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Newsletter issue – March 2025
A Government surplus would normally be seen as good news. But despite reaching £15.4bn in January - a record high for the month - it's actually caused further headaches for the Chancellor, adding pressure to break her pledges on tax. The Government had been expecting a much higher surplus of £20.5bn, as officially forecast.
It means Rachel Reeves is under increasing pressure to either make public spending cuts to various Government departments or raise taxes further. And if she does, it's likely to come in the Spring Forecast - due to take place on March 26. The Chancellor has been keen to stress that there will only be one major fiscal event - ie the Budget - per year under her stewardship. But analysts continue to calculate that more tax changes may simply be unavoidable in order to balance the books.
The Financial Times reported that one of the Chancellors' aides at the Treasury said she was taking 'nothing off the table' - leaving open the possibility of more tax tinkering.
Speculation surrounds income tax thresholds and allowances, with the possibility of the freeze being extended beyond 2028 - despite apparently being ruled out at the Budget in October.
But this proposal could win support, with the move potentially bringing up to £4bn a year, according to calculations by The Institute for Fiscal Studies.
Rising borrowing costs and the potential for interest rates to increase once more, have increased difficulties for the Treasury, leading to some commentators to speculate that the Spring statement will become another 'mini Budget'.
The Government has faced particularly intense opposition to the Employers' National Insurance rise planned for April and the changes to Inheritance Tax affecting agricultural property and farmers. Yet, the Government has insisted it is standing firm on these two policies.
One possible area where changes may occur affects cash ISAs. At the moment savers can pay in £20,000 per year tax-free. But according to reports in The Telegraph, this maximum could be drastically cut to just £4,000.
No doubt, we will see leaks in the press in the coming weeks about other ideas being considered by the Treasury.
