The Spring Statement is ‘not a Budget’ says the Chancellor as she prepares to unveil her plans for the UK economy in Parliament today (Wednesday).
Rachel Reeves has already pledged she will not be raising taxes, saying this would only happen with ‘one financial event a year’ – the Autumn Budget but measures announced will affect us all regardless.
Before she makes her statement, the Office for Budget Responsibility (OBR), which monitors the government spending plans and performance, will publish its forecast on the UK economy.
The economy contracted by 0.1% in January and the Bank of England has decided not to cut interest rates again, despite poor figures for economic ’growth’ (stagnation, in other words) and also more pessimistic projections going forwards.
The Government has remained tip-lipped on what might be in the Spring Statement, but there has been speculation Income Tax would ‘rise’ by keeping the personal tax threshold of £12,570 frozen beyond the 2028/29 end point.
This creates ‘fiscal drag’ as more people are pulled into higher tax brackets as their wages increase.
But spending cuts are likely to be a core part of the statement, with many already announced, including controversial plans to save £5billion on the welfare bill by imposing stricter criteria for disability benefits and a freeze on incapacity benefits.
Whatever your views on this, it could have a knock-on effect and potentially lead to higher costs elsewhere, such as the NHS but at the same time there is merit in encouraging people to work who can work. Those unable to do so should absolutely see the support they need, however.
It remains to be seen how this will work in the real world.
The Chancellor is expected to announce major cuts running into the billions across several Government departments, particularly in ‘back room jobs’ and as much as 7% taken from the budgets of some departments over the next four years, The Guardian reports.
Sky News said departments have been told to expect 10% cuts to ‘administrative budgets’, covering areas such as human resources, policy advice and office management, rather than frontline services.
This is sensible perhaps, if those departments are bloated with ‘admin staff’, but as anyone who employs people knows, good admin staff are a vital part of any business and results weaken if the ‘back room’ isn’t doing its job. Time will tell.
There may well be more detail on how international aid funding will be reallocated to defence, following the decision to increase defence spending to 2.5% of national income by 2027.
As for inflation, price rises to cover the increases in employer’s National Insurance and a way-above inflation 6.7% increase in Minimum Wage haven’t even hit the figures yet, let alone the significant increases many businesses are also facing in Business Rates (as previous reliefs have been cut hard) – watch this space.
On the face of it, there seem to be few major surprises lurking in the Spring Statement and it will cover plans for cuts already announced, though perhaps with more flesh on the bones.
We shall of course report back next week with updates and our thoughts on what it might mean for you.
