Chancellor of the Exchequer, Rachel Reeves, delivered her Spring Statement last week, outlining the government’s economic plans, including spending decisions, tax policies, and efforts to boost growth while managing public finances.
Public Finances and Economic Outlook
The Spring Statement was based on the latest forecasts from the Office for Budget Responsibility (OBR). The OBR highlighted a more challenging outlook compared to last autumn, citing declines in business and consumer confidence, rising European energy costs, increased government borrowing costs, and global uncertainties such as the war in Ukraine and trade tariffs.
As a result, the OBR downgraded their GDP growth forecast to 1% for this year, down from the 2% predicted last autumn. However, they upgraded their projections for the next four years, indicating a more positive long-term outlook. The OBR also forecasted inflation to average 3.2% this year, up from 2.6%, with a decline to 2.1% in 2026 and 2% in 2027.
Government Response
The Chancellor reaffirmed her commitment to stability and investment rules, which are crucial for maintaining financial market credibility. Despite the challenging outlook, there were no direct tax increases. Instead, the government plans to reduce public spending, including welfare reforms and cuts in day-to-day government department spending. The focus is on economic growth, which aims to increase disposable income and boost government revenues.
Key Measures Affecting Businesses
Making Tax Digital (MTD)
The Spring Statement confirmed the extension of Making Tax Digital for Income Tax (MTD for IT) to include sole traders and property landlords with incomes of £20,000 or more. This change aims to streamline tax processes and improve compliance.
Business Rates Reform
The government is consulting on long-term measures to support high street businesses. An interim report on the future of the business rates system will be published in the summer, with further policy details to follow in the autumn.
R&D Reliefs
The complexity of R&D relief rules often leads to uncertainty for businesses. The government is consulting on widening the use of ‘advance clearances’ to provide more certainty and reduce errors and fraud. This includes considering mandatory assurances in high-risk areas and a minimum expenditure threshold for R&D relief claims.
Tackling Phoenixism
‘Phoenixism’ involves company directors going insolvent to evade tax and write off debts, then starting a new business. HMRC, Companies House, and the Insolvency Service will implement a joint plan to tackle this abuse, including making more directors personally liable for company taxes and increasing enforcement sanctions.
Final Thoughts
While some hoped for relief from the Employers NI changes set for April, the Spring Statement focused on public, welfare, and defence spending. Further tax changes will be announced in the 2025 Autumn Budget.
If you have concerns about how the Spring Statement may affect your business, please contact us for personalized advice.