The Spring Statement 2025

There had been much speculation about this budget. Finally, Rachel Reeves—the UK’s Chancellor—delivered her plan for the UK economy on 27 March 2025.

The budget primarily concerns new measures on borrowing and spending, with no new tax rises. So, what are the highlights, and how do they affect you?

The Economy

• CPI inflation is forecast to rise by 2% this year. Over the next five years, the annual forecast is around 2.0%.
• GDP is expected to rise to just 1% this year, a significant downgrade from the 2.0% growth forecast from the OBR in October 2024.
• However, GDP growth has been upgraded for each year after 2025, with 1.9% in 2026, 1.8% in 2027, 1.7% in 2028 and 1.8% in 2029.
• Civil service running costs will be cut by 15%, saving £2.2bn by the end of the decade.
• Defence spending will rise to 2.5% of GDP by April 2027.
• 18,000 new social and affordable homes will be developed using £2bn in extra funding.
• A third runway at Heathrow was confirmed, with take-offs expected in 10 years.
• Day-to-day government spending to continue rising above inflation.
• £600 million investment to train up to 60,000 more skilled construction workers.

Taxes

• The government expects to take £310bn in income tax in 2024-25. By 2027-28, this is forecast to rise to £378.5bn.
• This is partly due to the continuation of frozen income tax bands until April 2028. In that time, more taxpayers will enter higher tax bands due to wage growth.
• No further tax increases were announced. However, new technology will be used to crack down on tax avoidance, raising a total of £5bn.

 Salaries and Wages

• The Low Pay Commission’s recommendation to increase the National Living Wage by 7% to £12.21 an hour will be accepted.
• The maximum Carers Allowance of £151 per week will be raised to the equivalent of 16 hours at the National Living Wage per week – i.e. an additional £45.
• The freeze on income tax thresholds will expire in 2028-29 and will increase in line with inflation after that.

Benefits & Personal Finance

• The Chancellor confirmed increases to the National Living Wage, rising to £11.44 per hour from 6 April 2025.
• Welfare budget cuts were also announced, bringing £4.8bn of savings to the Treasury. Three million families are expected to lose an average of £1,720 a year.
• Confirmation that the basic rate of universal credit will rise by £14 a week by 2029-30, and the “health” part of universal credit will be frozen for existing claimants.
• £1bn investment to provide personalised back-to-work support, and £400m for the DWP and to support jobcentres.

Pensions

• Tacit confirmation that the basic and new State Pensions will rise by 1% in April 2025. This should provide an extra £470 for 12m pensioners.
• No changes to pension policy or pension tax reliefs.

Business

• No new business taxes were announced, but more compliance checks are expected.
• Tacit confirmation of employer National Insurance rise from 13.8% to 15% in April 2025.
• The Making Tax Digital timeline has been unchanged (expected to become mandatory from 6 April 2026).

How Will You Be Affected?

The Chancellor was keen to stress that the average Briton will be £500 “better off” under her economic agenda. This is supported by the OBR, which forecasts a 0.5% increase in real living standards over the next five years.

However, this forecast masks significant deviation around the average, with the poorest UK households expected to be £500 worse off (according to the Resolution Foundation). For three million families on benefits, the Spring Statement is expected to bite quite hard as cuts to welfare come into force.

The Spring Statement honours the “letter” of Labour’s manifesto pledge not to raise VAT, National Insurance (on workers) and income tax. However, NI contributions will rise for employers in April 2025. Many businesses have stated that they will manage this by passing down costs – i.e., raising prices, cutting staff, or scaling back/pausing hiring plans.

Conclusion

The Spring Statement again highlights the importance of waiting for official policy announcements rather than making big financial decisions based on what “might happen”. There was much speculation, for instance, that the Chancellor might cut back the Cash ISA allowance from £20,000 to £4,000 per year. So far, this has not materialised.

Nonetheless, many tax changes confirmed in the previous Autumn Statement (November 2024) have gone through. These include equalising non-property capital gains tax (CGT) rates with property CGT rates, a reduction in the lifetime cap for Investors’ Relief (from £10m to £1m), and a planned “cap” on Business Relief and Agricultural Property Relief.

What is not in doubt is that this budget – its changes as well as its inaction – will have a significant impact on financial planning over the coming years. Please speak with an adviser to discuss how this affects your goals and strategy.

The value of your investments and pensions (and any income from them) can go down as well as up which would have an impact on the level of benefits available