What can we expect from the Spring Statement?

We live in uncertain times not only here in the UK, but across the world, and it seems as though what we once understood about the world order is being shaken up on an almost daily basis. To add to that we have politicians giving what appears at first sight to be conflicting views on many subjects including taxation.

The Prime Minister, while in Washington, refused to rule out tax rises in the forthcoming spring statement while at the same time saying that no ‘big decisions’ would be made later this month. Meanwhile, there were journalists reporting that the Chancellor was ruling out significant tax rises in the forthcoming spring statement and that it would not be another package of tax rises.

Last October the Chancellor said that the hope was that the tax increases announced at the budget would be a one-off, and that it was not a budget “we would want to repeat”.

However, we know that the headroom the Chancellor had in the Autumn has disappeared, with amongst other things the economy not performing as predicted back in October, and so the Chancellor will be under pressure to make some potentially major changes in the spring statement.

At the moment the suggestion is that these will come from a reduction in welfare spending but the questions will be whether this will be enough to put meeting the fiscal rules back on track and will it be acceptable to the wider Labour Party to solely focus on spending cuts.

If changes to taxation do need to be included later this month what could be on the agenda?

• It is hoped that with UK businesses already having to deal with the large increases in tax announced last October that they will not be the target this time, although it cannot be ruled out completely. The government, at the time of the Budget, implied that it did not believe hitting businesses with more tax would have an impact on ‘working people’.

• The increases in employers’ national insurance that come into effect next month have caused major concerns for businesses, especially when linked to the increases in the National Minimum and Living Wages. Whilst a reversal of this policy is unlikely, we may see some relief for employers in terms of increasing the Employment Allowance or raising the threshold from when it bites.

• For individuals we could see a further freezing of the income tax and National Insurance thresholds beyond April 2028; it is thought this could generate around £4bn a year.

• One option to increase taxes that would not be popular but would the simplest and the most effective measure would be to reverse the employee’s national insurance cut made by the last Conservative government. You may recall that at the time this was said to be worth £20bn.

It would of course be contrary to what was in the Labour election manifesto, but you could argue that has already been broken with the Employers’ National Insurance changes that in some cases are expected to flow through to employees pay packets next month. As the economic and world circumstances have changed so much this sort of change could be justifiable.

• There are those who are proponents of a further increase in the rates that apply to capital gains tax over and above those changes made in the Autumn Budget. This is because the rates of capital gains tax are still well below those that apply to income. However, the Laffer Curve could suggest that following this path would lead to a lower tax take than currently enjoyed, and this seemed to be where the Chancellor’s thinking was in the Autumn.

• An area that the Chancellor left alone in the Autumn was the tax-free uplift to asset values that applies on death. We could see this relief removed as part of continuing the changes to what happens at death with inheritance tax.

• A further target in the inheritance tax sphere could be changes to the lifetime gifts regime. At the moment in most cases if a donor survives seven years there will be no inheritance tax on the gift. What we could see coming in are fewer options to pass wealth down the generations free of tax during the lifetime, thereby increasing the estate at death where inheritance tax does apply.

• A drive towards more of an investment culture could be promoted by reducing the current limit for cash ISAs from the current £20,000 to say £5,000, while maintaining the existing limits for the stocks and shares ISA.

• There is some speculation that the Chancellor may announce an extension to the enhanced Stamp Duty Land Tax thresholds, particularly for first time buyers, so that these higher thresholds remain in place after April 2025.

Finally, I hope, although this hope could be misplaced, for positive news for the farming community in that the detrimental proposed changes to inheritance tax will be reversed or at the very least mitigated in some way, such as by increasing the £1m limit that is being introduced for agricultural and business property relief.