Chancellor’s seeks stability in turbulent times
On the stump with the Spring Statement as government chases stability and growth
Chancellor Rachel Reeves delivered a punchy Spring Statement, flagging the importance of stability at home amidst growing global uncertainty. Intended as an opportunity to shine a light on improved forecasts, global politics showed how it can intrude on even the most carefully framed domestic narrative, with the sudden escalation of hostilities in the Middle East over the weekend forcing a recalibration of tone.
The Chancellor instead started with the turbulence of an increasingly dangerous world, thanking the armed forces and highlighting the immediate concern of conflict in the region raising the prospect of higher oil and gas prices. The knock-on effects for inflation, household bills and business input costs, are a material risk sitting largely beyond domestic fiscal control.
But turning to the latest forecast from the Office for Budget Responsibility (OBR) the Chancellor was bullish, as she announced an improvement in the UK’s fiscal position compared with the autumn statement. Borrowing this year is projected to be nearly £18 billion lower than previously expected, and its lowest level in six years, falling below the G7 average for the first time in more than two decades.
At each prediction, Reeves flipped from fiscal statement to stump speech as she attributed the success of the government’s policies by comparison with the former Tory government and plans laid out by the Reform and Green parties.
Headroom against the government’s fiscal stability rule has widened to almost £24 billion, while debt interest spending next year is expected to be around £4 billion lower than forecast in the autumn.
On the wider economy, the OBR forecasts that GDP per capita will grow by 5.6% over the course of the Parliament, an upward revision to earlier expectations.
As in last year’s Spring Statement, there were no immediate tax changes, with Reeves flagging the importance of stability through a single, annual review each autumn, to avoid an additional period of speculation and uncertainty.
Dinesh Raja, our Managing Partner, commented “There were no big tax announcements, but ongoing fiscal drag, and the gradual restriction of reliefs already scheduled, mean the taxation picture continues to shift.
“Pundits again predicted revision to inheritance tax, and many anticipated a shift on R&D reliefs for business or on student loan arrangements, and while there’s no change for the present, these issues are less about ‘if’, and more about ‘when’. Action should be considered around succession and inheritance tax planning, timing of capital expenditure and any review of remuneration or profit extraction strategies for business owners.”
“Everyone recognises the need to use annual allowances, such as for ISA’s, Capital Gains Tax or annual pension contributions, but there are also opportunities around gifting assets, setting up trusts or investigating the value of life insurance to offset future inheritance tax, all of which could materially impact future outcomes.”
The full Spring Statement is available here and the OBR statement here
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