Chancellor Rachel Reeves faces mounting pressure as the Spring Statement remains just weeks away.
What was expected to be a routine update could now turn into a mini-Budget as the Government responds to tough economic challenges.
Reeves faces a tough balancing act as tight fiscal constraints, rising pressure on public finances, global uncertainty, and a sluggish economy add to the challenges ahead of the Spring Statement.
These factors have sparked speculation about possible revenue-raising measures, despite growing public frustration over taxation.
Jason Hollands, managing director at Evelyn Partners, suggests the Government will try to avoid major tax announcements, warning: “Coming back to the table with more tax hikes before the previous measures have even been implemented would send a signal that the Chancellor has lost control.”
Adding to the pressure, tax revenues have weakened since October’s Budget, while government borrowing costs continue to rise, making Reeves’ task even more difficult.
Tax rises or spending cuts: What might be in the Spring Statement?
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Why Tax Rises or Spending Cuts May Be Necessary
The Chancellor’s fiscal headroom, already narrow at £10 billion during the October Budget, is shrinking further. This leaves Rachel Reeves facing what Hollands describes as “the stark choice of either further tax rises or spending cuts.”
Rising inflation is pushing up wages, adding more pressure to the economy, while defence spending is becoming a growing concern. The planned increases are currently being funded by cuts to foreign aid and the National Wealth Fund.
Businesses are already pushing back against previous tax hikes, particularly the rise in employer National Insurance contributions, warning of potential economic repercussions.
At the same time, borrowing capacity remains limited, leaving Reeves with little room to manoeuvre without risking financial instability.
With few easy options available, the Spring Statement is likely to bring difficult fiscal choices that could shape the economic landscape in the months ahead.
Potential Extension of Allowance Freezes
The Spring Statement could see a further extension of personal allowances and thresholds beyond 2028. This form of “stealth tax” operates through fiscal drag, pulling millions into higher tax brackets as wages rise while thresholds remain static.
Holland explained that over the next couple of years, the freeze is expected to see recipients of the State Pension pay income tax even if they don’t have any other income, as the pension payout rises with the triple lock formula while the Personal Allowance remains frozen.
Hollands said: “The freeze on allowances and thresholds has massively increased the tax burden in recent years, but without the headline-grabbing backlash of a direct tax hike.
Inheritance tax allowances have been stuck at £325,000 for 15 years and won’t change until at least 2030. Meanwhile, capital gains tax and dividend allowances have been cut to minimal levels, and personal savings allowances remain frozen, meaning more savers and investors could end up paying tax on their returns.
If these freezes continue, millions could be paying more tax without the Government officially raising rates.
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Possible ISA Rule Changes
Speculation has grown that the Chancellor could overhaul ISA rules, though this seems more likely at the next Budget than in the Spring Statement, Holland expressed.
Some asset managers and City brokers are lobbying for measures to direct more investment into UK equities. This has fuelled concerns that cash ISAs could face restrictions, potentially capping them as a proportion of the overall allowance.
Hollands said: “Prior to July 1, 2014 the proportion of the ISA allowance that could be held in cash was limited to 50 per cent of the overall allowance.”
Although investing often delivers higher long-term returns, limiting cash ISA options could be a step backward by reducing choice for those who cannot or do not want to take investment risks.
Hollands warns that if cash ISAs are capped, “a reduction in cash ISA limits will just end up exposing more of their savings to tax in standard savings accounts—particularly with the personal allowances frozen and dwindling in real terms.”
He explained the bigger concern is whether Stocks & Shares ISAs could also be affected. The government’s interventionist approach might lead to tax incentives being used to funnel investment into UK businesses rather than global companies like Apple, NVIDIA, or Tesla.
Although the idea of a British ISA has been shelved, it opened the door to potential changes that could reshape the core ISA allowance to favour UK equities.
Historically, Personal Equity Plans (PEPs)—the predecessor to ISAs—were restricted to UK equities before rules were gradually relaxed. A return to similar restrictions on Stocks & Shares ISAs could be cheered on by those wanting to boost UK investment, but would be “bad news for the investing public.”
Potential Inheritance Tax Gifting Reforms
The Spring Statement could announce reviews of the inheritance tax gifting regime. Currently, various allowances enable people to make gifts immediately exempt from their estate for IHT purposes.
Significant gifts are treated as Potentially Exempt Transfers, becoming exempt if the donor survives seven years. Following the Chancellor’s IHT clampdown in the October Budget, the gifting regime could be next.
Hollands said: “Under the auspices of ‘simplifying’ this, we could see fewer options for enabling people to pass wealth on during their lives to mitigate IHT.”
Many clients are already drawing money from pensions they had planned to leave untouched, instead making lifetime gifts to children and grandchildren.
The Chancellor has been dealt another blow to her fiscal agenda as economy growth forecasts have been downgraded GETTY
Spending Cuts More Likely Than Tax Rises
According to Hollands, spending cuts appear more likely than tax increases in the Spring Statement. The Chancellor is constrained by Labour’s manifesto pledges not to raise income tax, National Insurance, VAT or corporation tax.
Hollands said: “The Chancellor should be well aware that the tax measures announced at the October Budget have had a chilling effect on the economy.”
With businesses now facing potential US tariffs, additional tax rises would be “very damaging.” Any tax changes are more likely to come through reviews and consultations announced in the Spring Statement.
These could lead to reforms at the next full Budget rather than immediate increases.