Having committed to holding only one major fiscal event per year, Chancellor Rachel Reeves was meant to deliver a low-key Spring Statement. But after the Office for Budget Responsibility (OBR) slashed its growth forecast just hours earlier, she was forced to go further than expected with spending cuts. Here, we look at what her announcements (and in some cases, lack of them) mean for your personal finances.
Welfare cuts
In the most dramatic move of the day, Reeves expanded her cuts to benefits after the OBR said the reforms she announced last week would save £3.4 billion, not £5 billion. The universal credit health element will now be cut by 50 per cent and frozen for new claimants rather than rising in line with inflation.
Meanwhile, the universal credit standard allowance will increase from £92 per week in 2025-26, to £106 per week by 2029-30. It had previously been expected to rise to £107 per week by that year.
You can keep your Cash ISA allowance, for now
There has been much speculation about potential changes to ISAs, such as cutting the Cash ISA tax-free allowance of £20,000, but these failed to materialise. The plans have been pushed rather than cancelled, as a document published after Reeves’ speech confirmed the government is exploring options to overhaul ISAs to encourage more Brits to invest.
No changes to pensions
There were also no changes made to pensions, so savers still trying to work out last year’s taxation announcements can breathe a sigh of relief. The Chancellor has made clear that major announcements on tax will be kept for the Autumn Budget from now on, so for now there is some breathing room for those planning for retirement.
Mortgage rates to stay high
Homeowners will be facing higher mortgage payments for longer than expected. The OBR said that interest rates on mortgages will go up from 3.7 per cent in 2024 to 4.7 per cent in 2028, then stay there in 2029. This compares to a prediction of 4.5 per cent in the October budget.
The OBR looks at the rate that everyone who currently has a mortgage is paying, rather than the cheapest new deals on the market. This figure was certain to go up in some form, as a third of borrowers are still paying super-low 2021 interest rates. However, they will stay higher for longer because of sticky inflation.
Taxes hit new record high
It’s more depressing news on taxes, with the OBR saying they will reach a post-war record high by the end of this parliament. It forecasts that by 2027-28, tax as a share of GDP (a measure of the size of the economy) will have reached 37.7 per cent. This is up from 35.5 per cent in 2023-24. In the 1990s this figure was under 29 per cent.
Measures set out by Reeves in her October budget, which were left untouched today, have driven taxes higher. Then, the chancellor increased the main rate of employers’ national insurance contributions to 15 per cent from 13.8 per cent and cut the earnings threshold where the levy kicks in to £5,000 from £9,100.
The measures, which begin on April 6, mean a £25 billion tax increase on UK businesses. Income tax thresholds being frozen for several years – which drags more people into higher tax bands – are also contributing to the higher tax burden.
