Spring Statement: What could be announced by Rachel Reeves? | Personal Finance | Finance

Chancellor  Rachel Reeves will deliver the Government’s Spring Statement on Wednesday (March 26) offering a crucial update on the UK economy and her fiscal plans. Originally expected to be a low-key announcement, the statement has taken on greater significance due to the turbulent economic climate and global uncertainties since her last Budget in October.

The Government’s £9.9billion fiscal headroom is now believed to be wiped out, and several billion pounds in spending cuts have already been announced. Recent data from the Office for National Statistics revealed the UK economy grew by just 0.1% in the final quarter of 2024, following stagnation in the previous quarter. Additionally, the Bank of England has revised its growth forecast for 2025, lowering expectations from 1.5% to 0.75%, signalling a slowdown in economic momentum. Paul Clifton, wealth planning director at Arbuthnot Latham said: “These headwinds are likely to shape the tone and content of the Spring Statement.”

Income tax freeze

Although Labour has pledged not to raise taxes on working people, some experts predict that Ms Reeves may extend the freeze on income tax thresholds.

Currently set to last until 2028, the freeze has already led to higher tax bills for many as inflation and wage growth push them into higher tax brackets, a phenomenon known as fiscal drag. The latest OBR estimate is that the current freeze will raise over £38billion a year in 2029/30. Economists predict the freeze could be extended until 2030, generating even more revenue, but it may face criticism from those already feeling the financial strain.

Weighing up the likelihood of this change, Rick Smith, founder and managing director of business consultancy Forbes Burton, told the Daily Express: “Labour’s manifesto pledge of not raising taxes is still fresh in the memory, and while freezing the threshold of income tax may not be a tax rise technically, it’ll certainly drag more people into the tax bracket eventually as pay slowly climbs.

“Such a move makes sense for a party trying to refill the Treasury coffers without breaking their pledges, but Reeves may face a backlash after attacking a previous threshold freeze, commenting at the time that the Conservatives were ‘picking the pockets of working people’ by doing so.”

Increased business rates relief

Ms Reeves promised a “fairer business rates system” but many businesses in retail, hospitality, and leisure are struggling after the relief rate was reduced from 75% to 40% in October. With the Government’s consultation on reform closing this month, there’s speculation that the relief rate could be increased to support these sectors.

However, Mr Smith pointed out that the larger amount of relief was only supposed to be temporary, so Ms Reeves may not touch it. He said: “While the hospitality sector has enjoyed a 75% relief on business rates over the last few years, it was only ever offered as a temporary measure.

“The change to 40% will undoubtedly hurt many in the industry, but an increase to this seems unlikely.”

Employers’ National Insurance

The planned controversial rise in employers’ National Insurance (NI) contributions announced in the October Budget is set to come into effect on April 6. From this date onwards, businesses will see their contributions increase from 13.8% to 15%. Additionally, the threshold at which employers begin paying National Insurance on employees’ earnings will be lowered from £9,100 to £5,000, a move Reeves described as a “difficult choice.”

To ease the burden, Ms Reeves may consider measures such as raising the employment allowance or increasing the threshold before contributions are due.

Mr Smith argued the Chancellor’s “bullish” insistence that her NI changes are essential, lessen the likelihood of any new changes to be made in this area. He said: “Given the backlash that this measure has received, I can’t imagine that she would plan to increase it either. A tapered reduction of the threshold over the course of the next few years might have softened the blow, but given how close the changes are, I don’t think she will make any changes here.”

Emily Gaffney, tax lawyer at law firm Freeths, largely agreed, suggesting: “It is possible the Chancellor may instead look to offer some relief for specific sectors instead, such as in the charity sector.”

Individual Savings Accounts (ISAs)

Analysts predicted the Chancellor would announce an ISA shake-up during her statement, potentially slashing the tax-free allowance from £20,000 to £4,000. However, any announcements on this front are now expected to be delayed until the autumn.

Ms Reeves could instead “hint” at potential reforms to the Lifetime ISA product. A Lifetime ISA (LISA) is an individual savings account designed to help people save for their first home or retirement faster. People can save up to £4,000 a year in one of these accounts, after which the Government will add a 25% bonus of up to £1,000.

However, The Treasury Committee is currently reviewing the product to determine whether it is still fit for purpose or needs an overhaul. The rules have garnered widespread criticism in recent years. The tough regulations, combined with soaring house prices, have left first-time buyers facing thousands of pounds worth of fines each.

The committee aims to assess whether the product’s restrictions and benefits align with its original goals of promoting homeownership and retirement savings.

Amy Knight, personal finance and small business expert at NerdWallet UK told the Daily Express: “After hearing evidence last month, Reeves could hint at the likely outcome of the Lifetime ISA review. Acknowledging the concerns raised about the property limit and the unfair penalty for withdrawal in her statement could give savers more confidence that ISAs can support their financial goals.”

International aid funding

Ms Reeves is expected to outline how international aid funding will be redirected to defence following the Prime Minister’s announcement that UK defence spending will increase to 2.5% of GDP by 2027.

What has already been announced?

On Tuesday, the Treasury unveiled plans for significant changes to the benefits system, aiming to generate annual savings of £5 billion in response to the growing welfare bill. The new policies include stricter tests for personal independence payments, impacting hundreds of thousands of claimants, and a freeze on incapacity benefits at £97 per week until 2029/30.

Additionally, cuts to other government department budgets have been revealed. Last week, Prime Minister Sir Keir Starmer announced plans to scrap NHS England and targeted reductions to various quangos and regulators.

While many of Ms Reeves’ policies announced in the October budget have faced significant backlash, it’s unlikely she’ll use this statement to backtrack. Mr Clifton said: “While there is pressure on her to reconsider certain measures, such as the inheritance tax on business assets and changes to National Insurance contributions, the overall sentiment leans towards scepticism about any major reversals.

“As we await the Chancellor’s announcements, staying informed and proactive will be key for navigating the evolving economic landscape. The Spring Statement promises to be a pivotal moment, offering insights into the government’s priorities and the direction of the UK economy in the months ahead.”