{"id":8295,"date":"2025-04-03T09:32:35","date_gmt":"2025-04-03T09:32:35","guid":{"rendered":"https:\/\/www.wealthtime.com\/advisers\/?post_type=blog&p=8295"},"modified":"2025-04-03T09:32:36","modified_gmt":"2025-04-03T09:32:36","slug":"spring-statement-a-summary-for-financial-planners","status":"publish","type":"blog","link":"https:\/\/www.wealthtime.com\/advisers\/blog\/spring-statement-a-summary-for-financial-planners\/","title":{"rendered":"Spring Statement – a summary for financial planners"},"content":{"rendered":"\n

For professional advisers only<\/strong><\/p>\n\n\n\n

It was well trailed ahead of the Chancellor\u2019s Spring Statement that it would not be a \u201cfull fiscal event\u201d and so would not contain any tax changes. The Chancellor had made it clear (and has re-iterated since) that there would be one Budget (full fiscal event) in a year \u2013 in the Autumn. She was true to her word.<\/p>\n\n\n\n

With the help of our friends at Technical Connection<\/a>, here is our summary of the key aspects of the Chancellor\u2019s Spring Statement.<\/p>\n\n\n\n

The economic background<\/strong><\/p>\n\n\n\n

The Chancellor presented her first Budget on 30 October, six days before the US presidential election. The world has changed considerably since that pre-Halloween day \u2013 as she has regularly remarked. Thanks largely to the result of that stateside election, the global economic outlook is unclear, whether the view ahead is measured in weeks, months, years or even hours.<\/p>\n\n\n\n

Last October\u2019s Budget was the first to be judged under the new set of fiscal rules introduced by Rachel Reeves and designed to give her more scope to borrow for public sector investment. The new rules, which were legislated for in January 2025, are currently:<\/p>\n\n\n\n

The so-called \u2018Stability Rule\u2019<\/strong><\/p>\n\n\n\n

To have the current budget at least in balance in 2029\/30 i.e. tax and other revenue should be equal to, or more than, day-to-day government expenditure. Borrowing would only be for capital expenditure.<\/p>\n\n\n\n

The latest projection from the Office for Budget Responsibility (OBR), in its new Economic and Fiscal Outlook<\/a> (EFO) puts the current budget for 2024\/25 \u00a360.7bn in the red, \u00a35.2bn up on its October 2024 projection.<\/p>\n\n\n\n

The so-called \u2018Investment Rule\u2019<\/strong><\/p>\n\n\n\n

For Public Sector Net Financial Liabilities (PSNFL) to be falling as a percentage of GDP by 2029\/30. This replaced the requirement for Public Sector Net Debt ex Bank of England (PSND ex BoE) to be declining as a percentage of GDP on the same five-year timescale. The OBR estimates that PSNFL for 2024\/25 will be 81.9% of GDP, 0.9% higher than for 2023\/24, but 0.2% of GDP below the OBR\u2019s October projection.<\/p>\n\n\n\n

The Chancellor\u2019s primary target is that \u2018stability rule\u2019 and it is this on which all the debate about her available \u2018headroom\u2019 \u2013 or lack of it \u2013 has been focused. At the time of the October Budget, the OBR projected in the EFO that the target would be met with a margin of \u00a39.9bn. However, at the time the OBR noted that Reeves\u2019 headroom was \u201c\u2026the third lowest of 28 forecasts since the OBR was established in 2010\u2026[and]\u2026 around one-third of the average headroom Chancellors have set aside against their fiscal targets over this period\u201d. The OBR estimated that the chances that the current budget would be in surplus by 2029\/30 were 54%.<\/p>\n\n\n\n

Source: Investing.com<\/a><\/p>\n\n\n\n

The OBR\u2019s EFO projections are based on a wide variety of assumptions and there have been some important changes between the October 2024 EFO and the March 2025 EFO. <\/p>\n\n\n\n

As a flavour:<\/p>\n\n\n\n

Assumption<\/td>October 2024<\/td>March 2025<\/td><\/tr>
GDP Growth 2025<\/td>2.0%<\/td>1.0%<\/td><\/tr>
GDP Growth 2026<\/td>1.8%<\/td>1.9%<\/td><\/tr>
CPI Inflation 2025<\/td>2.6%<\/td>3.2%<\/td><\/tr>
CPI Inflation 2026<\/td>2.3%<\/td>2.1%<\/td><\/tr>
LFS Unemployment 2025<\/td>4.1%<\/td>4.5%<\/td><\/tr>
LFS Unemployment 2026<\/td>4.0%<\/td>4.3%<\/td><\/tr>
Bank Rate 2025\/26<\/td>3.9%<\/td>4.0%<\/td><\/tr>
Bank Rate 2026\/27<\/td>3.6%<\/td>3.8%<\/td><\/tr>
Weighted average gilt yield 2025\/26<\/td>4.1%<\/td>4.5%<\/td><\/tr>
Weighted average gilt yield 2026\/27<\/td>4.3%<\/td>4.7%<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n
<\/div>\n\n\n\n

Most of these have changed in an unfavourable direction. However, the OBR has accepted that the planning reform will give a boost to growth and for the three years from 2027 assumed that GDP will grow by 0.2% a year faster than it did in October. The OBR thus remains more optimistic about growth than the Bank of England and virtually all independent forecasters.<\/p>\n\n\n\n

Without the measures announced in the Spring Statement, the OBR calculated that Reeves\u2019 headroom would have flipped from a \u00a39.9bn current budget surplus in 2029\/30 to a \u00a34.1bn deficit. However, the Chancellor has recovered that \u00a314bn by the measures revealed in her Statement. The bottom line is that once again she has \u00a39.9bn of headroom going into the Autumn Budget 2025. Also, for a second time, the OBR has also calculated that there is just a 54% chance that the current budget will be in surplus by 2029\/30. It also notes that \u2018\u2026a significant increase in headroom would be needed to materially increase the probability that a fiscal mandate will be met, given the inherent uncertainty in any economic and fiscal forecast.\u201d<\/p>\n\n\n\n

Successive forecasts for headroom against fiscal targets<\/strong><\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

<\/p>\n\n\n\n

<\/p>\n\n\n\n

Measures and announcements<\/h2>\n\n\n\n

In her speech, the Chancellor said, \u201cAs I promised in the autumn, this Statement does not contain any further tax increases\u201d However, with a \u00a314bn 2029\/30 gap to fill, that meant a variety of other financial measures, many of which had been the subject of intense pitch-rolling in the last fortnights. These included:<\/p>\n\n\n\n

Government running costs<\/strong><\/p>\n\n\n\n

The October 2024 Budget envisaged annual real growth in day-to-day government spending for 2025\/26-2029\/30 of 1.3% a year. This will now be cut to 1.2%, with the consequences due to emerge in the Spending Review published on 11 June. Given the protections provided to some departments\u2019 spending, such as health and defence, there could be real terms reductions in unprotected departments.<\/p>\n\n\n\n

All departments will be expected to reduce their administrative budgets by 15% by the 2030 which, if achieved, is projected to yield \u00a32.2 billion a year.<\/p>\n\n\n\n

Welfare<\/strong><\/p>\n\n\n\n

Cuts to welfare worth \u00a35bn were trailed by Liz Kendall last week, but no impact assessment was produced at the time. We now know why. First, the OBR has scored the initial proposals as only producing savings of \u00a33.4bn by 2029\/30. Secondly, the impact assessment<\/a> revealed that there would be an additional 250,000 people (including 50,000 children) in relative poverty after housing costs in 2029\/30. The measures are:<\/p>\n\n\n\n