The Spring forecast, which is not to be a fiscal event. However, some tax changes can’t, it seems, be ruled out.
On 16 December 2024, it was announced by the Treasury that the Chancellor had commissioned the Office for Budget Responsibility (OBR) to prepare an economic and fiscal forecast (which they described as a “Spring forecast”) to be presented to Parliament alongside a “Statement” from the Chancellor on 26 March 2025. The OBR has to publish two forecasts every year by law.
The Chancellor and the Treasury have been clear that there will only be one full fiscal event each year “to give families and businesses stability and certainty on upcoming tax and spending changes”.
And with the clarity of that commitment and the fact that the October 2024 Budget announced £40 billion in tax rises and £70 billion in spending policies, the expectation would, understandably, be that no further tax increases will be announced.
However, it appears that high borrowing costs and low economic growth have already wiped out the Government’s £9.9 billion “fiscal headroom”, according to reports from Bloombergearlier this month. And that’s without factoring in any accelerated increase in defence spending that may need to be factored in. As a result, speculation is rising as to whether the Chancellor will need to reassess this stance.
The Chancellor told a recent CBI conference that there would be no more tax rises on the scale of the Autumn Budget, but she was then forced to row back on that statement by the Prime Minister – leaving it open for more tax increases in 2025.
So, what could these be?
Let’s consider theory first.
It will be too late for any relief from VAT being imposed on private education starting in January 2025, but, as 26 March 2025 is 11 days before the 6 April 2025 rise in employers’ national insurance (NICs), it is not out of the question that employers may be offered some relief. This might be via an increased Employment Allowance or perhaps a higher threshold before employers’ NICs become payable.
Additionally, could there be an announcement on NIC relief for the charity sector, which faces a major funding issue to manage the NIC rise?
There is also an opportunity to offer the business and farming communities some respite from the impact of the April 2026 reductions in inheritance tax reliefs, perhaps by increasing the proposed £1m limit on business property and agricultural property relief. We shall see if protests by farmers have had any effect on the Chancellor. It seems unlikely.
The proposed rise in the rate of capital gains tax on those claiming business asset disposal relief could also be reviewed, but, again, this seems unlikely.
In practice, though, a more likely tax change, if there is to be any, may be a continuation of the freeze on income tax thresholds and allowances beyond 5 April 2028. The move was apparently considered by the Chancellor in her October 2024 Budget, but she decided against it. The freeze in income tax thresholds and allowances began in April 2022, meaning that a move to continue the freeze would extend it beyond the currently planned six years.
The Institute for Fiscal Studies (IFS) said that freezing income tax thresholds from 2028/29 onwards would bring in roughly £3.5 to £4 billion a year, if inflation is at 2% or more and NICs thresholds are also frozen.
Treasury officials reportedly told the FT that the idea was “interesting” and the “obvious thing to do”.
Ahead of the October 2024 Budget, the Government briefed that continuing a freeze to thresholds, which began under the Conservatives, would not breach Labour’s manifesto pledge not to raise income tax.
Paul Johnson, the head of the IFS, said that it would be “relatively politically painless”, given that Ms Reeves could announce the change now but reverse it later if the economy improves.
An announcement of the freeze could allow the OBR to include the measure as a positive for the public finances later in the parliament, but would not require immediate legislation.
The fiscal outlook could improve between now and when the OBR produces its final report alongside the March 26 Statement, meaning tax increases or harsh spending cuts prove unnecessary.
As mentioned above, the OBR’s most recent forecast reportedly shows that the Chancellor’s headroom has been wiped out. Asked by the FT whether it could exclude Ms Reeves making tax changes in her March 26 Statement, the Treasury failed to do so.
A Treasury spokesman said: “Our commitment to fiscal rules and sound public finances is non-negotiable. As the Chancellor has said, the Office for Budget Responsibility will publish their updated forecast on March 26, and she will respond to it then.”
The Treasury reaffirmed that it was committed to one “major” fiscal event a year, the Autumn Budget.
Announcing future freezes in tax thresholds could be seen as effectively being a tax rise and still be politically risky for Ms Reeves, but much less so than an actual rate increase or a new tax.
In November, the Chancellor told the House of Commons Treasury select committee: “We have now set the envelope for spending for this parliament. We are not going to be coming back with more tax increases or more borrowing.”
Let’s see.
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