Chancellor Reeves delivered her Spring Statement speech on 26 March 2025, and contrary to the historical two Budgets per year, there will now be one major fiscal per year. We will have to wait until autumn this year for the policy changes.
The Spring Statement contains no tax increase but primarily talks about public finances updates and a forecast from the Office for Budget Responsibility.
Rachel Reeves aims to protect working people. What does the Spring Statement have in store? Here are the key highlights:
- As promised, no increase of rates for National Insurance, income tax, or VAT.
- National Living Wage increase starts on 1 April.
- The NHS waiting list will be shortened.
- Only employers’ National Insurance rates will increase, effective this 6 April (although this could potentially affect wages).
- Tax thresholds remain frozen until April 2028, that means your Personal Allowance for the 2025/26 tax year remains at £12,570.
- More intensive crackdown on tax evasion, as Reeves invests in HMRC’s full capacity to crack down on tax evasion to establish fairness.
Here are government plans, including OBR forecasts, delivered in the Statement:
- Welfare Reforms: A package expected to save £4.8 billion in the welfare budget, with an increase in the Universal Credit Standard Allowance from £92 to £106 per week by 2029-30.
- Stricter Personal Independence Payment (PIP) Tests. Changes will affect 800,000 individuals, leading to a loss of £4,500 per year for current and future recipients.
- Increased Defence Spending: Commitment to raise defence spending to 2.5% of GDP by 2027, with an additional £2.2 billion for the Ministry of Defence in the next financial year.
- Capital Investment: Increased by an average of £2 billion per year compared to earlier plans, with total capital spending projected to reach £100 billion.
- OBR Growth Forecast: Growth projections adjusted from 2% down to 1% for 2025, but improvements noted, including projected growth of 1.9% in 2026, 1.8% in 2027, and 1.7% in 2028.
- Improved Household Income: Average real disposable income expected to increase by over £500 per year for households under the current government.
Making Tax Digital in April 2026
Businesses, or sole traders, need to prepare for the official rollout of Making Tax Digital system in 2026. You can voluntarily sign up as early as now. Check HMRC’s guideline to see if you need to use Making Tax Digital starting 6 April to file income tax or VAT.
Overall, the UK economy is expected to grow, with fiscal rules being met two years early and stronger public finances. A spending review will be announced on 11 June 2025. Stay tuned for the coming policy changes in autumn at Legend Financial.
