

'But at the same time, inflation is likely to be a fair bit higher than the OBR predicted back in October'.

Lower growth paired with higher inflation largely cancel each other out, meaning GDP forecasts will be largely unchanged from October.

What's already been announced?

The Spring Statement is usually an update on the OBR's forecasts with no new policy announcements.

However, we've already had a string of announcements ahead of Wednesday as Reeves looks to balance the books.

Over the weekend, Reeves told the BBC she had ruled out 'tax and spend policies' which means she will not raise taxes or government spending.

It's a sharp u-turn on her Autumn Budget which raised taxes and public spending by controversially targeting business.

Instead, the Treasury will target spending cuts to meet the fiscal rules as well as to plug the defence spending gap.

Reeves is expected to announce £400million in spending on the Government's new UK Defence Investment body, according to The Mirror.

Works and Pensions Secretary Liz Kendall has also unveiled huge changes to the benefits system to free up more cash to the tune of roughly £5 billion a year by 2030.

The plans have already come under fire from disability campaigners who claim changes to who can claim Universal Credit and Personal Independence Payment (PIP) among other benefits will have a detrimental effect.

The government will also look to cut civil service administration costs by slashing 10,000 jobs and redirecting the cash to frontline services.

Reports suggest that the Chancellor will invest £2 billion into 18,000 affordable housing to try and soften the blow of spending cuts. 

What else could be announced in the Spring Statement?

Reeves has said she won't be putting up taxes on Wednesday. She told The Sun on Sunday: 'This is not a budget. We're not going to be doing tax raising.

'We did have to put up some taxes on businesses and the wealthiest in the country in the budget. We will not be doing that in the Spring Statement.'

However, depending on the OBR's outlook, tax rises in the Autumn Budget could be on the cards.

ING economists say: 'The public finances are operating on increasingly fine margins, at a time where spending pressures are far from diminishing. 

'Defence is unlikely to be the only department that requires a fresh cash injection over the next few years.

'And redirecting spending from one area to another - as we've seen with the foreign aid budget being tapped to fund higher military spending - can only go so far.'

Reeves is likely to set out the impact of her welfare cuts, as well as more cuts to government spending to meet her self-imposed rules.

She could also decide to announce another extension to the freeze on income tax thresholds, which is due to end in 2028. This stealth tax drags more people into paying higher tax as their wages grow.

There has also been pressure from the business community to reform the business rates system, as leisure and hospitality businesses continue to struggle with higher costs.

Labour had committed to launching a fairer system in its manifesto and has consulted with small businesses, so there may be some changes to help small businesses.