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 a yearly increase of £1,000. Unlike the Budget, the Spring Statement did not introduce significant tax or policy alterations, as the Chancellor committed to conducting one major fiscal event annually. However, the Spring Statement can impact future tax and expenditure decisions based on the Office for Budget Responsibility’s latest economic forecast, providing insight into the country’s financial status.
Additionally, it is essential to note that forthcoming changes affecting pensions, taxes, and savings that were previously disclosed are still pending implementation. No modifications to personal taxes were declared during the Spring Statement, but many individuals are poised to encounter increased tax burdens over the upcoming years due to measures unveiled in last year’s Autumn Budget.
In the Budget, the Chancellor prolonged the freeze on tax thresholds until April 2031, resulting in fiscal drag, where a larger portion of income is taxed at higher rates with rising wages. The current personal allowance is set at £12,570, with a 20% basic tax rate applied to earnings surpassing this threshold and a 40% higher tax rate on earnings exceeding £50,270. An additional 45% rate is applicable to earnings beyond £125,140.
Pensions remained untouched in the Spring Statement, but significant changes previously announced by the Government are forthcoming. The state pension will rise by 4.8% from April in line with the triple lock, increasing the full new state pension from £230.25 to £241.30 weekly. Moreover, a new £2,000 annual cap on pension contributions through salary sacrifice schemes was revealed to commence in April 2029, subjecting contributions above this threshold to National Insurance.
Furthermore, inherited pensions will become subject to Inheritance Tax from April 2027, included in the estate of deceased individuals. The Spring Statement did not introduce any new adjustments affecting savings. However, a reduction in the annual cash ISA limit for under-65s from £20,000 to £12,000 starting April 2027 was confirmed in the previous Budget.
While maintaining the overall £20,000 ISA limit, individuals will be able to allocate £12,000 to a cash ISA and £8,000 to a stocks and shares ISA. The tax-free savings interest in an ISA contrasts with the increased tax rate on savings interest from April 2027, affecting accounts outside ISAs.
Basic-rate taxpayers can earn up to £1,000 in savings interest tax-free, with a 22% tax rate applying to earnings exceeding this threshold from April 2027. Correspondingly, higher-rate and additional rate taxpayers will see an increase in tax rates on savings interest. No updates on benefits were disclosed in the Spring Statement, but changes previously announced, such as the removal of the two-child benefit cap and Universal Credit increase, are set to take effect this April.
Welfare payments, including the Universal Credit standard allowance, will rise above the inflation rate. The Motability scheme is being restructured to exclude luxury vehicles. Fuel duty adjustments were not addressed in the Spring Statement, with the current 5p per litre reduction extended until August 2026. Subsequently, rates will gradually revert to March 2022 levels by March 2027, potentially affecting pump prices.
Moreover, the Chancellor did not propose any alterations to tobacco or alcohol duty in the Spring Statement. Nevertheless, previous increases in tobacco and alcohol duty aligned with inflation were noted. The Spring Statement did not introduce changes to facilitate property ownership. However, plans were confirmed in the Budget to revamp the Lifetime ISA, offering a 25% savings bonus with a £4,000 annual contribution limit.
Accessing funds from a Lifetime ISA for purposes other than a first home or retirement incurs a 25% withdrawal penalty. The scheme is exclusively available for properties valued under £450,000.