Spring Statement 2025: Limited actionable change for investors

The Statement in brief:

• The Chancellor stressed that the global economy has become more uncertain and that UK defence spending will increase   
• UK GDP growth is expected to dip in 2025, falling from forecasts announced in the Autumn Budget 2024  
• The Chancellor states that inflation is expected to average 3.2% in 2025, before falling in 2026 and hitting the Bank of England's 2% target by 2027 

The Chancellor of the Exchequer, Rachel Reeves, delivered her Spring Statement to Parliament today, with little actionable news for investors. The statement stressed that the global economy has grown more uncertain and that policy changes enacted by the Labour government will require time to bear fruit.

Perhaps most important for investors were comments made on economic growth and inflation, neither of which is expected to move in a beneficial direction in the short term, according to the Treasury update.

Nutmeg Investment Strategist, Scott Gardner, explains that this will probably make meeting the ambition outlined by the Chancellor in the Autumn Budget 2024 – to restore balance to public finances by 2029 – an uphill struggle. The focus on fiscal 'headroom' remains, which relates to how close the government is to the limits it has set on borrowing. 

“It has been a long-running debate among economists and investors which tool the Office for Budget Responsibility (OBR) would pick for this Spring Statement. We now know that the OBR is cautious about the short term, taking a hammer and chisel to its previous forecasts for the UK economy by downgrading GDP growth to 1% this year.

“While the Chancellor has restored headroom through spending cuts, the Treasury is relying on growth improving and interest rates falling to sustain this. Against the backdrop of several unknowns and global uncertainty, any speedbumps could put these growth forecasts and the current fiscal headroom at risk. For now, the OBR has been persuaded that better days are ahead in 2026 and beyond after several policy decisions to boost housebuilding. Time will tell if these projections are realised or if other events present headwinds to the economy.

“During the statement, the FTSE 250 – a more representative index of UK plc than the FTSE 100 – sold off much of its gains during the morning but has since recovered to pre-statement levels. While closely-watched gilts also took a round trip, officials will be pleased that they are now trading flat.”

No other material changes to the tax regime in the UK were announced, but when the new tax year begins in early April, some of the Autumn Budget's alterations will come into effect.

Claire Exley, Head of Advice and Guidance at Nutmeg, reminds investors that they may wish to take advantage of any unused yearly allowances now.  

“After several changes to personal finance rules in the Autumn Budget last year, many will be pleased that no major changes were made to the current allowances in today’s statement. While some might be relieved by this, it is worth remembering that several changes have already come into effect and could in the future.

“Front of mind for many is Capital Gains Tax (CGT) rates which increased significantly following the October budget. Now might be a good time to ensure you are making the most of your tax wrappers and any available allowance before the end of the tax year. This is particularly important as the government announced in papers published alongside the Spring Statement that they are ‘looking at options’ for reforms to Individual Savings Accounts (ISAs).

“It may also be a good time to consider your retirement plans. The UK government announced last year that it intended to consider proposals for including pensions in estates for inheritance tax from 2027. We’re still awaiting full details on how this will work in practice but, for now, pensions remain a very tax-efficient way for many people to look after their financial future.”

As a reminder, the Autumn Budget 2024 introduced several significant changes, particularly in the areas of National Insurance contributions, CGT, IHT and fiscal rules. Some of what was announced in October last year was effective immediately, some will take effect when the new tax year starts on 6 April.

Here is a summary: 

National Insurance contributions:

• Employers' National Insurance contributions will increase from 13.8% to 15%, starting April 2025.
• The threshold for businesses to start paying National Insurance contributions will decrease from £9,100 to £5,000 per year.

Capital Gains Tax (CGT):

• As of October 2024, i.e. immediately after the Budget, the CGT rate for basic rate taxpayers on chargeable assets (e.g. shares not held in an ISA) was increased from 10% to 18%.
• For higher or additional rate taxpayers, the CGT rate on chargeable assets increased from 20% to 24%.
• The CGT rate on residential property remained unchanged at 18% for basic rate taxpayers and 24% for higher or additional rate taxpayers.
• The annual CGT allowance remained unchanged at £3,000.

Inheritance Tax (IHT):

• The freeze on IHT thresholds was extended to 2030, with the first £325,000 of any estate being tax-free, rising to £500,000 if the estate includes a residence passed to direct descendants, and £1 million when passed to a surviving spouse or civil partner.
• Inherited pensions will be subject to Inheritance Tax starting April 2027.
• Reforms to Agricultural Property Relief and Business Property Relief were announced.

Fiscal rules:

• The definition of debt in the UK government was changed, creating some "fiscal headroom."
• The Office for Budget Responsibility indicated that the spending and investment plans would require an additional £32 billion per year of borrowing.

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Risk warning

As with all investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you invest. Tax rules vary by individual status and may change. Past performance and forecasts are not reliable indicators of future performance.  We do not provide investment advice in this article. Always do your own research.