Spring Statement 2025

The 2025 Spring Statement is likely to have left businesses and individuals with a mixed sense of anticipation and caution.

The Chancellor Rachel Reeves announced a string of spending cuts to repair the Government’s finances. And while she didn’t introduce any significant new challenges, she also failed to provide substantial relief, particularly for businesses facing growing financial pressures due to incoming changes announced in the Autumn Budget.

There was nothing to come out of this statement to alleviate any concerns that we might see further tax rises in October next year, which is still going to weigh heavily on a lot of minds. This, in turn, could impact business owner decisions over the coming months and might hamper investment and business growth.

Inflation and economic pressures

While the rate of inflation has unexpectedly come down, falling 0.2% to 2.8% in the 12 months to February, this is still above the Bank of England’s 2% target. Core CPI (which includes volatile items like food, energy, alcohol and tobacco) is also 3.7% - suggesting wages are increasing faster than inflation - and it’s not expected to return to the target level until 2027.

The OBR’s forecast for growth for 2025 has also been halved, down from 2% in the Autumn to 1%, which is concerning, and it highlights just how tight these margins are, despite forecasts for later years having been revised up.

Business cost challenges

In a matter of days, the majority of businesses will face significantly higher employment costs, and that will continue to put pressure on businesses in terms of their overheads, driven by Employers National Insurance and National Minimum Wage (MNW).

While experts suggest businesses will restrict hiring, or possibly make cuts to their workforce, the increase in NMW will also contribute to continued relatively high wage inflation. We’ve seen a few interest rate cuts in this parliament, but the Bank of England is likely to maintain interest rates due to current inflation, meaning businesses are still going to have quite a tough headwind to steer into in the next financial year.

Tax revenue

Rachel Reeves, true to her word, did not raise taxes, but there was also no mention of income tax thresholds increasing. In real terms, as wages increase, there will be a lot more people falling into higher rates of tax.

Instead, the Chancellor is looking to raise revenue from those not paying the tax they owe, announcing a package of measures – recruiting more compliance and debt management staff, while investing in improved technology and increasing penalties - to increase tax receipts and claw back some of the outstanding £44.3bn debt.

How did the markets react?

The Chancellor’s statement has had little impact on markets - and that’s probably as good as it could have been, given what we knew of the challenges facing the nation’s finances. Reeves’ reiteration of her commitment to her fiscal rules will be a comfort to bond investors, with a tweaking of these targets a possible (although unlikely) option, which, had she adopted them, could have shredded investor confidence. Instead, the Chancellor has cut spending plans as a means to restore the nearly £10bn in fiscal headroom that had disappeared following rising debt costs and the lower GDP growth that has materialised over recent months. Both the domestically focused FTSE 250 and the more international FTSE 100 were broadly unchanged after the statement, as was the benchmark 10-year gilt and the pound.

It was no surprise, therefore, that it was simply a ‘shrug of the shoulders’ from the investment markets, whose attention is more drawn to ongoing geopolitical instability.

Donald Trump may have declared 2 April as “Liberation Day”, but it will likely be remembered as “Tariff Day”, with details of Trump’s plans for import taxes expected to be clarified. And it’s these announcements, rather than those from Rachel Reeves, that will likely have a greater impact on the direction of investment markets over the coming weeks and months. 

Potential future developments

For businesses and individuals, this Spring Statement hasn’t created any more problems than were already there. While there wasn’t anything particularly negative, there wasn’t anything positive either and there are still the same challenges being posed to businesses.

The positives this statement did include, around increased defence spending and new technology funds, will be of benefit to businesses in those sectors.

As we stand, the Chancellor hasn't got a huge margin to shift. We're probably going to be lurching from budget to budget, and I don't think we can really say with any confidence that we've got any certainty, because she may have to hike up taxes or dramatically cut spending further at the next fiscal event.