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The Spring Statement will take place on 26 March 2025. This is the Government’s next opportunity to set out its tax and spending plans to deliver on its “number one mission” – economic growth.
From her first week on the job, Chancellor Rachel Reeves has warned that growing Britain’s economy and improving living standards will require some tough financial choices.
To this end, the Autumn Budget 2024 included an employer’s National Insurance hike, frozen tax thresholds and increases in inheritance tax among other measures. Getting Britain’s finances back on track will take time, and the latest official economic figures don’t make for easy reading. Data released by the Office for National Statistics have revealed little to no growth in Gross Domestic Product (GDP) for the second half of 2024. Meanwhile, inflation is on the rise, moving further away from the Bank of England’s 2% target.
Households have reined back discretionary spending to cope with the rising cost of essentials, and when consumers spend less, economic growth slows.
So, what further changes could the Government make to stabilise public finances and get the economy growing? We’ve highlighted some key Spring Statement rumours and expert predictions.
Will income tax go up?
While it looks unlikely Reeves will increase income tax directly, freezing tax bands (the thresholds for paying different rates of income tax) for another two years would still raise money for the treasury. Known as ‘fiscal drag’, keeping tax bands static means more workers are dragged into higher tax brackets as wages rise.
Though HMRC has reportedly denied any plans to extend the current freeze (in place until 2028), economists have highlighted this ‘stealth tax’ as an easy way to boost tax revenues.
With the National Living wage set to increase to £12.21 per hour on 1 April, more and more lower earners could start to pay income tax for the first time. Our salary calculator tool can help you work out your take-home pay after tax.
Will there be more National Insurance changes?
Increasing National Insurance contributions (NICs) for workers would go against Labour’s manifesto and subsequent promises. However, some experts have not ruled out the possibility that Reeves could resort to hiking employees’ NICs, to balance out the inflationary effect of rising wages.
Reeves could choose to soften the hike to employers’ NICs announced in the Autumn Budget which, combined with an increase to the minimum wage, has put pressure on small businesses. The Chancellor may also announce additional NICs relief for the charities which would otherwise be hit hard when the increase in employer’s NIC contributions comes into effect.
Fears that job cuts and lower pay could follow as companies grapple with bigger tax bills have led to accusations that working people will ultimately suffer the consequences. Though employers’ NICs won’t show up on your pay slip, an increased risk of redundancy is a good reason to review your finances.
What might happen to the Individual Savings Allowance (ISA)?
Rumours are circulating that Reeves plans to set a lower limit for Cash ISAs to encourage more investment in stocks and shares, which could help stimulate economic growth.
ISAs currently provide a tax-free wrapper for savers, up to a limit of £20,000 per year across different types of products including Cash ISAs and Stocks and Shares ISAs, allowing savers to choose how much to put into each type of account.
However, some savers rely on Cash ISAs for easy access to their funds and prefer the security of a low-risk account. Despite Stocks and Shares ISAs tending to offer higher returns over time, they carry more risk, particularly in the short term because of the potential for invested money to decrease. Lowering the Cash ISA limit might also risk discouraging people from saving altogether.
We’ve covered the four questions you need to ask when choosing an ISA before the end of the tax year.
Could Capital Gains Tax increase further?
In October, Reeves increased the rate of Capital Gains Tax (CGT) – paid on profits made from disposing of assets which have increased in value – from 10% to 18% for standard-rate taxpayers and from 20% to 24% for higher-rate taxpayers. Entrepreneurs who sell their businesses are among those most affected.
Convincing investors to invest in British companies is a key part of the Government’s plan to improve the country’s economic prospects. However, business experts have warned that further increasing Capital Gains Tax (CGT) could have the opposite effect. Still, it remains an option available to Reeves to further boost the coffers.
Is the pension triple lock under threat?
Labour committed to maintaining the pension triple-lock (payments increase in line with the highest of either average earnings, Consumer Prices Index inflation, or 2.5%) as part of its manifesto, but given the UK’s ageing population, the long-term sustainability of the policy has come under question.
Inflation is forecast to hit 3.7% this year and ensuring pensioners’ incomes stay in line with workers’ wages is becoming increasingly expensive for the Government. Ministers have so far failed to quash rumours that changes to pensions could be on the way.
Increasing the number of benefits that are means-tested is one strategy that has been discussed, though Labour has so far said nothing about the triple lock. Winter fuel payments were restricted to only pensions in receipt of specific benefits such as Pension Credit – a move that proved deeply unpopular with the public – so further cuts to pensioners’ income would be a brave move on Reeves’ part.
NerdWallet spoke to Mike Barrow, a financial planning consultant at Wealth Wizards, who advises waiting for “definitive information” before making any major money moves. “Before the last budget, countless people pre-emptively withdrew tax-free cash from their pensions, anticipating significant changes to the pension landscape that never came,” Barrow explains. Whatever changes are announced on 26 March, they are unlikely to kick in immediately. Transitional arrangements will mean “people have time to react to any changes and make informed decisions that serve their best interests,” Barrow adds.
Amy Knight, Personal Finance Expert at NerdWallet
What our Nerds say…
“The tax hikes that will kick in for businesses from April will make it harder for employers to offer generous salaries or dish out pay rises. If wage growth cools off and inflation tracks sharply upwards as expected, September’s CPI figure could exceed the increase in average earnings, making it the determining factor for setting the state pension for 2026.”
If Reeves cuts spending, who will miss out?
Given how committed the Labour Government has been to not increasing the tax burden for working people, the other “tough choice” Reeves could take is to cut public sector spending. Tax rises may be avoidable if the Government can save enough money through spending cuts instead.
State benefits represent a big slice of the Government’s annual spending, and in October, Labour confirmed they would uphold the Conservatives’ plans to save £3 billion by tightening up the welfare system. The welfare reform bill includes clamping down on benefits fraud, requiring jobseekers to increase their efforts to gain employment, and reviewing who can claim a top-up of universal credit due to limited capability for work or work-related activity.
There are worries that people who have been off work due to disability or long-term health conditions could lose benefits they currently rely on to cover essential living costs. This includes those suffering from mental health conditions. If you’re worried about the financial support you receive, charities like Turn2us and Citizens Advice can offer support.
Claire Atchia McMaster, director of income and external affairs at Turn2us says the Government must use “fairness and compassion” when reforming parts of the benefits system. “We need a system that reflects the reality of people’s lives and recognises social security as a safety net we can all be proud of,” she said.
More changes to benefits could be announced in the run-up to Reeves’ budget.
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