Great Expectations: Not so much ‘spring’ as a statement of strategy

In the lead up to the Chancellor’s Spring Statement on Wednesday 26 March, a number in the industry contemplated what announcements would follow. Would Ms Reeves succumb to the agricultural anger and retract any of the Budget’s bulldozing of businesses? Would we see further tax changes to arguably [un]fix the foundations? Would additional restrictions burden legatees yet more, making an inheritance an unbearable encumbrance?

As it turns out, it was a little on the bland side. Or perhaps that is what we were supposed to think.

The Chancellor laid out her Statement succinctly, emphasising the need to rebalance the books due to heightened uncertainty in global markets. We might have guessed that she would need to explain the Office for Budget Responsibility’s (OBR) halved growth forecast for 2025, down from 2% in the autumn to 1%, given so much of the 31 October Budget focussed on restoring stability in public finances, to deliver prosperity for working people.

This was achieved amid restatement of her non-negotiable fiscal rules (Stability and Investment) and a mathematical matrix to avoid £4.1bn of negative headroom in 2029/30 and bring a surplus back into view. We were also reassured that in spite of the 2025 forecast, the OBR have endorsed year on year growth to 2029/30.

Being entirely fair, the global landscape has changed significantly since the Chancellor’s Budget in October: as a result of President Trump’s tariffs, and the uncertainty of the war in the Ukraine, inter alia, we were reminded not only of the world changing before our eyes but the enormous economic impact. With the US no longer guaranteeing their unwavering military support, no longer the primary guarantor of European security, the Chancellor is justified in highlighting the resultant rising costs of borrowing and a need to arm ourselves (and raise the funds to do so).

It was therefore no surprise that one of the two main headline-grabbing announcements related to defence spending. The Chancellor has promised a spend of 2.5% of GDP on defence by 2027, which will be achieved by reducing overseas aid by 0.3% of gross national income. In addition, there will be a £2.2bn capacity for export funding, a funding boost for the Ministry of Defence from next year designed to augment defence exports. The creation of a new Defence Growth Board is further intended to put defence at the heart of modern industrial strategy and make Britain an industrial superpower.

This is a long overdue investment in UK security and the biggest boost to defence spending since the end of the Cold War. A shame that it feels a little like a hand has been forced but a welcome announcement nonetheless. Let’s hope it’s not a case of too little too late. It wouldn’t be a surprise to see an increased commitment to defence in the autumn.

The other main headline-grabber, also expected, given the announcements of the Secretary of State for Work and Pensions a week earlier, was to set out additional changes to the welfare system reforms: a reduction in the rise in the standard allowance for Universal Credit and a 50% reduction on the health element for new claimants in 2026/27, following which the rate will be frozen. Personal Independence Payments (PIP) will also be reduced via tightened eligibility criteria.

In principle it is hard to find fault with the Chancellor’s desire to properly support those who can work to do so. Equally, it is most welcome to see young people helped in their employment, education, or training endeavours. However, concern remains as to whether the requisite attention has been given and consultation undertaken with the charities and NFP organisations who are already in situ providing support to those currently classified as unable to work. Already we are seeing reports that the headline figures have downplayed the scale and impact of the cuts, suggesting instead they will affect ill and disabled people by more than £2bn more than has been claimed. Let us only hope we do not see 100,000 additional individuals pushed into poverty as feared by the New Economics Foundation (NEF) but I cannot see how this will be avoided when many more will be forced to choose between eating, heating or renting.

Tax Changes

The Chancellor kept her promise of no further tax hikes and in essence, tax felt very much like the poor relation to more fundamental globally impacted changes, barely getting a mention in her main speech. Nonetheless, the key tax takeaways include:

• A range of measures to tackle tax avoidance and evasion including targeting promoters of tax avoidance schemes, enhanced HMRC powers to tackle tax advisers facilitating tax non-compliance, improving the quality of third-party data gathered by HMRC and the reform of inaccuracy and failure to notify penalties.

Borne out of assurances to protect working people and continuing the promise of economic growth, the Chancellor has set out plans to hire more staff for HMRC and pledges a major crackdown on tax evaders: “When working people are paying their taxes while still struggling with the cost of living, it cannot be right that others are still evading what they rightly owe in tax.” It does seem only right that HMRC takes the high ground on the dual menace of tax evasion and much more serious, criminal tax evasion with further investment in cutting edge technology and the expansion of their Wealth team.

Combined with the October Budget, these measures are expected to increase the number of fraudsters charged every year by 20% and raise a further £7.5bn.

• All self-employed and landlords with income over £20k will have to file quarterly returns under Making Tax Digital (MTD) for Income Tax from 2028

MTD for Income Tax will begin in April 2026 for sole traders and landlords, but only those that have an income of over £50k. This will be extended to those earning £30k in 2027, then reduced to £20k in 2028.

• From April 2025, late payment penalties for VAT and Making Tax Digital for Income Tax self-assessment will increase – penalties for late payment to more than double to 10% if payment is more than 31 days late.

Part of the push to close the tax gap, 2025/26 will bring a much more punitive penalty regime to the slowest taxpayers, with penalties to rise from 2% to 3% of unpaid income tax at 15 days, 2% to 3% at 30 days, and 4% to 10% from day 31. 

This is in addition to the 1.5% hike in the interest rate for late payments and together with that above, is expected to raise additional revenue of £1.325bn by the end of the parliamentary term.

Clearly there is a need to balance the books, but it does smack of a false promise (is this not simply a disguised increase?) and creates additional pressure for business who will already be gearing up for the impact and concern caused by the uplift in employers’ national insurance from next month also.

In addition, it emphasises further the growing and incomparable disparity between the rates HMRC charges late payers compared to the rate of interest paid to those awaiting repayments.

We will also see:

• Plans to introduce R&D tax credits advanced clearance system;
• 600+ staff to be recruited as tax compliance officers and HMRC’s debt management teams and work with the private sector; and
• Investment in AI to improve productivity and clamp down on tax avoidance.

While the general mood of the Spring Statement was decidedly more upbeat than last autumn’s bleak Budget, there is a distinct feeling that something is bubbling behind the scenes. We have heard a lot of numbers and a lot of talk of promises delivered, yet economic growth is nowhere close to that expected and UK taxes are at a post-war high.

While it softened the blow to have endorsement from the OBR for subsequent years, it is hard to expect that there will be any swift upturn in global stability and thus hard to reason that numbers which (if indeed they do) add up now will continue to add up in six months’ time. Consider the landscape slippage since October.

Personally, I cannot shake the foreboding feeling that the promise to not increase taxes in the Spring is merely a strategy to lay the groundwork for further hikes in the Autumn. Maybe I am a natural cynic, but it seems along with warmer weather, the summer may be filled with worry and speculation for businesses and individuals.

The Chancellor has previously inferred there is no ceiling to her ambitions and with responsibility for one of the most controversial Budgets in the past 20 years, possibly a generation, one cannot help but expect that not only is there more to come but nothing is off the table. If we didn’t already subscribe to the need to plan early, surely we are now converted.

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