As we approach the spring statement from Chancellor Rachel Reeves, there's a lot of speculation about potential changes that could impact your financial plans. Although the Treasury has committed to only one fiscal update per year, some people are worried that there might be additional announcements this spring.
The Chancellor has said she will take action if forecasts from the government's fiscal watchdog, the Office for Budget Responsibility (OBR), on 26 March show she is off course to meet the fiscal goals she set at her Budget in October.
With rising inflation and downgraded economic estimates, the Chancellor might need to cut spending, raise taxes, or adjust fiscal rules. The think tank, the Institute for Fiscal Studies, said in that scenario Reeves would face a stark choice between her promise not to come back with a further round of tax rises and another pledge of no return to austerity.
With limited scope to raise taxes further due to both earlier promises and the economic impact already seen from hiking tax on employers, the Chancellor is likely to be looking at significant spending cuts. However, the savings required are of a size that she is likely to have to go to a range of government departments to find savings to remain within fiscal rules.
Winning over an underemployed workforce whilst also tackling the deep-rooted issues that have held the UK back – underinvestment in infrastructure, red-tape in all areas of planning, a mismatch of skills and waning productivity – is an unenviable challenge for Rachel Reeves.
One outside possibility is to continue to tax by ‘stealth’ by extending the freeze on income tax thresholds beyond 2028. Reeves said in October she would end the freeze of the thresholds - introduced by the previous Conservative government - and raise them in line with inflation from 2028.
Alongside this, there have also been rumours about changes to ISAs (Individual Savings Accounts). The Chancellor might consider reducing the £20,000 tax-free annual allowance for cash ISAs to encourage more investment in stocks and shares to better support economic growth. While cash ISAs are a safe option, investing in stocks and shares has historically provided better long-term returns.
No matter what changes are announced, we'll be here to help you understand how they might affect your personal finances and investments.
How we can help you:
- Providing clarity: we'll help you understand how the spring statement might affect your personal finances and investments.
- Strategic planning: we can help you create a plan to deal with any changes from the spring statement. This includes adjusting your investment portfolio, planning for tax impacts, and keeping your financial goals on track.
- Risk management: with the possibility of spending cuts and economic uncertainty, managing risk is crucial. We can help you identify potential risks and develop strategies to reduce them, ensuring your financial stability.
- Long-term perspective: we offer a long-term view, helping you stay focused on your financial goals despite short-term ups and downs. We provide reassurance and guidance to help you make informed decisions.
This blog post does not constitute financial advice. Please consult a financial adviser for personalised advice.
Reference:
- UK economy sees surprise uptick in final quarter of 2024, but outlook still dreary | Quilter Media Centre
- Spring Forecast shaping up to be more consequential than first billed | Institute for Fiscal Studies
- LPMB6F2 | Bank of England | Database
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