The government’s last Budget contained a number of tax changes that have already impacted many small businesses. What can we expect from the upcoming Spring Forecast?
What is the Spring Forecast?
While the government has committed to only one fiscal event per year – with the next Budget taking place in the autumn – there will be an economic and fiscal forecast on 26 March. This will be published by the Office for Budget Responsibility (OBR), and followed by a statement to parliament from Chancellor Rachel Reeves.
This Spring Forecast isn’t supposed to contain any policy announcements on tax and spending changes. But with high borrowing costs and low economic growth causing extra pressure, the government may be forced to change tactics.
At the very least, the OBR’s forecast will explore the country’s financial prospects in greater detail and possibly hint at further changes to expect in the next budget.
How could the Spring Forecast affect SMEs?
Lower growth forecast
While the OBR won’t publish its official statement until March, there have been leaks claiming that the organisation has downgraded the UK’s growth forecast from the two per cent announced at the last Budget.
This would wipe out £10 billion of parliamentary budget that Rachel Reeves expected to be able to use, and might force the Chancellor to either raise taxes or cut spending further. Both of these options will be politically difficult, as the government claimed in their manifesto that they wouldn’t increase taxes for working people. If businesses have to pay higher taxes, it will make it harder for them to grow too.
The Bank of England has also halved its growth expectations for the UK, saying it will only increase by 0.75 per cent in 2025.
Inflation and interest rates
The Bank of England did cut interest rates this month – to 4.5 per cent, the lowest since June 2023. After years of worryingly high interest rates impacting borrowing costs and slowing consumer spending, seeing these slowly reduce from worryingly high levels is promising news for small businesses.
But Andrew Bailey, the Governor of the Bank of England, has been cautious about interest rates dropping too quickly – especially given the fact that inflation has remained high and growth forecasts aren’t as positive as the government had hoped.
The next decision for the Bank of England base rate will happen on 20 March, just before the Spring Forecast.
Autumn Budget changes – more details to come?
A number of changes from the Autumn Budget are set to seriously impact small businesses, including higher employer National Insurance contributions and the increase in the national living wage. Business rates for retail, hospitality, and leisure relief will also reduce from 75 per cent to just 40 per cent, with all these changes coming into force in April.
But the government has promised to permanently cut business rates for retail, hospitality, and leisure properties from 2026 – we could hear more about this plan in the Spring Forecast and future Budgets.
More useful guides for small businesses:
- What is business insurance?
- What does a Labour government mean for small businesses?
- Business tax: A guide for small businesses
- How to do a Self Assessment tax return – the complete guide