Chancellor Rachel Reeves is set to deliver her spring statement today, outlining key updates on the UK economy amid a challenging financial backdrop.
Although the government previously committed to a single annual budget in autumn, the current economic turbulence has placed pressure on Reeves to use this spring statement to respond decisively. The £9.9 billion fiscal headroom, which gave room for potential tax cuts or spending increases without breaching fiscal rules, has now been effectively eliminated.
Here’s what we may expect from today’s announcement:
Extension of Income Tax Threshold Freeze
One of the most significant moves under consideration is the extension of the freeze on income tax thresholds beyond the current April 2028 end date.
- Known as a “stealth tax”, this measure would see more people paying higher rates of tax as their earnings increase, even if the rates themselves remain unchanged.
- Analysts at Citi estimate this could generate around £7 billion annually for the Treasury.
Reforms to Business Rates Relief
In her previous budget, Reeves reduced business rates relief for retail, hospitality, and leisure sectors from 75% to 40%. With these industries still reeling, there is mounting pressure to reverse or revise this decision.
- The government recently concluded a consultation on business rates reform.
- An increase in the current 40% relief rate is being considered as a short-term measure to support struggling businesses.
Additional Welfare Cuts
Following the Office for Budget Responsibility’s (OBR) downgrade of expected savings from recent welfare reforms—from £5 billion to £3.4 billion—the Chancellor is expected to announce further benefit cuts to bridge the fiscal gap.
- Universal Credit incapacity benefits for new claimants may be frozen until 2030 instead of increasing with inflation.
- A minor reduction in the basic Universal Credit rate in 2029 could also be introduced, with combined savings expected to reach £500 million.
Potential Overhaul of Cash ISAs
The investment sector has urged the Chancellor to cut the annual tax-free limit on Cash ISAs from £20,000 to £4,000, encouraging savers to invest in stocks and shares instead.
- While such a move may stimulate the UK’s capital markets, it faces strong opposition from building societies.
- A decision could be delayed until the autumn budget.
Employers’ National Insurance Relief
As the 6 April rise in employers’ national insurance contributions looms, Reeves may introduce mitigating measures such as:
- An increased employment allowance;
- A higher threshold for liability; or
- Targeted relief for the charity sector.
Shift in International Aid and Defence Spending
The Chancellor is expected to outline the reallocation of international aid funds towards defence, following the Prime Minister’s commitment to raise defence spending to 2.5% of GDP by 2027.
Defence Investment Boost:
- £400 million will be pledged for a new UK Defence Investment body aimed at accelerating innovation in military technology.
- An additional £2.2 billion from April will mark the largest uplift in defence funding since the Cold War, according to Defence Secretary John Healey.
Confirmed Measures Already in Motion
Civil Service Reform
- The government plans to cut £2 billion annually from civil service admin costs by the end of the decade.
- Reeves aims to eliminate 10,000 back-office jobs, with a focus on deploying AI and automation for greater efficiency.
Welfare Adjustments
- Although plans to freeze Personal Independence Payments (PIP) were shelved after backlash, eligibility has been tightened.
- Work Capability Assessments for Universal Credit will be abolished in 2028, with health-related support consolidated into PIP.
Regulatory Overhaul
- NHS England will be abolished in a surprise move to cut bureaucracy.
- The Prime Minister and Labour leadership have signalled intent to reduce quango influence and trim regulatory costs for businesses by 25%.
Construction Skills Initiative
- A £600 million investment has been unveiled to train 60,000 new construction workers over four years.
- The programme aims to support the government’s pledge of building 1.5 million new homes before the end of this Parliament.
As the country awaits today’s address, all eyes are on Chancellor Reeves to see how she balances fiscal responsibility with economic growth and social welfare — all while navigating an increasingly complex financial landscape.
