Chancellor Rachel Reeves delivered the Spring Budget on 26 March 2025, outlining the government’s fiscal plans amidst a backdrop of economic challenges. Below is a summary of the key announcements and their potential implications for businesses and individuals.
Economic Outlook
- Growth Forecast: The Office for Budget Responsibility (OBR) has revised the UK’s economic growth forecast for 2025 down from 2% to 1%, indicating a more sluggish recovery than previously anticipated.
- Inflation: Inflation is projected to average 3.2% this year, which, while an improvement over previous highs, continues to affect household purchasing power and business costs.
Public Finances
- Deficit and Surplus Projections: The government aims to transition from a deficit of £36.1 billion in 2025-26 to a surplus by 2029-30, emphasising fiscal responsibility and debt reduction.
- Spending Review: A comprehensive spending review is scheduled for June 2025, which will provide further details on departmental budgets and potential adjustments.
Taxation and Compliance
- Tax Evasion Crackdown: HMRC is set to receive additional funding and technological resources aimed at reducing tax evasion, with a goal to increase prosecutions by 20% and raise £1 billion.
- National Insurance Contributions (NICs): From April 6, 2025, the rate of employer National Insurance Contributions is set to increase by 1.2 percentage points, rising from 13.8% to 15%.
- Making Tax Digital for Income Tax: The rollout of Making Tax Digital (MTD) for Income Tax will apply to individuals with qualifying income over £20,000 from 6 April 2028. This confirmation, quietly included in post-statement documentation, signals a longer lead-in time for affected taxpayers to prepare for digital record-keeping and quarterly reporting requirements.
- Late Payment Penalties: From the 2025/26 tax year, the late payment penalty for non-payment of Income Tax will double from 5% to 10%. This measure reinforces the importance of timely tax compliance and is likely to affect individuals with complex or irregular income.
Welfare and Public Spending
- Welfare Budget Adjustments: The Chancellor announced plans to save £4.8 billion in welfare costs through reforms, including adjustments to disability and sickness benefits.
- Defence Spending: An additional £2.2 billion has been allocated to defence, increasing spending to 2.5% of GDP, funded in part by reductions in the overseas aid budget.
Business Implications
- Capital Expenditure: An increase of £2 billion annually in capital spending has been announced, aiming to stimulate investment in infrastructure and innovation.
- Artificial Intelligence (AI) Initiatives: The government plans to invest in AI technologies to reduce operational costs, which may lead to workforce adjustments in certain sectors.
Individual Impact
- National Living Wage: Effective April 1, 2025, the National Living Wage will increase by 6.7%, providing approximately three million workers with an annual pay rise of around £1,400.
- Personal Finances: The OBR projects that individuals will be £500 better off annually by the end of the decade compared to previous estimates, though this is contingent on various economic factors.
Neal Groves, Tax Partner at Beavis Morgan, comments:
“While this wasn’t a headline-grabbing Budget for individuals or business owners, the direction of travel is clear: tighter spending, cautious optimism, and growing scrutiny from HMRC. Now is the time to take stock, ensure your tax affairs are in order, and prepare for what may come in the full Budget later this year.”
Summary
The Spring Budget 2025 highlights the government’s commitment to fiscal responsibility through targeted spending cuts and strategic investments. Businesses should prepare for increased compliance measures and potential cost implications from changes in NICs and wage regulations. Individuals may benefit from wage increases but should remain mindful of the broader economic context affecting personal finances.
For personalised advice on how these changes may impact your financial situation or business operations, please contact your usual Beavis Morgan adviser or email info@beavismorgan.com.
