Chancellor Rachel Reeves delivered her Spring Statement 2025 on 26th March, following an unexpected slowdown in growth since last year’s Autumn Budget.
The Chancellor did meet her commitment that there would be no major tax announcements but tax is only one side of the equation. The other is spending and the Spring Statement 2025 confirmed a number of the measures recently announced, namely:
- cuts to the welfare state
- cuts to the civil service
- an increase in defence spending.
There were also announcements about the rollout of the Making Tax Digital (MTD) for Income Tax project.
In this article, Clayton & Brewill summarises the key takeaways from the Spring Statement 2025.
Inflation and forecasts
The OBR has revised the UK growth forecast down from 2% in the Autumn to 1% for this year. However, it has upgraded its forecasts for subsequent years, predicting GDP growth of 1.9% in 2026, 1.8% in 2027, 1.7% in 2028, and 1.8% in 2029. Inflation is expected to average 3.2% in 2025.
Encouragingly, real household income will grow this year at twice the rate expected in Autumn.
Tax
As expected, there will be no further tax increases beyond the £40bn announced in last year’s Autumn Budget. However, the Chancellor emphasised a stronger approach to tackling tax evasion; the government aims to increase the number of tax fraud prosecutions by 20% through further investment in HMRC’s technological capabilities. This initiative is expected to generate an additional £1bn in savings.
Making Tax Digital (MTD) for Income Tax
The rollout of MTD for Income Tax will be expanded to include a wider range of small businesses and will operate as follows:
It will start from April 2026 for sole traders and landlords with qualifying incomes over £50,000.
It will extend to those with qualifying incomes over £30,000 in April 2027.
It will extend again to those with qualifying incomes over £20,000 from April 2028.
The government’s decision to reduce the threshold to £20,000 will ensure that 900,000 sole traders and landlords, who will now join MTD for Income Tax from April 2028, have the time they need to prepare for the changes. As part of the ongoing rollout, the government will continue to explore how it can best bring the benefits of digitalisation to a greater proportion of the four million sole traders and landlords who have income below the £20,000 threshold.
In addition, the following groups will not be required to use MTD for Income Tax: customers who have a Power of Attorney, non-UK resident foreign entertainers and sportspeople who have no other income sources that count as qualifying income for MTD for Income Tax, and customers for whom HMRC cannot provide a digital service.
Also, the following groups will not be required to join MTD for Income Tax over the course of this Parliament: ministers of religion, Lloyd’s Underwriters, and recipients of the Married Couples’ Allowance and Blind Persons’ Allowance.
Finally, the government will increase late payment penalties for VAT taxpayers and Income Tax Self Assessment taxpayers as they join MTD for Income Tax from April 2025. The new rates will be 3% of the tax outstanding where tax is overdue by 15 days, plus an additional 3% where tax is overdue by 30 days, and 10% per annum where tax is overdue by 31 days or more.
Welfare and employment support
As announced in the weeks running up to the Spring Statement, the Chancellor detailed planned welfare cuts, which are expected to raise £3.4bn. She also announced an increase to Universal Credit and pledged £1bn to employment support schemes designed to help individuals back into work. An additional £400m will be allocated to job centres to improve job-seeking support.
Overall, the welfare savings package is anticipated to save £4.8bn, with welfare spending as a share of GDP projected to decline from 2026 onwards.
Defence investment
A notable announcement was the commitment of £2.6bn to the Ministry of Defence (MoD), with defence spending set to reach 2.5% of GDP from April 2027, funded by cuts to international aid. As part of this strategy, NHS England will be scrapped, with savings redirected to patient care.
A minimum of 10% of the MoD’s equipment budget will be allocated to emerging technologies, such as drones and artificial intelligence, benefiting production hubs in Derby, Glasgow, and Newport. A protected budget of £400m will be established for UK defence innovation, increasing over time.
Public service and government efficiency reforms
The government will introduce a new Transformation Fund, with £3.25bn allocated to delivering public service reforms. Additionally, efficiency measures will be put in place to achieve £3.5bn in day-to-day savings on the cost of running government operations by 2029-30.
