Chancellor Rachel Reeves presented the Spring Statement 2025 on 26 March, providing an update on the UK’s economic health and outlining future fiscal plans. While not a full Budget, this mid-year statement offers insights into government priorities that are crucial for UK small business owners.
Current economic climate and its impact on small businesses
The Spring Statement highlighted a slowdown in economic growth, with the Office for Budget Responsibility (OBR) revising the 2025 GDP growth forecast down to 1%, a significant decrease from the previously anticipated 2%. This deceleration suggests a more challenging environment for businesses, potentially leading to reduced consumer spending and investment.
On a positive note, inflation, as measured by the Consumer Price Index (CPI), decreased to 2.8% in February 2025, down from 3% in January. Additionally, real household incomes are projected to grow at twice the rate expected in the autumn, with disposable incomes increasing. The OBR estimates that individuals will be over £500 better off annually under the current government. For small businesses, this could translate into improved consumer confidence and spending.
Future economic outlook
Looking ahead, the government aims to stimulate economic growth through various reforms. The Chancellor announced upgraded GDP growth forecasts: 1.9% in 2026, 1.8% in 2027, 1.7% in 2028, and 1.8% in 2029.
Key announcements affecting small businesses
- Tax and compliance: The government is investing in HMRC’s debt management capacity, recruiting additional compliance staff, and expanding the rollout of the “Making Tax Digital” initiative to include a wider range of smaller businesses. These measures aim to ensure more individuals and businesses pay the taxes they owe and make it easier for taxpayers to comply.
- Late payment penalties: Starting in April 2025, penalties for late VAT and income tax self- assessment payments will increase. The new rates are 3% of the tax outstanding balance if overdue by 15 days, an additional 3% at 30 days, and 10% annually from day 31 onward. This highlights the importance of timely tax compliance to avoid increased fines.
- National Living Wage (NLW): From April 2025, the NLW will rise from £11.44 to £12.21 per hour for employees over 21. For employees aged 18 to 20, the National Minimum Wage will increase from £8.60 to £10.00 per hour. The apprentice wage will also see an increase from £6.40 to £7.55 per hour.
- Employment Allowance: The Employment Allowance is set to rise from £5,000 to £10,500. This increase is designed to help small businesses offset the cost of higher national insurance contributions.
- Construction sector support: The government is allocating £100 million to fund 35,000 additional training places in construction-focused ‘Skills Bootcamps’. An additional £40 million will support up to 10,000 more young people in accessing new construction ‘Foundation Apprenticeships’, addressing skills shortages in the industry.
Upcoming changes effective from April 2025
It’s essential for small business owners to be aware of several significant changes taking effect from April 2025:
- Employer national insurance contributions (NICs): The rate will increase from 13.8% to 15%.
- Late payment penalties: As mentioned, penalties for late VAT and income tax payments will rise.
- Capital gains tax: The rate on the sale of shares will increase from 20% to 24%, unless the sale qualifies for Business Asset Disposal Relief (BADR) – previously known as entrepreneur relief. The rate for the sale of shares qualifying for BADR is also set to increase from 10% to 14% on 6 April 2025, and then to 18% from 6 April 2026.
Business community response
Many small business owners had anticipated more direct support from the Spring Statement. With impending increases in national insurance contributions and statutory wage rates, concerns about rising operational costs are prevalent. Research indicates that a significant number of business leaders are apprehensive about meeting payroll costs, and there has been a notable reduction in hiring plans and employee hours.
Conclusion
While the 2025 Spring Statement introduces some measures aimed at fostering economic growth and stability, UK small businesses must navigate a landscape of increased operational costs and compliance requirements. Proactive financial planning and staying informed about policy changes will be vital for businesses to adapt successfully in the evolving economic environment.
