After Rachel Reeves’ eye-catching first Budget in Autumn 2024, it is perhaps understandable that some might have been concerned about what was to be revealed in her Spring Statement on 26 March 2025.
Reassuringly, the major headline from this year’s Spring fiscal event is that Reeves made few announcements that are likely to affect individuals and businesses directly. Although, it did confirm that none of the changes made in the Autumn Budget would be overturned, one significant change has been made to the High Income Child Benefit Charge, which could affect families.
Most noticeable was the announcement that, due to global uncertainty and after the economy declined in January, the Office for Budget Responsibility (OBR) has downgraded its 2025 forecast for UK growth from 2% in October 2024 to 1% as of March 2025. She went on to say the OBR’s long-term forecast, was for growth to increase each year for the remainder of this Parliament.
In addition to growth figures, the Chancellor’s Statement introduced a range of measures designed to increase economic activity in the UK, as well as cost-saving initiatives, predominantly at state level, to reduce Government debt.
Read on for some of the key take-aways from the Chancellor’s 2025 Spring Statement.
Personal tax thresholds and allowances are set to remain unchanged
Those who were concerned the Chancellor would announce sweeping changes that might affect their personal finances will be breathing a sigh of relief as these were largely left alone, presumably to see how the public finances look at the time of the Autumn Budget later this year. Here are some of the measures affecting individuals and families.
Personal tax
Reeves stuck to a pre-Spring Statement commitment to not increase personal taxes.
So, Income Tax thresholds and rates will remain unchanged, and thresholds are frozen until April 2028. This is not uncommon and is known as ‘fiscal drag’ which effectively increases the tax-take because as household incomes rise, the increase falls within the tax regime.
Similarly, the rates and thresholds for paying Capital Gains Tax (CGT) and Dividend Tax will remain the same.
Individual Savings Accounts (ISAs)
Before the Spring Statement, the Government was reportedly considering reducing the amount you can tax-efficiently place into a Cash ISA each tax year to £4,000 in a bid to encourage greater investment in corporations.
As it turns out, the ISA subscription limit will remain at the current level (£20,000) in the 2025/26 tax year and will be frozen until 2030.
The Junior ISA (JISA) allowance will remain at £9,000 in 2025/26.
However, the Government did note it will continue reviewing ISA reform options to improve the balance between cash and equities to earn better returns for savers, boost the culture of stock market investment, and support its growth mission.
Pensions
Last year, the Government announced a new Pension Schemes Bill, which will legislate several areas of pension policy, but further reforms weren’t announced this time.
The Annual Allowance will remain at £60,000 in 2025/26. Your Annual Allowance may be lower if your income exceeds certain thresholds, or you have already flexibly accessed your pension.
As usual, there was also speculation that the amount you could withdraw from your pension tax-free would be reduced, but this has remained unchanged. So, when you reach the normal minimum pension age (55, rising to 57 in 2028), you may withdraw up to 25% of your pension (up to a maximum of £268,275) before paying Income Tax.
State Pension
As expected, there were no announcements relating to the State Pension or the triple lock, which guarantees the State Pension will increase every tax year by either the rate of inflation, average earnings growth, or 2.5%, whichever is higher.
As a result, the full new State Pension will pay a weekly income of £230.25 in 2025/26.
High Income Child Benefit Charge reforms will come into place this summer
Although the Chancellor did not explicitly announce the change, the Spring Statement document revealed that those who pay the High Income Child Benefit Charge will be able to do so through PAYE from summer 2025.
As it stands, those who pay the charge need to register for self-assessment to do so, even if they do not otherwise need to self-assess. But this year, the Government is making it easier for families to pay the charge without needing to submit a tax return.
Inflation is forecast to meet the Bank of England’s 2% target by 2027
After reaching a 40-year high of 11.1% in October 2022, inflation, as measured by the Consumer Prices Index (CPI), has gradually fallen, bringing it closer to the Bank of England’s target of 2%.
The Chancellor announced in her Statement that in the 12 months to February 2025, inflation rose by 2.8%, down from 3% in January. As the inflation picture has improved, the Bank of England has cut its base rate three times since the general election, bringing the rate down from 5.25% to 4.5%. These cuts will be welcomed by borrowers, but savers will see the return on their cash deposits fall.
On the outlook for inflation, according to the OBR’s forecast, inflation will average:
- 3.2% in 2025
- 2.1% in 2026
- 2% in 2027, 2028, and 2029, aligning with the Bank of England’s target rate.
The key fiscal announcements from the 2025 Spring Statement
The Chancellor’s speech largely revolved around changes to Government spending and investment. Some of the key measures and announcements included in the Statement were to:
- Marking the end of the ‘peace dividend’, an increase defence spending to 2.5% of GDP by 2027, including providing an additional £2.2 billion to the Ministry of Defence next year
- Rebalance payment levels in Universal Credit to incentivise people into work, and review the assessment for Personal Independence Payments, with the OBR stating these changes will save £4.8 billion from the welfare budget in 2029/30
- Crack down on promoters of tax avoidance schemes, as initially announced in the Autumn Budget in October 2024
- Invest £2 billion in social and affordable housing, to turbo-charge housebuilding with the aim of helping the Government reach its target of building 1.5 million homes by the end of this Parliament
- Introduce a £3.25 billion Transformation Fund to streamline public services using technology and Artificial Intelligence, making the Government “leaner and more efficient”. Additionally, Government departments will reduce their administrative budgets by 15% by the end of the decade.
2024 Autumn Budget changes remain intact
In October 2024, the Chancellor announced a series of tax-raising measures, some of which could affect individuals, families and businesses. These included:
- Inheritance Tax (IHT) will be levied on unused pension benefits from April 2027.
- Agricultural Property Relief and Business Property Relief will be reduced from April 2026.
- CGT rates for non-property gains were raised in line with property rates with immediate effect, and Business Asset Disposal Relief and Investors’ Relief were both reduced.
- For businesses, Employer National Insurance contributions (NICs) will rise from April 2025, from 13.8% to 15%, and the threshold at which employers start paying NICs will also fall.
- Income Tax thresholds will remain frozen until 2028.
- The IHT nil-rate bands will remain fixed for a further two years, until 2030.
- VAT was levied on fee-paying schools, effective from 1 January 2025.
- The non-domiciled tax regime is set to be abolished from April 2025.
- The Stamp Duty Land Tax surcharge on second home purchases rose from 3% to 5% from 31 October 2024.
- Corporation Tax is now capped at 25% for the duration of the Parliament.
While many hoped the Chancellor would row back on some or all of these measures, there was no such change of heart. If you have concerns about any of these issues, your Verso adviser is here to help.
Market reaction
Our Chief Investment Officer, Rory Smith, had the following to say following the Spring Statement:
Going into the Spring Statement, investors had been well briefed on the prospect of spending cuts, higher defence spending, job losses in the Civil Service, and likely higher borrowing since the Budget in October 2024. As such, there was little to no surprise in the Spring Statement, which was unashamedly designed to repair the country’s fiscal position, after weaker economic growth and higher borrowing costs had eliminated the Government’s fiscal headroom.
A series of measures were unveiled and designed to restore a £9.9bn fiscal headroom by 2029/2030 – a slim margin of error which matches that from the October Budget. This includes several spending cuts, including £4.3bn of welfare cuts and day-to-day Government departmental spending cuts of £3.6bn, supported by higher revenues from tighter tax compliance measures. Defence spending has been increased, partly financed by a reduction in overseas aid.
For investors, higher growth estimates for the UK economy from the Office for Budget Responsibility (OBR) from 2026 onwards will be welcomed, although, in the short term, they halved their growth forecast for 2025 to 1%. This recognises the deterioration in business and consumer sentiment since the last Budget, and the uncertainty presented by global trade disputes. The OBR also forecasts inflation to rebound to a peak of 3.7% in mid-2025, before rapidly returning to the Bank of England’s 2% target in 2026.
With many of the measures well telegraphed in advance, the reaction across UK markets has been somewhat muted. UK equities, both large and mid-cap, were slightly higher over the day, whilst yields on UK Gilts declined marginally. Looking forward, if the economy and inflation picture plays out as the OBR expects in 2025, then the market may need to move to price in more than two rate cuts from the Bank of England this year.
Gilt yields also require monitoring, given that the OBR forecast a 0.6% increase in gilt yields across its forecast timeframe would eliminate the headroom. Unanswered questions include how the Government ultimately increases defence spending to 3% of GDP, and whether the UK economy can achieve the potential that the OBR forecasts, which may mean that a further rethink of fiscal policy and pledges to not increase taxes may need to be revisited.
Please note
All information is from the Spring Statement documents on this page.
The content of this Spring Statement summary is intended for general information purposes only. The content should not be relied upon in its entirety and shall not be deemed to be or constitute advice.
While we believe this interpretation to be correct, it cannot be guaranteed and we cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained within this summary. Please obtain professional advice before entering into or altering any new arrangement.