- March’s Spring Statement could provide further clues on key Budget decisions for the chancellor
- The Office for Budget Responsibility (OBR) will update its economic forecasts
- Chancellor could provide an update on Cash ISA reforms and knock-on measures impacting Stocks and Shares ISAs
- Consultation on the future of the Lifetime ISA and a new ISA focussed on first-time buyers could be revealed
- AJ Bell continues to campaign for a Treasury commitment to pension tax stability in the form of a Pension Tax Lock
AJ Bell director of public policy, Tom Selby, says:
“Government absolutely insist that the Spring Statement will not contain any major policy announcements, with key tax and spending decisions confined to one annual Budget. Given the enormous volume of speculation and rumour ahead of last November’s fiscal set piece it’s a probably just as well – beleaguered taxpayers may well feel that even a single fiscal event is one too many.
“Last year’s March update saw relatively few headline-grabbing measures, although the government set the scene for the package of ISA reforms eventually announced at the Budget, signalled a commitment to higher defence spending and made changes to the Making Tax Digital regime affecting landlords and sole traders. Meanwhile the OBR’s update revealed it had wiped £23 billion from the projected tax take on capital gains tax.
“Although government has downplayed the significance of this year’s statement, economists will be watching the forecasts closely for signs of renewed pressure on the public finances which may need to be addressed in the Autumn. Likewise, government could provide updates on a number of changes in the pipeline, including reforms impacting ISA holders, so retail investors will be listening out for any announcement impacting the UK’s flagship investing products.
OBR forecast
“The Office for Budget Responsibility will provide an updated economic outlook, meaning their economists examine the latest data on inflation, the jobs market, house prices, interest rate expectations and other factors influencing the economy in order to produce a fresh forecast.
“Although Rachel Reeves is not expected to make any major announcements that move the dial on government spending or tax revenues, the forecast should give us a good steer on the health of the Treasury’s coffers, which in turn will inform the decisions taken at the next Budget.
“A weaker than expected forecast could trigger fresh speculation about future tax raids, although government will be very keen to avoid a repeat of last year’s Budget fiasco, when the chancellor briefed what appeared to be a dire economic warning to the media in order to lay the ground for a manifesto-breaking income tax hike. In the end it turned out to be a red herring, with the OBR document in the Autumn proving much less gloomy than many anticipated following Reeves’ remarks.
Cash ISA reforms
“In November the chancellor announced plans to cut the Cash ISA allowance to £12,000 for under 65s from April 2027, in an attempt to nudge more people toward investing. There’s little evidence to suggest the plan will work and government should instead be focussed squarely on simplifying the market to make it easier for ordinary people to navigate, providing flexibility for consumers, rather than adding friction in the form of new allowances and extra complexity. However, a climbdown feels extremely unlikely and it’s possible the government provides an update next week on the detail behind its proposals.
“The key question for investors is how HMRC plans to treat cash and cash-like assets held within Stocks and Shares ISAs.
“The simple fact is that cash passes through Stocks and Shares ISAs all the time. Contributions are made in cash, dividends are received in cash, fees are paid in cash, and risk-based assets have to be sold to create the cash for withdrawals.
“There are also good reasons for investors to de-risk before making a withdrawal. For example, someone saving for their children over a number of years hoping to help them through university might move a chunk of their portfolio over to cash as they near university age, to avoid short-term market movements disrupting their plans. If government took a heavy-handed approach toward investors holding that cash, parents would rightly be furious. Plenty of people invest to help children with education or house purchases in the future – especially in light of the fact government have shown they can, and will, make tweaks to student loan terms that hit graduates in the pocket – and it is just one of a number of examples of long-term investors having a perfectly valid reason for de-risking to cash for a period of time.
“The devil is in the detail and it remains to be seen exactly what approach government takes, but investors will be hoping that common sense prevails and government recognises it doesn’t need a sledgehammer to crack a nut.
Pension Tax Lock
“Despite two bites at the cherry, after fellow MPs rejected the Treasury’s first attempt to dodge the question, the Treasury comprehensively failed to deliver much-needed certainty for pension savers by rejecting calls to commit to a Pension Tax Lock last year.
“To avoid another round of pension tax speculation ahead of the Autumn, Reeves could still use the Spring Statement to head things off at the pass with a commitment to pension tax certainty in the near term at the very least. Given that the government has tasked the Pensions Commission with examining the long-term future of pension provision across the UK, it isn’t unreasonable to ask Reeves to pledge not to make any decisions on pension taxation at least until the Commission concludes.
“Failing to provide some certainty runs a real risk that each successive Budget will be met with the same doom loop of unbridled rumours about the fate of pension tax incentives, resulting in more people accessing their pensions for the wrong reasons.
“A commitment to pension stability would encourage retirement saving, giving people certainty that the government won’t foist extra income tax on their savings – either by curbing tax relief on contributions or reducing tax-free cash at retirement.
Lifetime ISA and a new first-time buyer ISA product
“A decision to replace the Lifetime ISA with a new ISA product aimed at first-time buyers was announced last year. The Spring Statement could be an opportunity for the chancellor to put some meat on the bones, hoping to show that it is backing first-time buyers alongside its aim to deliver 1.5 million homes this Parliament.
“That would likely see the government provide a blueprint of its plans, probably involving a consultation on the proposed new product and a roadmap for the future of the Lifetime ISA once it is superseded.
“Crucially, the Treasury must consider the best interests of those who currently are investing in a Lifetime ISA when devising a plan. It must be a priority to make it easy for these people to continue to buy a house with their Lifetime ISA if they want, or to transfer their investment to the new ISA product without incurring an additional 6.25% charge on their savings.
“Likewise, those using a Lifetime ISA as part of their retirement plan will need proper reassurances about what’s going to happen to the accounts and must not be disadvantaged by the government’s decision to replace them.
State pension
“Low income pensioners were promised that, from April 2027 when the full state pension is projected to exceed the tax-free personal allowance, nobody would pay tax if their only income came from the state pension.
“It was another announcement that came with little detail at the time and government will at some point need to confirm how it plans to implement the measure. Reeves may sniff an opportunity to talk-up the government’s continued commitment to the triple-lock, with the state pension set to rise almost 5% in April, so we could see some detail on the tax carve-out for those who rely solely on the state pension.
“Reeves confirmed shortly after last year’s Budget that some pensioners will not be faced with the administrative hassle of simple assessment tax returns. Collecting the little bits of tax owed from millions of pensioners was always going to be an administrative headache for the government and the Conservatives provided added political pressure with the promise of a ‘triple lock plus’ for pensioners in the form of a higher personal allowance for those over state pension age.”
Is a U-turn on student loans on the cards?
“Changes to plan 2 student loans announced last year have sparked a backlash and Prime Minister Keir Starmer hinted at this week’s PMQs that government wanted to look at making student loans fairer.
“Chancellor Rachel Reeves at last year’s Budget announced a controversial plan to freeze the threshold at which around 4 4 million graduates start paying off their student loan.
“The precise impact will depend on each individual and their own earnings, as well as future inflation over the next three years. But our estimates show that graduates could easily find themselves facing an additional £250 a year of payslip deductions by the time the threshold rises again in 2030.
“It’s unclear at this stage what government may do and whether it will impact plan 2 student loans or the other loans too. The levers they can pull would likely involve tweaking interest rates or repayment thresholds, or possibly a combination of the two. If that happens those with a student loan will be getting their calculators out to work out what impact it will have on their repayments and the lifetime cost of their student debt.”
