On March 26, 2025, Chancellor Rachel Reeves delivered the Spring Statement, marking a shift to a single annual fiscal statement instead of the traditional two budgets each year. Although no major policy changes were introduced in this statement, it primarily focused on updates to public finances and the government’s outlook provided by the Office for Budget Responsibility (OBR).
Here’s a breakdown of the key points and what they mean for you:
Key Highlights from the Spring Statement
- No Tax Increases: As promised, there will be no hikes in National Insurance, income tax, or VAT. This maintains the government’s stance of not raising these taxes for the time being.
- National Living Wage Increase: Starting on April 1, the National Living Wage will see an increase, benefiting workers across the UK.
- NHS Wait Times: A commitment to reduce NHS waiting lists, which is expected to improve access to healthcare for many.
- Employers’ National Insurance: Employers’ National Insurance rates will increase from April 6, 2025, potentially impacting wages as businesses adjust to the higher costs.
- Frozen Tax Thresholds: The tax thresholds remain frozen until April 2028. This means the Personal Allowance for the 2025/26 tax year stays at £12,570, which could result in more people being affected by income tax over time due to inflation.
- Crackdown on Tax Evasion: The government plans to invest further in HMRC’s capacity to tackle tax evasion, aiming to ensure fairness across the tax system.
Government Plans and Economic Outlook
- Welfare Reforms: The government is implementing reforms that are expected to save £4.8 billion from the welfare budget. The Universal Credit Standard Allowance will rise from £92 to £106 per week by 2029-30.
- Personal Independence Payment (PIP) Changes: More stringent tests for PIP will impact 800,000 individuals, potentially leading to a reduction of up to £4,500 annually for some recipients.
- Defence Spending: Defence spending will be increased, with the government aiming to allocate 2.5% of GDP to defence by 2027. An additional £2.2 billion is allocated to the Ministry of Defence for the next fiscal year.
- Capital Investment: The government has increased its capital investment, with an average of £2 billion more per year compared to previous plans, totaling £100 billion in projected capital spending.
- Growth Projections: The OBR has revised growth projections, lowering the 2025 forecast from 2% to 1%. However, improvements are expected in the following years, with growth forecasted at 1.9% in 2026, 1.8% in 2027, and 1.7% in 2028.
- Improved Household Income: Real disposable income for households is expected to rise by over £500 annually under the current government.
Looking Ahead: Making Tax Digital
Businesses, including sole traders, should prepare for the official rollout of the Making Tax Digital (MTD) system in April 2026. You can opt to sign up for MTD voluntarily before the official launch. It’s important to review HMRC’s guidelines to determine whether you need to begin using MTD to file income tax or VAT starting April 6, 2026.
Final Thoughts
While the Spring Statement doesn’t introduce immediate changes, it provides an important outlook for the UK economy. With fiscal rules being met two years ahead of schedule, stronger public finances are expected, which will likely support future growth. Additionally, the upcoming spending review on June 11, 2025, will offer further insight into how the government plans to allocate resources for public services.
