The Chancellor’s Spring Statement: How will it impact me?

With the double-whammy that some of October’s announcements only came into effect this April, we recap the main announcements from the Spring Statement, and the Autumn Budget adjustments coming into effect now, which have implications for UK workers, employers, contractors, small business owners, and limited companies.

Increase in Employer’s National Insurance Contributions

The Spring Statement confirmed an increase in employer’s National Insurance Contributions (NICs) this month by 1.2 percentage points to 15%, while the threshold at which employers begin paying NICs will be lowered from £9,100 to £5,000 per year. ?

Implication: While conforming to the chancellor’s pledge not to not increase direct taxes on working people, increased employment costs are likely to impact operational expenses, margins, and workforce decision. The full results will only become clear over the next few months, with the hope that projected growth across the markets, economy and business sectors will counteract negative effects.

Employment Allowance Adjustment

To mitigate the impact of increased NICs, Employment Allowance is rising from £5,000 to £10,500, meaning that approximately 865,000 employers will not pay any NICs over the next year. ?

Implication: This measure offers some relief to small businesses by reducing their NIC liabilities, partially offsetting the additional costs from the NIC rate increase.?

National Minimum Wage Increase

The National Minimum Wage increased from 1st April:

• Age 21 and over: increasing from £11.44 to £12.21 per hour (67% increase)
• Age 18-20: increasing from £8.60 to £10.00 per hour (16.3% increase)
• Age 16-17 and Apprentice: increasing from £6.40 to £7.55 per hour (18% increase)

Implication: While this enhances employee earnings, with approximately three million workers expected to gain an annual pay rise averaging £1,400, it also imposes additional payroll costs on businesses, who may need to budget accordingly.?

Business Rates Relief

The Chancellor confirmed retail, hospitality, and leisure sectors will now receive 40% relief on business rates, down from the 75% relief rate introduced to counteract the effects of the pandemic.

Implication: UK hospitality businesses had lobbied hard for this decision, announced in October, to be reconsidered, in light of increases in the national living wage and employer NICs. The announced government intention to reform the current business rates system has been greeted with cautious optimism, however no details of any proposed changes are likely to surface until the next budget this autumn, leaving hospitality businesses facing a “triple whammy” of increased costs.

Capital Gains Tax Increase

The lower rate of Capital Gains Tax (CGT) will increase from 10% to 18%, and the higher rate from 20% to 24%. ?

Implication: Leading to higher tax liabilities on gains, this could affect the decision of business owners considering selling assets or shares help offset higher running costs.

Welfare Cuts

In some of the biggest, and most highly debated, new changes announced in the spring statement, Rachel Reeves confirmed cuts of approximately £5 billion to the welfare budget, and tightening of qualifying criteria for support like Personal Independence Payments (PIP).

Implication: According to the government’s own analysis, more than 3 million families will lose an average of £1,720 a year in real terms, with an extra 250,000 people falling into relative poverty by 2029-30, including 50,000 children, raising the number of people living in relative poverty to nearly 14.5 million, impacting businesses by reduced spending capacity.

Departmental Spending Cuts vs Investments in Defence and Construction

4.7% reductions are planned in government departmental spending, and a 10% reduction in civil service jobs. An additional £2.2 billion will be invested in the defence sector, and £600 million allocated to train up to 60,000 construction workers over the next four years, to help the government’s stretching housebuilding targets. ?

Implication: Potentially leading to reduced public services and support, austerity measures may also affect businesses that rely on government contracts or services.? However, investment should create opportunities for contractors and businesses in defence, construction and building supplies industries.

OBR Forecasts: Bright or Gloomy?

Read together, the combined implications of the post-spring statement look somewhat sombre. Designed to reduce the high cost of government borrowing, plug gaps and grow the economy, does the chancellor’s commitment to ‘fiscal prudence’ look likely to deliver the long-term benefits for business and workers?

Created in 2010 to provide independent and authoritative analysis of the UK’s public finances, the OBR (Office for Budget Responsibility) has published the following predictions in light of the spring statement:

• Halving growth forecasts for 2025 from 2% to 1%, it upgraded its growth forecast for all remaining years of the current government, with GDP growth of 1.9% in 2026, 1.8% in 2027, 1.7% in 2028 and 1.8% in 2029.
• Inflation fell in February to 2.8% from 3% in January. OBR forecasts show consumer price inflation will average 3.2% this year before falling “rapidly” to meet the Bank of England’s 2% target from 2027 onwards.
• Average real household income will grow this year at twice the rate expected last autumn. Compared with the Conservatives’ final budget, the OBR says people will be more than £500 a year better off, even factoring in inflation.
• The Chancellor states that without the measures announced, the budget would have been in deficit by £4.1 billion. Instead, the government could see headroom increased to a surplus of £6 billion in 2027-28, and £9.9 billion in 2029-30.

In summary, “no gain without pain” could be a refrain for this budget. Calculating the right level of “pain” to plug undeniable public finance deficits and limit costly government borrowing, without weakening the economy’s immune system too far, is a fine art, especially in today’s far more volatile global political and financial climate. The Spring Statement has introduced measures that will increase operational costs for businesses through higher wages and NICs, but also provides some tax relief and potential long-term optimism.

However choppy, changeable and confusing the financial climate, ICS Accounting are on your side, to assist with all your tax, pay and accounting queries, leaving you free to concentrate on what you do best. Whatever the size of your business or workforce, from sole trader to Limited Company, you can start with a welcoming, no-obligation chat to talk through your options. Simply call our friendly team on 0800 195 3750 or email info@icsuk.com.