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Newsletter issue – February 2025
The debates and arguments over the merits or otherwise of some of the tax changes from the Budget have barely settled down, even two months after it happened.
The rise in employers' National Insurance (NI) and the alterations to the Inheritance Tax rules for agricultural properties have been particularly contentious.
Many of the changes announced by Chancellor of the Exchequer, Rachel Reeves, are not set to take effect until the new tax year beginning on 6 April. Could some of those be axed or changed further?
We now know that there will be a 'Spring forecast' – normally called a Spring Statement - that will take place on Wednesday 26 March. That's been confirmed by Ms Reeves. Will there be even further changes to the tax system in this announcement?
Typically, it's not unusual to see tax changes in a Spring or Autumn Statement – which is usually speaking much less significant than the Budget. But there has been growing pressure on the Chancellor, with warnings about the impact of the Employers' NI rise and very gloomy economic forecasts for the economy as a whole. These circumstances are creating the impression that further tax rises – or cuts to public services - might be unavoidable.
This has led to speculation that the Spring Forecast is actually going to be a 'mini Budget'. The official line from the Government is that this is not the case and there will only be one major announcement per year with significant tax changes – the Budget.
'The Chancellor remains committed to one major fiscal event a year to give families and businesses stability and certainty on upcoming tax and spending changes and, in turn, to support the government's growth mission,' a statement read.
However, talking to Reuters at the end of January, Ms Reeves appeared to suggest she could announce further fiscal changes on 26 March, if needed. But she stressed the importance of not 'jumping the gun' with two months to go.
Ben Zaranko, Associate Director of the Institute of Fiscal Studies, wrote that there are several options – with some not comprising any additional tax tinkering. But one might be 'to break the commitment to hold only one fiscal event per year and use the Spring Statement to announce additional tax rises', he suggested.
If that were the case, he pondered that 'given the nature of the fiscal rule, those could be 'contingent' tax rises announced for 2028–29, with no change for now and the option of not implementing them if conditions improve.'
'If higher interest rates wipe out the so called 'headroom', something will have to give,' he added.
Rising borrowing costs and the potential for interest rates to increase once more are among the concerns leading to analysts suggesting further tax tinkering will be necessary in Spring. Some media reports have framed the Government's stated position as 'not ruling out' a 'mini Budget'.
Indeed, the i Paper reports 'some City figures are expecting the Chancellor to deliver another statement in spring setting out fresh cuts or tax measures in response to bond market movement.'
Of course, there's always reams of speculation around the Treasury's spending plans but the likelihood is we won't have a clear picture until much closer to the time. Watch this space.
