What Does the UK Chancellor’s Spring Statement Mean for Small Businesses?

The annual Spring Statement celebrates its seventh birthday this year. Ever since the traditional Spring budget and Autumn statement were reversed by Theresa May’s chancellor Philip Hammond in 2018 the alliteratively satisfying Spring Statement has served as the nation’s primary measure of economic health and a chance for any potentially necessary course correction in matters of tax and spend accordingly.

This year’s statement, delivered on Wednesday 26th March, grabbed the headlines for the government’s announced cuts to the benefits system, designed to reduce overall welfare spending, but behind these big soundbites for reporters and journalists there was plenty more to digest for UK businesses. In this post we’ll take a quick look at the key takeaways from Rachel Reeves’ first Spring Statement and assess the implications for small businesses.

Economic State of Play: Forecasts and Projections

It’s no secret that the government’s primary mission (repeated ad nauseum for the past 12 months) is to bolster economic growth. Consequently the Office for Budget Responsibility’s (OBR) deflating growth forecasts will have disappointed the Chancellor, even if she tried her best to put a positive spin on the figures. 

In short the OBR revised its GDP growth projection for 2025 downwards, from 2% to 1%, with more modest improvements forecasted over the following four years. Meanwhile inflation managed to reduce slightly, according to Office for National Statistics (ONS) figures, as the consumer prices index (CPI) went from 3% to 2.8% driven largely by a slowing in the rise of the cost of clothing.

Perhaps most positively, real household disposable income per capita is expected to rise by 2.6% over the current parliament, compared with its dropping by 1.74% over the previous parliament. This suggests the possibility of confidence returning to consumers and a potential boost to spending power which would benefit businesses across the board. This positive news however will be tempered by yet more increases to ever rising utility bills, so don’t start popping the Sussex sparkling wine just yet!

The Tax Burden

One of the biggest incoming changes to the tax system that will have a significant impact on businesses is the previously announced rise in Employer’s National Insurance Contributions (NICs), from 13.8% to 15%, whilst the NIC liability threshold will be slashed from £9,100 to £5,000. Though there have also been changes to Employment Allowance designed to provide additional support to businesses with an increased National Insurance liability, the reality is that most businesses will face an increased payroll bill from April onwards, particularly as the NIC rate rise coincides with an increase to the national minimum wage from £11.44 to £12.21 per hour for anyone over the age of 21.

Detractors have claimed this double whammy of increased costs for staffing will disproportionately impact smaller firms no longer able to operate profitably with their existing workforce or unable to recruit in order to grow or even simply remain competitive. There’s no denying it’s a sizeable increase in the tax burden for any business with a roster of permanent PAYE staff and its impact on treasury receipts has to be measured against the jobs that will invariably be lost, or never created in the first place, because of it.

Business Rates

When we conducted our Sussex business survey last year, 32% of respondents claimed reform was needed to the current business rates system. Have the government listened? We’re still waiting is the short answer. The previously announced reduction in rates relief for retail, hospitality and leisure businesses will come into effect next month as planned and no further measures to reform business rates were announced, despite previously being teased by Reeves. 

The hospitality industry’s Morning Advertiser projects that this rate relief reduction (from 75% down to 40% relief) alongside the increase to staffing costs outlined above will burden an already struggling sector with an additional £3.4bn in tax, almost certainly leading to the shuttering of more pubs and restaurants struggling to remain solvent.

Though no new measures were announced there is still hope that the ongoing government review of business rates means that more serious business rates reform will form part of the budget for 2026/27.

What Else Was Announced?

Perhaps fearful of the event turning into a dreaded “mini budget”, a term forever tainted by Kwasi Kwarteng’s disastrous economy crasher in September 2022, Reeves didn’t really deviate from the expected script and there was little in the Spring Statement to really raise eyebrows given most measures had already been previously announced or leaked in advance. However it’s worth highlighting the following changes:

Late payment penalties: Interest charged to late payment of tax and NI is increasing from the base rate of interest plus 2.5% to base rate plus 4% whilst penalties for late payment of VAT will also increase, rising to as high as 10% per annum on payments overdue by over 31 days.

Making Tax Digital (MTD) updates: Though not an immediate change, the chancellor announced that more of the self-employed would be required to submit quarterly tax updates online, depending on circumstances, from 2028 onwards. This is actually a delay to previously announced proposals so in effect reduces the immediate compliance burden to those affected by the planned changes. You can find more specific info on gov.uk. 

Sector specific support: There will be new support for the construction industry aimed at training more workers to help the new national home building efforts. Meanwhile with so much of the proposed new tax take being spent on defence (thanks Putin), the chancellor promised to make more MoD contracts accessible to small businesses.

In Summary

Let’s be honest this hasn’t been brilliant for small business owners, squeezed like so many other sections of society, but there have at least been no last minute bombshells dropped. The spending review in June might offer more leeway to open the door for future support to UK SMEs, otherwise all eyes will be on the chancellor’s second budget in Autumn. Growth will need to be more than just a government buzzword by this point.