Chancellor Rachel Reeves is set to deliver her Spring Statement 2025 on March 26, marking her second major fiscal announcement since taking office. Unlike previous governments, which often introduced two full budgets a year, Reeves has made it clear that Labour will stick to one Autumn Budget and a Spring Statement.

So, what’s the difference?

The Autumn Budget outlines the government’s spending plans, tax changes, and overall economic strategy. Some measures take effect immediately, while others roll out in the new calendar or tax year.

The Spring Statement, in contrast, is typically a smaller update – checking in on economic figures and government finances. However, in practice, these statements often include new measures, particularly when economic conditions require a response.

With the UK facing rising costs, tight public finances, and difficult tax choices, this Spring Statement 2025 could bring some significant policy shifts.

What’s Likely to Happen in the Spring Statement 2025?

Governments often leak policy ideas ahead of major statements to gauge public reaction. This time, two major themes have emerged:

1. Potential cuts to the benefits bill
2. Changes to the ISA allowance

These areas reflect the government’s limited financial wiggle room. Reeves has already increased some taxes in the Autumn Budget and appears reluctant to introduce further hikes or borrow more, as this could spook bond markets and increase repayment costs.

Potential Benefits Cuts

With public spending under pressure, the government is looking for areas where cost savings can be made. The benefits system is a likely target, though no firm plans have been confirmed.

Reducing benefit spending is politically sensitive, and any major cuts could spark controversy. However, given Labour’s commitment to fiscal responsibility, it may feel it has little choice but to tighten the budget.

Cash ISA Allowance Cut

One of the most important potential changes for savers and investors is the reported plan to cut the annual cash ISA allowance.

Currently, individuals can save £20,000 a year into ISAs, protecting those funds from income tax, capital gains tax, and dividend tax. Under the proposed changes, the amount that can be placed into a cash ISA may be reduced to just £4,000 per year.

The government has suggested two main reasons for this shift:

1. Encouraging Investment Over Savings
   The aim is to push more people towards stocks and shares ISAs, directing money into UK businesses and infrastructure projects rather than leaving it in low-interest cash savings.
2. Increasing Tax Revenue
   ISAs are a key tool for wealth preservation, particularly for those looking to shield assets from tax. With recent changes to pensions and inheritance tax, more individuals have been moving money from pensions into ISAs through a strategy known as ‘Bed and ISA’. Reducing the cash ISA limit would restrict this strategy, potentially increasing the government’s tax take over time.

Why This Matters

The financial industry has raised concerns about the impact of cutting the cash ISA allowance. Banks rely on cash ISA deposits to fund mortgage lending, and limiting these deposits could reduce lending capacity, potentially slowing economic growth.

For savers and investors, a lower cash ISA limit means less tax-free sheltering of savings. Those relying on cash ISAs for low-risk income in retirement may need to consider alternative options.

What Should You Do?

With no final decisions confirmed, it’s important to stay informed and be ready to act if changes do take place on March 26.

• If you regularly use your full ISA allowance, you may need to review your strategy and consider how best to structure your savings and investments.
• If you rely on cash ISAs, you might want to explore other tax-efficient options such as stocks and shares ISAs or other investment vehicles.
• If you have concerns about inheritance tax and pensions, now could be the time to speak to a financial adviser about how best to protect your wealth.

Which Key Changes Should You Look Out For

The upcoming Spring Statement 2025 may not be as wide-ranging as the Autumn Budget, but potential changes to benefits and ISAs could have a real impact on household finances.

With March 26 fast approaching, it’s worth keeping an eye on developments and considering whether any action is needed to protect your savings, investments, and tax position. If you’d like to discuss your options in more detail, get in touch for personalised advice.