By Neil Armstrong, Tax Director Expectations were carefully lowered before the UK Government’s Spring Statement. Rachel Reeves has made it clear that major fiscal decisions will be confined to a single annual Budget. The Spring Statement, therefore, was never intended to be dramatic. When it arrived, it followed that script: measured in tone, light on headline measures, and largely devoid of surprise. That restraint did not mean the pressure has eased. Businesses are still absorbing the impact of previous decisions, most notably the increase in Employer National Insurance contributions. For many employers, particularly in labour-intensive sectors, that change continues to weigh heavily on margins. The broader fiscal backdrop in the leadup to the statement offered modest encouragement. Inflation has softened and January’s tax receipts were stronger than expected. Yet fiscal headroom remained tight.
Reeves has committed herself to avoiding borrowing for day-to-day spending and to reducing debt as a share of national income. Those self-imposed rules limited her room for manoeuvre just as spending pressures were building. The abolition of the two-child benefit cap signals higher welfare costs ahead, while Keir Starmer has set his sights on an almost £10 billion in additional defence spending. However defensible politically, such commitments sharpened the question of how they would be funded. With no major tax changes announced, attention inevitably shifts to the Autumn Budget.
In the meantime, the most dependable revenue-raiser remained frozen income tax and National Insurance thresholds. Fiscal drag will continue to draw more taxpayers into higher bands as wages rise. Rates have not increased, but the tax take will. For households, it will feel like a rise by another name. Wage growth itself brings further complexity. Another uplift in the National Minimum Wage in April is set to raise employment costs again, with youth employment particularly sensitive to higher entry-level pay. Combined with earlier National Insurance changes, the cumulative cost of hiring has risen sharply in a short period. Elsewhere, inheritance tax and business property relief remain under review. While the Government did change their stance on this just before Christmas, with limits increased from £1 million to £2.5 million and this allowance can now be transferred between spouses or civil partners. Further changes have not been ruled out.
The message from the Spring Statement was therefore one of continuity rather than comfort. Reeves stuck to her principle of one major fiscal event each year. Yet the arithmetic underpinning the public finances has not grown any easier. With spending demands increasing and borrowing constrained, the durability of that limited headroom will be tested until Autumn. For businesses and families alike, the sensible response is forward planning: reviewing succession and inheritance structures, considering the timing of capital investment, and reassessing pensions and long-term wealth strategies. The Statement may have been uneventful on the surface, but it did little to dispel the sense that more difficult choices lay ahead. To discuss any aspect, please get in touch with Neil Armstrong, Tax Director E: neilarmstrong@bakertillymm.co.uk T: 028 9032 3466.
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