In her Spring Statement yesterday, the Chancellor set out a bold ambition to “go further and faster” on defence spending, reforming public services, and reigniting economic growth.
While financial markets remained calm, media attention has focused on the scale of proposed welfare cuts – unsurprisingly dominating the headlines.
In this article, our Independent Economic Consultant, John Calverley of Tricio Advisers, reflects on the economic implications of the Statement. You can read the Chancellor’s full Statement here.
We also consider the confirmed review of Individual Savings Accounts (ISAs) and other tax incentives, and the longer-term financial planning implications for clients.
John Calverley writes:
“The Chancellor’s Spring Statement cut the GDP forecast for 2025 to 1% from the 2% forecast in last year’s Budget, reflecting weak business and consumer confidence and a more difficult world environment. This, together with the higher level of gilts yields than expected, left the Chancellor with a £14 bn hole at the planning horizon (fiscal year 2028-29).
She plans to fill it by cutting welfare payments (as already announced), reducing departmental government spending in later years and improving tax collection and government efficiency. There is also an expected gain to GDP from the liberalisation of planning rules, though this is only worth about 0.2% of GDP by 2030.
One good point is that the government has not cut capital spending, which is often what Chancellors do when they want to save money, even though it can delay needed infrastructure and slow economic growth.
But the overall picture of a rising tax burden, from 35.3% of GDP in 2025-26 to 37.7% in 2028-29, remains.
Also, the reserve against adverse events is again only about £10 bn, vs an average £31 bn budgeted by past Chancellors. And there are many things that could go wrong.
Next week President Trump is expected to announce more tariffs and although the UK is not the main target, any tariffs on other countries which slow world growth will hit UK exports.
Another risk is that while the Office for Budget Responsibility (OBR) assumes a return to productivity growth at 1% pa, in recent years it has been only 0.3% pa. If the OBR is forced to reduce GDP growth expectations again then the Autumn Budget would require new tax increases or spending cuts.”
Rumours confirmed
Speculation about changes to ISAs had been circulating in recent weeks and for some time providers have also been lobbying for a simplification of the ISA rules in general.
The government wants to consider options to review the balance between cash ISAs and investment ISAs as they are keen to encourage investment to support their growth mission.
They are consulting with the Financial Conduct Authority around measures to try to give more people the confidence to invest by targeting tax incentives and are also keen to support investment in UK business but supporting entrepreneurs and start-ups – in an effort to “go further and faster” to stimulate growth.
This will involve a review of the role of tax incentives such as Enterprise Management Incentives Scheme, the Enterprise Investment Scheme, Venture Capital Trusts, and a series of round table consultations will take place over April.
What does this mean for you?
Changes to ISAs or other tax favoured investments are likely to only have a marginal impact on client’s planning strategies. Of greater concern is that if growth remains stagnant and the cost of public services and the nation’s indebtedness continues to rise – “further and faster” tax rises will be inevitable.
It had been widely anticipated that capital gains tax would be a target in the last Budget but the Chancellor instead introduced major changes to Inheritance Tax which are still working their way through further consultation but will undoubtedly be introduced.
Our role is to help you remain on track – through economic ups and downs – with a plan that reflects your goals, protects against uncertainty, and makes the most of opportunities as they arise. Whether it’s investment planning, tax efficiency, or intergenerational wealth planning, we will continue to review your planning to ensure you are prepared.
As always, if you have questions or would like to talk about how these developments relate to your personal situation, we’re here to help.
