Thank you for following our live blog today. We will be back again tomorrow with further preview analysis, before reporting on the chancellor's speech as it happens. Reeves is expected to address the House of Commons at around 12.30pm. Join us then.
Will the government tighten inheritance tax rules?
Tax hikes are not on the cards tomorrow, but it could be worth keeping an eye out for any small print that accompanies Reeves's speech.
"We will have our eyes peeled for any announcements of consultations or reviews that accompany the Spring Statement," said Jason Hollands, managing director at wealth management firm Evelyn Partners.
"Often billed as 'simplification' proposals, one such area could be an overhaul of the lifetime gifting regime, as the government has been clear the taxation of inheritances is an area it is prepared to tighten up on," he adds.
Currently, anyone can give up to £3,000 of their assets to loved ones each tax year without that sum becoming liable for inheritance tax (IHT). After that point, your gift may be classified as a "potentially-exempt transfer". If you die within seven years of making the gift, inheritance tax will be payable on a sliding scale known as taper relief.
Hollands says there is an "almost irresistible urge" for the government to clamp down on gifting rules, as some families are now giving more of their money away in response to IHT changes around pensions.
Pensions currently fall outside of the IHT net, but this is set to change from April 2027.
"We are seeing many clients draw money from pensions, which they had originally planned to leave untouched for IHT purposes, and instead make lifetime gifts to their children and grandchildren," he explains.
Why so much fuss for a non-Budget?
The red box is not expected to make an appearance tomorrow, and shadow chancellor Mel Stride will respond to Reeves’s statement rather than opposition leader Kemi Badenoch. In other words, the government is keen to emphasise that this is not a Budget. Reeves herself has insisted that it will not be a “tax and spend” event.
Why all the fuss then?
The truth is that this statement will almost certainly be a bigger event that Labour originally intended. Gilt yields soared at the start of the year on the back of higher inflation expectations, pushing up government borrowing costs and wiping out most (if not all) of Reeves’s £9.9 billion “fiscal headroom”. Meanwhile, economic growth has been weak – almost non-existent. The OBR is expected to halve its forecast for the 2025 financial year from 2% to around 1%, according to reports from the Telegraph.
This essentially leaves the government with three options: raise taxes, cut spending, or change the fiscal rules.
Reeves has pretty much ruled out the first and third options. Spending cuts have been her chosen route so far. Several have been announced in advance of Wednesday’s statement, including a £5 billion cut to health-related benefits, but we could be given further details during Wednesday’s speech.
Another reason Wednesday’s statement is important is that it could set the tone for tax and spending changes further down the line. If the OBR’s economic forecast highlights a big gap in the public finances, Reeves could use her statement to warm households and businesses up to future tax rises – perhaps at the 2025 Autumn Budget.
Reeves is likely to justify any changes by pointing out that the world has changed since Labour first came into power last July. Defence spending in particular has become more of an urgent priority in light of America’s retreat from European security under US president Donald Trump. Inflation is back on the rise, and could be pushed higher by an escalation of Trump’s trade war. Tariffs could also weaken global economic growth by making it more expensive (and more challenging) for businesses to operate.
How will inflation impact the Spring Statement?
The next set of UK inflation figures will land on the same day as the Spring Statement. This has the potential to cause a major headache for the chancellor.
January’s larger-than-expected jump in inflation (from 2.5% to 3%) helped inform the Bank of England’s decision to pause interest rate cuts this month, as the Bank balances inflationary risks against the desire to kick-start a stagnant economy.
One month's inflation reading won’t have any direct bearing on the Spring Statement, but it could set the tone. Should inflation come in higher than expected, it will add more pressure on Reeves, making her goal of growing the economy and easing cost-of-living pressures that much harder.
A lower-than-expected reading could, on the other hand, offer some optimism.
Read more about what to expect in tomorrow’s report in our February inflation live blog.
“The government must be smarter on investment”
The Organisation for Economic Co-operation and Development (OECD) has forecast that the UK will be the second-fastest growing economy in the G7 this year, behind the US. However, it recently downgraded its growth forecast from 1.7% to 1.4%. All G7 countries saw downgrades against an uncertain global backdrop.
As the below chart shows, the UK has had the second-lowest growth rate of all G7 countries since the pandemic (Q4 2019 versus Q4 2024).
Growth of G7 real GDP since the pandemic (Q4 2019 versus Q4 2024, percentage change)
The Institute of Chartered Accountants in England and Wales (ICAEW) has said the government needs to make “smarter investment decisions”.
“There must be a step change in the way the government invests if it is serious about kickstarting the economic growth needed for the UK to be the fastest-growing economy in the G7,” said Alan Vallance, ICAEW chief executive. “The evidence is clear – our members have told us that investment, when poorly targeted, can crowd out funding from the private sector.”
A poll of ICAEW members found that 72% want better targeting of government investment to lower the cost of capital for difficult infrastructure projects, rather than replacing capital on projects the private sector is likely to invest in anyway.
Eighty-five percent of members said poorly-targeted government investment risked displacing private sector funding without generating additional economic benefits.
“A smarter approach to investment, which focuses on unlocking private funds and prioritises spending on skills, technology and infrastructure, would be a smarter use of taxpayers’ money,” Vallance added.
Expect “tweaks” to public finances
Major tax changes are not expected tomorrow. This was never intended to be a Budget, even if weak growth and high borrowing costs ultimately force Labour into announcing more than it would have liked.
Pete Glancy, head of pension policy at Scottish Widows, said the statement is more likely to be used as a platform for “tweaks to the public finances”. That doesn’t mean it won’t be significant, though.
“Anything we do hear on the day could have an impact on things like saving, investing and pensions,” Glancy said. “For example, the relative performance and attractiveness of our economy could influence asset allocations either towards or away from the UK. Indicators of a recession often favour bonds over equities, and vice versa when things have been predicted to boom.
“Short-term interest rates trending down could shift people from cash ISAs towards equity ISAs, and longer-term interest rates remaining high may favour annuities over income drawdown.
“The trick is to translate what is announced on the day into how it might play out into customer behaviours and customer demand.”
Would the government ever consider a wealth tax?
A wealth tax is not expected tomorrow and would prove deeply unpopular, particularly after last year’s tax-raising Autumn Budget. The headlines are already full of stories of millionaires leaving Britain thanks to high taxes and plans to abolish the non-dom status.
Around 10,000 millionaires left the UK in 2024, a 157% increase on the year before, according to a report from wealth intelligence firm New World Wealth and investment migration consultancy Henley and Partners. Reeves has already had to soften the non-dom changes in a bid to stem the flow.
Despite this, some have called on the government to consider the measure.
A cross-party group of around 30 MPs wrote to Reeves before the Autumn Budget, calling on her to introduce a 2% tax on assets worth more than £10 million. The group claimed the measure could raise £24 billion per year.
Signatories of the letter included representatives from Labour, the Greens, the Liberal Democrats, Plaid Cymru, and more, as well as former Labour leader and current independent MP Jeremy Corbyn.
Reeves has previously distanced herself from any policy like this, saying in 2023: “We have no plans for a wealth tax.”
We take a closer look in: “Could Labour introduce a 2% wealth tax?”
Welcome back... plus latest headlines on affordable housing
Good Tuesday morning, and welcome back to our Spring Forecast live blog. There is just one day to go until chancellor Rachel Reeves delivers her statement to Parliament.
The latest headline overnight is that the Treasury has announced £2 billion of new investment to support social and affordable housing. This is intended to deliver up to 18,000 new homes, contributing to the government's wider promise to build 1.5 million new homes before the end of this Parliament.
The £2 billion injection will only support development on sites that will deliver in this Parliament, the government said.
The Treasury is calling the investment a "down payment" ahead of more long-term investment in social and affordable housing planned later this year. Further details will be revealed after the government completes its current spending review process on 11 June.
"This investment will help us to build thousands more affordable homes to buy and rent and get working people and families into secure homes and onto the housing ladder," said deputy prime minister and housing secretary Angela Rayner.
Thank you for following our live blog today. We will be back tomorrow with further analysis in the lead-up to Wednesday's announcements. Have a good evening.
Reeves’s focus will be on spending cuts
The government is expected to reduce spending by billions of pounds in the Spring Statement, in what some commentators are calling the biggest cuts since austerity. We already know what some of the targets will be – from health-related benefits to NHS England and the Civil Service.
Tax hikes do not appear to be on the table, although Reeves is expected to spend money on enforcement measures (including harsher punishments for those who submit their tax return late).
“It’s not surprising that Rachel Reeves has come out in recent days to quash speculation that there could be some sort of tax rise in her speech, given the negative reception the Autumn Budget received from businesses and individuals and the drag that those tax-raising announcements seem to have exerted on growth and confidence,” said Jason Hollands, managing director at wealth management firm Evelyn Partners.
“Given that most of those tax rises have yet to take effect, including the significant hike on employer’s National Insurance costs, the last thing this government needs right now is to say it’s inflicting more of the same. Instead, the onus for now will be on spending cuts that have been well-telegraphed,” he added.
Harsher punishment for submitting your tax return late
Although the chancellor isn't expected to announce tax hikes during the Spring Statement, MoneyWeek understands that the rules around tax collection will be tightened. This is expected to raise an extra £1 billion a year by the end of the decade.
From next tax year onwards (2025/26), the Treasury will increase late payment penalties for VAT and Making Tax Digital for Income Tax Self Assessment (ITSA). The penalty will increase from 2% to 3% at 15 days, 2% to 3% at 30 days, and 4% to 10% from day 31.
To help enforce the new regime, Reeves will earmark £80 million to pay for third-party debt collectors to bring in £1.3 billion in outstanding tax over the next five years. The Treasury says the collectors will return £16 for every £1 spent on their employment.
Reeves will also announce that a further 600 permanent members of staff will be recruited into HMRC’s debt management teams, and a further 500 in the compliance teams.
For more details, read our full report.
Spring Statement: Pensions are unlikely to be a target
One of the main ways the government can raise money from pensions is by adjusting the tax rules, but the upcoming Spring Statement is not expected to be a tax-raising event.
There was lots of speculation about changes to the tax-free lump sum and pension tax relief before the Autumn Budget last year, but neither of these changes ultimately materialised.
The main change Reeves announced last October was that pensions would be brought inside the inheritance tax net from April 2027.
That said, pension savers should still listen out for hints about the state of the UK's finances when Reeves speaks in Parliament this Wednesday.
"Reeves may use the Spring Statement to set the ‘mood music’ for the future direction of travel on tax and spending policy against the overriding economic growth agenda," said Steven Cameron, pensions director at financial services company Aegon.
Meanwhile, pension reforms are likely to take centre stage later in the year, rather than during the Spring Statement.
"The Pensions Investment Review is likely to lead to workplace pensions placing more of their members’ funds in investments designed to boost UK economic growth, which could also deliver better returns for pension savers," Cameron said.
"And this summer’s Pension Schemes Bill will include new measures to ensure all pensions are offering good value for money as well as plans to bring together small pension pots individuals may have left behind when changing employers."
We take a closer look in: "Spring Statement: What could Rachel Reeves say about pensions?"
Cash ISA rumours – have changes been shelved?
In recent months, cash ISAs have been at the heart of a media storm. Reeves was rumoured to be looking at cutting the annual allowance from £20,000 to £4,000 – part of a bid to get Britain investing and boost UK growth.
These plans now appear to have been shelved.
An official told the Financial Times: “We are not looking at any changes to ISAs in the Spring Statement. We recognise the range of views around the current ISA system and want to ensure it strikes the right balance between cash and equities.
“We want to continue to support cash savings whilst earning better returns for savers, boosting the culture of retail investment and supporting the growth mission.”
We share further details in: “Will Rachel Reeves impose a £4,000 cash ISA limit?”
Above: Will Reeves come for the cash ISA allowance?
Chancellor left with "few avenues to choose from"
"The government wants to spend more; on defence, and on building the UK’s green infrastructure to power growth for generations to come. But with such geopolitical uncertainty, fiscal rules are important and breaking them would be costly," said Danni Hewson, head of financial analysis at investment platform AJ Bell.
"Not breaking them leaves the chancellor with few avenues to choose from, especially with her fiscal headroom almost certainly evaporated, and probably in deficit," she added.
Figures published last week showed that government borrowing came in higher than forecast in February, at £10.7 billion. Borrowing for the current financial year (ending March 2025) has already exceeded the OBR's full-year forecast, at £132.2 billion versus a forecast of £127.5 billion.
"Promises not to increase taxes will mean even fewer choices, more cuts to public spending and the increased likelihood that the unpopular fiscal drag of frozen tax thresholds will remain with us way beyond 2028," Hewson added.
What are the fiscal rules?
Reeves has been clear that she will stick to her self-imposed fiscal rules, which were voted into law by the House of Commons in January. There are two main parts:
- Stability rule: Day-to-day spending needs to be matched by tax revenues, not funded through borrowing.
- Investment rule: Debt needs to be falling as a share of the economy by 2029/30.
One major fiscal event each year
Rachel Reeves has previously committed to just one major fiscal event each year "to give families and businesses stability and certainty on upcoming tax and spending changes". However, a lot has changed since the Autumn Budget last October, when tax hikes of £40 billion and spending policies of £70 billion were announced.
High borrowing costs and low economic growth have already wiped out the government’s £9.9 billion “fiscal headroom”, according to reports from Bloomberg last month.
When MoneyWeek asked the Treasury to comment on whether Reeves's statement would involve major policy announcements, they neither confirmed nor denied, simply stating: “The government’s commitment to fiscal rules and sound public finances is non-negotiable. As previously announced, the OBR's next forecast will be presented to parliament on 26 March alongside a statement from the chancellor”.
Above: The chancellor poses outside 11 Downing Street with the red box, shortly before delivering the Autumn Budget on 30 October 2024. Reeves has previously committed to just one major fiscal event each year, delivered in the autumn. Will she adhere to this on Wednesday when she delivers the Spring Statement?
Good afternoon and welcome to our live blog. Chancellor Rachel Reeves will deliver her Spring Statement to Parliament this Wednesday, 26 March. Reeves has said it will not be a “tax and spend” event, but spending cuts are widely expected.
Over the past two weeks, the government has already made several major announcements:
- NHS England: On 13 March, the government announced that NHS England would be abolished to “reduce bureaucracy” and “drive efficiency”. Government sources cited by the BBC believe this will save £500 million per year.
- Health-related benefits: On 18 March, work and pensions secretary Liz Kendall unveiled a series of cuts to health-related benefits, intended to save £5 billion by 2030.
- Civil Service: Over the weekend, Reeves confirmed that Civil Service running costs would be cut by 15% by the end of the decade. She told the BBC that savings would be made from back office and administrative roles.
These followed February’s announcement that the international aid budget would be slashed to fund increased defence spending. Prime minister Keir Starmer said the aid budget would be reduced from 0.5% of gross national income to 0.3% in 2027. Defence spending will increase to 2.5%.
Could further cuts be announced on Wednesday?