Spring Statement 2025

Following the tax rises in the Autumn Budget last year, there is increasing trepidation in advance of the Spring Statement 2025 on 26 March.

Whilst Labour committed in their manifesto to only one fiscal event a year, and Rachel Reeves spent late last year and early this year ruling out any tax rises, it now seems quite likely that there will be tax rises and/or spending cuts.

Having checked, it seems that Labour committed to only one ‘major’ fiscal event a year. Given that the Autumn 2024 Budget was the biggest tax raiser for over 30 years, then the bar for ‘minor’ is still pretty high. Rachel Reeves has been fairly quiet on what will be announced in the Spring Statement 2025 of late. Instead, the prime minister has been taking centre stage.

First we had the announcement of a major increase in defence spending to be funded by cutting the foreign aid budget. Then, on the flight to Washington, Keir Starmer has said: “In terms of the big decisions on tax, obviously the Budget was the place we took those decisions – but as ever, going into a statement, I am not going to say in advance what we might do and what we might not do. But let me not set hares running, the big decisions were in the Budget of last year and that’s the way we are approaching the Spring Statement”.

To me, that sounds like whilst it isn’t going to be as big as last year, we are going to get some tax increases or spending cuts, but how much, and to what extent, hasn’t been decided yet.

What do we know about the Spring Statement 2025?

Well, the headroom the Chancellor allowed for in last year’s Budget wasn’t enough. As accountants, we are very used to considering forecasts and borrowing facilities and it never looked enough at the time. It assumed the economic news would be good, events went the other way and it looks like we’ve been left exposed.

Interest rates and inflation look set to be forecast to be higher over the medium term and so the government’s debt interest obligations will be higher, as will its spending commitments. Tax receipts in January set a record high – but crucially still below the forecast level. Not much sign of the accountant’s old friend prudence and possibly the John Lennon song, “Dear Prudence” is a suitable track as a backdrop to the event.

Liz Truss upset the markets by ignoring the Office for Budget Responsibility (OBR) forecasts but the markets seem to have concluded that the OBR’s expectation that UK productivity will suddenly improve is not credible and they will need to be more cautious if only to keep the markets onside.

What is Rachel Reeves likely to do?

One possibility is extending the freeze on allowances and thresholds further, but that would be a direct reversal of what she announced last October. Instead, she could look to reduce government spending on unprotected departments in the Spring Statement 2025, but that doesn’t look very credible.

The question is whether Rachel Reeves is looking to get prudence to come out to play, or just trying to do enough to technically meet her fiscal rules.

What will be in the Spring Statement 2025?

My sense is that there could be another big ticket announcement – ending the triple lock, for instance, but even then, given the level of inflation and average earnings, would that make enough of a difference? Politically, it doesn’t sound much fun.

It is also worth considering ideology. This government has pursued ideological policies on private school fees and the taxation of non-doms. The inheritance tax and capital gains tax changes can be seen in a similar light.

I think further increases in inheritance tax are possible. The government has just published a consultation document around the restrictions of agricultural and business reliefs. It is more accommodating than we had been indicated it might be, but it still leaves open the opportunity for the government to make additional technical changes that could increase the revenue raised from inheritance tax.

We could also get a whole raft of measures designed to combat tax avoidance and a forecast increase in tax being raised by HMRC activity. Where is there something big enough to go after? Salary sacrifice maybe? That was certainly mooted before the Budget last Autumn but the government decided against. Could it be in the Chancellor’s sights?

My sense is that the government will look to cut spending and may also extend the freeze on allowances and thresholds but I would expect any such measures to be accompanied by further taxation of “those with the broadest shoulders”. Who that is is always a matter of perspective, but we are getting the measure of this government’s ideology and if you think you are in their sights, then you probably are.