Chancellor Rachel Reeves may have vowed to hold only one ‘fiscal event’ a year when she delivered her autumn Budget, but that ambition has rather been overtaken by events, so next week’s Spring Statement may end up being more wide-ranging than commentators initially predicted.
There are three ‘elephants in the room’. The first is the continued weak growth in the UK economy (the latest figures show that it actually contracted by 0.1% in January). The headroom which Mrs Reeves allowed for in the autumn has all but disappeared, and there is therefore renewed pressure to balance the books to stay within her self-imposed fiscal rules.
Alongside that come two factors which are both related to the new occupier of the White House. The realisation across Europe that the continent is going to have to step up its defence game – and rapidly – is leading to a re-evaluation of spending priorities right across Europe, and the UK is not immune from this.
Germany, arguably the country with the tightest fiscal constraints of all, has already announced it will relax its borrowing rules to enable massively increased defence spending. Although the UK government has announced that the initial increase in the defence budget will be at the expense of the overseas aid budget, we can’t rule out that the Chancellor may choose to relax her own borrowing rules to enable further expansion, perhaps by redefining some defence expenditure as investment rather than revenue.
And then there is the very real threat of tariffs. With a certain amount of brinkmanship being played on all sides, we can’t know what the eventual effect of a more protectionist trade environment will be, but it seems likely that it will have a damaging impact on most economies. The Treasury will need to factor this into the plans which will be announced in the Spring Statement.
Given all of that, what can businesses expect from next week’s announcement? Given the package of tax rises announced in the autumn, it is unlikely that the Chancellor will feel able to introduce any more (although she might extend the freeze to personal tax allowances beyond 2028). Balancing the books is more likely to come from a combination of cuts to government spending (some of which have already been signposted) and a possible relaxation in the public borrowing rules.
However, one tax which is ripe for reform – and where changes were promised in the autumn Budget – is business rates. No timescale was given for more wide-ranging reform, but one painful measure was announced which will come into effect next month: a cut to the discount for retail, hospitality and leisure businesses, from 75% to 30%.
These are the sectors which will be hardest hit by the double whammy of increases to both the National Living Wage and employer’s national insurance contributions, so perhaps the Chancellor may consider delaying the business rates increase for a further year?
Many businesses, and not just those in the agricultural sector, will be hoping for some backtracking to the inheritance tax measures announced in the autumn. I think this is unlikely, although she may decide to tinker with the thresholds for Agricultural Property Relief to remove small family farms – which were never really the target of the reform – from being liable for IHT.
Of course, any statement by a Chancellor of the Exchequer is by its nature a political event, so perhaps Mrs Reeves will have a surprise or two up her sleeve. But on the whole business shouldn’t be expecting too many specific measures next week – the focus is likely to be on shoring up the UK’s weak economic growth and facing the global economic and security challenges which every country is facing.
A breakfast briefing on the Spring Statement, chaired by EDP editor Richard Porritt, takes place on Thursday 27th March at 8am at Bawburgh Golf Club. Attendance is free, but places need to be booked in advance.