No further tax increases in Spring Statement

Rachel Reeves’s first Spring Statement was notable for containing no ‘further tax increases’ as the Chancellor kept her pledge to stick to one major fiscal event per year. The Chancellor’s Autumn Budget had contained a record £40 billion in tax increases. However, it did not raise personal taxes including, Income Tax, employee National Insurance contributions or VAT.

This time round the Chancellor made no tax changes at all, instead there were a number of announcements on economic forecasts and government spending.

Growth halved

The forecast from the Office for Budget Responsibility (OBR) halved the UK’s growth in 2025 from 2% to 1%.

However, Ms Reeves pointed out that the Organisation for Economic Co-operation and Development (OECD) downgraded this year’s growth forecast for every G7 economy.

The OBR forecasts show that inflation will average 3.2% this year before falling ‘rapidly’, meeting the Bank of England’s 2% target from 2027 onwards.

Defence spending

Ms Reeves said that defence spending will increase to 2.5% of GDP, by reducing overseas aid.

This means an extra £2.2 billion for the Ministry of Defence in the next financial year to address increasing ‘global uncertainty’.

The government will spend a minimum of 10% of the MoD’s equipment budget on innovative technology, boosting production in places such as Derby, Glasgow and Newport.

In addition, the Chancellor said that planning reforms will put the government 'within touching distance' of hitting its target of 1.5 million new homes over the course of this Parliament.

Ms Reeves said that this will increase the level of real GDP by 0.2% by 2029/30, adding £6.8 billion to the economy.

Changing world

The Chancellor said: ‘Our task is to secure Britain’s future in a world that is changing before our eyes. The threat facing our continent was transformed when Putin invaded Ukraine. It has since escalated further and continues to evolve rapidly.

‘At the same time, the global economy has become more uncertain, bringing insecurity at home as trading patterns become more unstable and borrowing costs rise for many major economies.’

Serious setback

The UK’s business groups struck a cautious note following the downgrades to the growth forecast.

Ran Newton-Smith, CEO of the Confederation of British Industry (CBI), said: ‘Weaker growth this year is a serious setback but not a surprise given the burden businesses are shouldering after the Budget.

‘The Chancellor has kept her promise to business, made at our conference, not to raise the burden further, and focus on the efficient delivery of public services.

‘It is the right approach that the government asks of the public sector the same as it has been expecting of business since the Budget - to absorb costs through agility, modernisation and innovation.’

Challenging spring

Shevaun Haviland, Director General of the British Chambers of Commerce said: ‘Today the Chancellor saw a small dip in inflation, however her statement was made against a backdrop of downgraded economic growth for 2025. It all paints a challenging spring landscape as businesses struggle to bloom.

‘The government must focus on reducing the cost pressures for businesses, boosting investment and exports.

‘Firms are realistic, but they are also hurting. Within days they will be faced with higher National Insurance contributions (NICs) and a rise in the National Living Wage. Our research shows 82% of businesses will be impacted by the NICs hike – with firms forced to raise prices, postpone investment and cut back on recruitment.’

Initial reactions

Listen to Mark Morton, Mercia's Tax Expert, give his initial reactions to Rachel Reeves’ first Spring Statement in our latest podcast