Spring Forecast 2025 – will the Chancellor announce further changes?

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The Chancellor Rachel Reeves has said previously that there would only be one major fiscal event in a year so that individuals and businesses would have stability. However, she will stand up in the Commons to make a statement in response to the latest forecasts from the Office of Budget Responsibility (OBR) on March 26 and potentially be in a very different situation to what she expected just a few months ago.

Commentators are suggesting that the OBR’s report will show that the near £10bn financial buffer the Chancellor thought she had, has probably vanished at this point, although this point has been denied. However, as a result of a combination of factors including extra spending on defence, albeit counterbalanced by cuts in other spending, and slower-than-expected economic growth it is expected that the financial buffer will have diminished.

Economic changes since the Autumn Budget

With increases to the rate of Employers' National Insurance and National Minimum Wage being introduced in April, many businesses will be looking at the size of their workforce and the additional costs they're going to face. Employers may be considering whether they will need to reduce their workforce and other ways they can mitigate the potentially significant additional labour costs from April.

Meanwhile the cost of servicing the nation’s debt has increased since the Autumn Budget. The rise in bond yields can partly be attributed to more persistent domestic inflation, part to investors’ specific worries over the Chancellor’s spending plans and finally also to US factors. Donald Trump’s tax cuts and tariffs are pushing bond yields, and therefore interest rates, higher on a global basis. As a result of all of the above, it is suspected the OBR will tell us this has wiped out any fiscal headroom.

What changes could be announced in the 2025 Spring Forecast?

While no major tax changes are expected, the Chancellor may try to tinker around the edges and potentially introduce measures that will reduce spending or raise more tax. With only these two levers to pull she’s got to be very careful, especially if she wants to avoid an outcome similar to the disastrous Mini-Budget of 2022.

Departmental budgets

The Government has already announced plans to reform the benefits system, to reduce spending by £5bn a year by 2030, targeting support to those most in need. But other departmental budgets may also come under pressure with the Chancellor choosing to reduce spending.

Employment Allowance

The 2024 Budget increase to Employers National Insurance is unlikely to change but we may see a further increase to Employment Allowance. In the Autumn Budget it was announced this would increase from £5,000 to £10,500 but the Chancellor may go a step further and increase this to £15,000 or even £20,000. This would provide at least some relief to smaller employers, particularly those in retail and hospitality sector businesses who will be hit by significant labour costs from April. However, reversing the increase in Employer NI and keeping the employment allowance changes already announced would give businesses a fighting chance to continue to operate and grow.

Stamp Duty holiday

To give a boost to the housing market the Chancellor may look to extend the Stamp Duty holiday beyond the 31 March 2025. Even though the threshold is set to increase days after the Spring Forecast takes place, from 1 April, extending this for another year would be a simple thing to do and would avoid a general economic downturn.

Pensions

The Autumn Budget announced plans to bring pensions into the Inheritance Tax (IHT) regime from April 2027. A lot of pension providers felt the current proposals we unworkable and it will be very difficult to put into place and while they were consulted in January, we are unlikely to hear anything particular around the results of that consultation.

Savings

There was speculation Rachel Reeves mighty make changes to cash ISAs, specifically cutting the annual cash ISA subscription limit. The stated aim being to encourage more investment into stocks and shares ISA’s, which would be a boost to the markets. However, reports suggest there will be no reduction for now but that this is still on the radar as a longer-term aim. Likewise, any changes to the Lifetime ISA  - to adjust the £4,000 annual contribution or the property price cap (currently £450,000) - now seem unlikely, despite earlier speculation.

Inheritance Tax

There has been some speculation around IHT gifting rules, which allow assets to be gifted tax-free if the donor survives 7 years after making the gift, with suggestions that this could be extended to 10 years or possibly longer, however I’m not sure this is something the Chancellor will look to alter.

It’s also unlikely that we will hear anything further on the proposed combined £1m cap on Agricultural Property Relief and Business Property Relief. While there has been mounting pressure for the Government to increase the £1m threshold, we don’t expect to see any movement on this in the Spring Forecast.

There has also been speculation that Business Property Relief (BPR) packaged investments could be targeted in the same way that AIM investments were in October. This would in effect level the playing field and discourage people from exiting the AIM market.

Additionally, there is a train of thought that the ‘gifting from excess income’ legislation will be reviewed. Specifically, linked to pension drawdown and annuity conversion. The move to bring pensions into the cope of IHT has seen more discussion around creating excess income up to the basic rate of income tax, to gift and mitigate the IHT charge at 40%.

Time will tell

As with any fiscal event, we won’t know exactly what the Chancellor has planned until it takes place but many businesses, and individuals alike, will be keeping a close eye on the Government’s next moves at a time where the economy is still facing significant challenges.