Columnist

What to expect in the Spring Statement

As we head into spring, the UK’s economic landscape remains unsettled. 

Reduced tax revenues and increased borrowing have largely consumed the fiscal headroom that Rachel Reeves was expected to have at this point – estimated at around £9.9 billion. 

If economic growth continues to stall, and if she remains committed to her fiscal principles, the Chancellor may be left with little choice but to consider further tax increases or spending cuts.

However, as demonstrated in the October Budget, raising taxes is not a straightforward solution. 

Labour’s manifesto ruled out increases to income tax, National Insurance or VAT, limiting the Government’s available options. 

Yet, the rise in employers' National Insurance shows the Chancellor is not afraid to make unpopular decisions, suggesting further surprises cannot be ruled out.

On the other hand, widespread spending cuts could prove politically costly. 

The Government has repeatedly insisted there will be no return to austerity, making significant reductions in public spending a difficult path to navigate. 

Should cuts be implemented, the opposition and media will likely highlight them as evidence of yet more broken promises.

Businesses and investors have been closely monitoring potential changes to inheritance tax reliefs, particularly those affecting farms and other business assets. 

While there has been hope for a retreat on these proposed changes, the deteriorating economic outlook makes this increasingly unlikely. 

Similarly, there has been widespread support for maintaining the current exemption that allows unspent pension savings to remain free from inheritance tax upon death. 

Whether the Government can afford to maintain these policies in the long term remains to be seen.

As the Chancellor prepares for the upcoming fiscal statements, businesses and taxpayers will be looking for clarity and stability. 

The challenge remains in balancing fiscal responsibility with political feasibility. 

The coming months will reveal whether Labour can maintain its commitments while steering the economy towards growth – or whether economic pressures will force further shifts in policy. 

Either way, businesses should prepare for potential fiscal adjustments as the Government seeks to bridge the gap between economic reality and political promises.

Alex Nicholson is a partner and head of VAT at accountancy and business advisory firm Johnston Carmichael

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