Rachel Reeves presented the Spring Statement in Parliament, emphasizing that the Labour party has the appropriate economic strategy for the nation and asserting that individuals will see an increase of £1,000 in their annual income.
Unlike the Budget, the Spring Statement did not introduce significant tax or policy changes today, as the Chancellor had committed to only one major fiscal event annually. However, the Spring Statement has the potential to impact future tax and spending decisions, as the Office for Budget Responsibility (OBR) releases its latest economic forecast, providing insights into the country’s financial status.
It is essential to note that there are upcoming adjustments affecting pensions, taxes, and savings that were previously announced and are yet to take effect. No alterations to personal taxes were revealed in today’s Spring Statement, but many individuals are already slated to pay higher taxes in the coming years due to measures announced in the Autumn Budget last year.
In the Budget, the Chancellor extended the freeze on tax thresholds until April 2031, leading to a situation known as fiscal drag, where a greater portion of income is taxed at higher rates as salaries increase. Currently, the personal allowance stands at £12,570, with a 20% basic tax rate applied on earnings above this threshold, followed by a 40% higher tax rate on incomes exceeding £50,270. Additionally, a 45% additional rate is imposed on earnings surpassing £125,140.
Pension-related announcements in the Spring Statement included the state pension rising by 4.8% from April, aligning with the triple lock policy, resulting in an increase from £230.25 to £241.30 per week for the full new state pension. Moreover, a new £2,000 annual cap on pension contributions through salary sacrifice schemes was disclosed, scheduled to commence in April 2029, thereby discontinuing National Insurance exemptions for contributions exceeding this cap.
Furthermore, starting from April 2027, inherited pensions will be subject to Inheritance Tax, being encompassed in the deceased individual’s ‘estate,’ which includes property, possessions, and money. The Spring Statement did not introduce any fresh changes impacting savings, but it was confirmed in the previous Budget that the cash ISA limit for under-65s will decrease from £20,000 to £12,000 from April 2027.
While the overall ISA limit remains at £20,000, individuals can divide their savings between cash ISAs and stocks and shares ISAs. Basic-rate taxpayers can earn up to £1,000 in tax-free savings interest, with a 22% tax rate on interest exceeding this threshold from April 2027. Higher-rate and additional rate taxpayers will also face increased tax rates on savings interest.
The Spring Statement did not address updates on benefits, but the removal of the two-child benefit cap from April and the rise in Universal Credit payments were previously announced. Additionally, the Motability scheme is undergoing reforms to exclude luxury vehicles, while fuel duty adjustments announced in the Budget will continue until 2026.
Concerns over rising petrol prices following global events were highlighted, although no immediate changes to smoking or drinking costs were mentioned in the Spring Statement. Moreover, reforms to the Lifetime ISA were confirmed in the Budget, maintaining the 25% government bonus on savings up to £4,000 yearly for first-time homebuyers or retirement purposes.
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