Spring Statement 26 March 2025: more tax rises?

Chancellor Rachel Reeves will present her Spring Statement on 26 March 2025. Are more tax rises on the way?

It has been announced by the Treasury that the Chancellor has commissioned the Office for Budget Responsibility (OBR) to prepare an economic and fiscal forecast to be presented to Parliament alongside a spring statement on 26 March 2025. The OBR has to publish two forecasts every year by law.

Download our Autumn Budget 2024 summary (PDF)
Download our 2025/26 Tax Tables (PDF)

(See also our subsequent Spring Statement predictions)

Whilst Reeves says she is committed to holding one major fiscal event per year, this spring event is likely to see further tax changes announced.

But as this will be the follow up to the monumental Autumn Budget, which announced £40bn of tax rises, any new fiscal event is bound to be viewed as less major.

And whilst this spring statement may not be on the scale of 30 October 2024's event, it does give the Chancellor an opportunity to raise taxes and perhaps also tweak some of the more controversial Autumn Budget tax announcements which are proving to be unpopular.

Reeves told a recent CBI conference that there would be no more tax rises on the scale of the Autumn Budget, but she was then forced to row back on that statement by the Prime Minister - leaving it open for more tax increases in 2025.

It will be too late for any relief from VAT being imposed on private education starting in January 2025, but as 26 March 2025 is 11 days before the 6 April 2025 rise in employers' NICs, it is not out of the question that employers may be offered some relief. This might be via an increased Employment Allowance or perhaps a higher threshold before employers' NICs become payable.

Additionally, could there be an announcement on NIC relief for the charity sector, which faces a major funding issue to manage the NIC rise?

There is also an opportunity to offer the business and farming communities some respite from the April 2026 inheritance tax hike, perhaps by increasing the proposed £1m limit on business property and agricultural property relief. We shall see if protests by farmers have had any effect on the Chancellor.

The proposed rise in the rate of capital gains tax on those claiming business asset disposal relief could also be reviewed.

Fiscal drag

One policy area that appears unlikely to change, and will result in tax rises in April 2025, is fiscal drag, whereby tax thresholds remain frozen, dragging more people (including pensioners and those on the National Living Wage) into paying tax, or higher rates of tax.

Economy

The Autumn Budget has already affected the economy, particularly through the proposed rise in employers' national insurance. The economy appears to be slowing down and job vacancies are falling.

With employers looking to save costs ahead of the 6 April 2025 NIC increase (by cutting back on hiring), Reeves could promote economic growth by encouraging employers to invest in people by making it less costly to employ them. A move in that direction would help to instil business confidence, which took a hit after the Autumn Budget.

It is not just employers' NICs which are rising, but also the National Living Wage, on top of increased employment rights - such as a day one right to sick pay.

More widely, there is the challenge of stagnation in the eurozone, and a new US administration under Trump imposing tariffs on imports.

Bank of England

The Chancellor may also be hoping that by March 2025 the Bank of England will have cut interest rates to provide a more positive impact on the economy. But that is by no means certain as the Autumn Budget made the bank think twice about cutting rates whilst there is a resultant threat of inflation (through price rises to absorb the higher NIC costs).

Inflation rose anyway in October 2024 to 2.3% after a rise in the energy price cap, and rose again to 2.6% in November, according to the Office for National Statistics. And that's even before the employers' NIC rise next April is passed on to consumers through higher prices. Inflation is rising.

The bank has confirmed that interest rates will remain at 4.75% until at least February 2025.

More tax rises? An emergency Budget?

As part of the Chancellor's new Budget rules, she only allows herself to borrow to invest. However, if there is a slowdown in the economy causing a squeeze on public finances, this could result in the Chancellor having to either cut spending or raise taxes to balance the books.

The Treasury has so far ruled out any emergency Budget, but nevertheless the proposed spring statement could end up taking on a greater significance than currently intended. According to the media, a Treasury spokesman did not rule out tax increases in the Spring, explaining that the department would plan for all scenarios.

Spending Review

The Chancellor has announced a Spending Review to confirm government departmental budgets for 2024-25 and set budgets for 2025-26.

More to come

Between now and next March there will be scope for further insight into what the Chancellor may be thinking ahead of her spring statement. We will keep readers informed of any proposed major tax rises on top of those already mentioned.

Tax Tables

Links to HM Treasury page

HM Treasury Autumn Budget 2024

Finance Bill 2024/25

Economic background to the Budget

Further information

If you would like to discuss how these changes in tax policy may affect you and/or your business, please contact your usual Bishop Fleming advisor, or speak to a member of our tax team.

[Gary Mackley-Smith]