On 16 December 2024, it was announced by the Treasury that the chancellor had commissioned the Office for Budget Responsibility (OBR) to prepare an economic and fiscal forecast (which they described as a ‘Spring forecast’) to be presented to Parliament alongside a ‘Statement’ from the chancellor on 26 March 2025. The OBR has to publish two forecasts every year by law.
The chancellor and the Treasury have been clear that there will only be one full fiscal event each year, “to give families and businesses stability and certainty on upcoming tax and spending changes”.
With the clarity of that commitment – and the fact that the October 2024 Budget announced £40bn in tax rises and £70bn in spending policies – the expectation, understandably, would be that no further tax increases will be announced.
However, it appears that high borrowing costs and low economic growth have already wiped out the Government’s £9.9bn ‘fiscal headroom’, according to reports from Bloomberg earlier this month. And that’s without factoring in any accelerated increase in defence spending that may need to be factored in.
As a result, speculation is rising as to whether the chancellor will need to reassess this stance.
We shall see if protests by farmers have had any effect on the chancellor
She told a recent CBI conference that there would be no more tax rises on the scale of the Autumn Budget, but she was then forced to row back on that statement by the prime minister – leaving it open for more tax increases in 2025.
So, what could these be? Let’s consider theory first.
There has been a lot of pushback on the changes in national insurance contributions (NICs) announced in the Budget, especially by employers. The chancellor’s statement is 11 days before the 6 April 2025 rise in employers’ NICs. So, in theory at least, some NIC change could be made.
One way could be via an increased Employment Allowance, or perhaps a higher threshold before employers’ NICs become payable. But given the proximity to the start of the tax year and importance of the extra NIC to government finances, this seems unlikely.
There is also an opportunity to offer (or at least consider offering) the business and farming communities some respite from the impact of the April 2026 reductions in inheritance tax reliefs, perhaps by increasing the proposed £1m limit on business property and agricultural property relief.
Rate of employer National Insurance contributions raised to 15%
We shall see if protests by farmers have had any effect on the chancellor. To date, the government has been unmoved by these, so any change seems unlikely, although the business relief and agricultural relief provisions will be included in a future finance Bill (they are not included in the Bill currently passing through Parliament).
In practice, however, a more likely tax change, if there is to be one, may be a continuation of the freeze on income tax thresholds and allowances beyond 5 April 2028.
The move was apparently considered by the chancellor in her October 2024 Budget, but she decided against it. The freeze in income tax thresholds and allowances began in April 2022, meaning that a move to continue the freeze would extend it beyond the currently planned six years.
The IFS have said freezing income tax thresholds from 2028-29 onwards would bring in roughly £3.5bn-£4bn a year if inflation is at 2% or more and national insurance thresholds are frozen.
Ahead of the October 2024 Budget, the Government briefed that continuing a freeze on thresholds, which began under the Conservatives, would not breach Labour’s manifesto pledge not to raise income tax.
A freeze on income tax thresholds was apparently considered by the chancellor in her October 2024 Budget
Paul Johnson, the current head of the IFS, said that it would be “relatively politically painless”, given that the chancellor could announce the change now but reverse it later if the economy improves.
An announcement of the freeze could allow the OBR to include the measure as a positive for the public finances later in the parliament, but would not require immediate legislation.
In November, the chancellor told the Treasury select committee: “We have now set the envelope for spending for this parliament. We are not going to be coming back with more tax increases or more borrowing.”
Let’s see.
Tony Wickenden is the founder of Technical Connection
