UK Spring Statement 2025
Implications for Local Economies and Taxation
In the recent UK Spring Statement 2025, Chancellor Rachel Reeves outlined several key measures that aim to close the tax gap and support economic growth. But what do these changes mean for local economies and businesses?
Closing the Tax Gap
A major focus of the Spring Statement was on reducing the tax gap – the difference between the tax that should be paid and what is actually collected.
One key announcement was the increase in late payment penalties for VAT taxpayers and income tax self-assessment taxpayers, starting in April 2025. This coincides with these taxpayers moving into the Making Tax Digital (MTD) system.
This change is designed to encourage compliance and reduce the financial losses the government incurs due to late payments. For businesses, this underlines the importance of keeping accurate and timely financial records to avoid penalties.
Economic Growth Initiatives
The government introduced several new initiatives to encourage economic growth, particularly in deprived regions.
The Spending Review 2025 outlines substantial funding to support community cohesion, regeneration and improvements to public spaces in up to 350 deprived communities across the UK. This funding is part of a broader approach to tackle regional inequalities and promote local economic development.
A new local growth fund has also been created, providing a 10-year capital settlement from 2026-27 to 2035-36. This fund is targeted at mayoral city regions in the North and Midlands, identified as areas with strong potential for productivity improvements and economic clustering.
Accompanying this fund are record investments in local transport networks and changes to policy assessment tools, such as the Green Book, aimed at stimulating economic activity in these parts of the country.
Devolution and Local Leadership
The Spring Statement reinforced the government’s commitment to English devolution.
Support for new mayoral strategic authorities is being delivered through the Devolution Priority Programme, enabling more areas to benefit from direct and accountable local leadership.
By 2026-27, integrated funding settlements will be expanded to London and introduced in the North East, West Yorkshire, South Yorkshire and the Liverpool City Region. These settlements will give mayors in these areas control over a single, flexible budget to address priorities related to growth and public services.
This reform will impact almost 40 percent of the population in England, giving local leaders more freedom to tailor spending based on local needs.
Tax Implications for Businesses
Although no new tax increases were announced, several pending changes to existing tax rules could affect businesses.
Notably, Capital Gains Tax (CGT) rates will rise from April 2025. Entrepreneurs and investors intending to sell assets should plan accordingly.
In addition, there will be an increase in the after-tax effective rate of relief for certain costs – from 20.4 percent to 29.25 percent for qualifying expenses incurred from 1 January 2025. This could have a significant impact on how businesses manage their costs and plan their tax strategies.
Fiscal Vulnerability and Local Subsidies
The question of subsidies and tax-free allowances creating fiscal vulnerabilities in certain regions is complex.
While subsidies can provide short-term relief and spur local economic activity, they can also pose long-term risks if they lead to over-reliance or mask underlying fiscal weaknesses.
Regions that depend heavily on such support may face difficulties if government priorities shift or during times of economic challenge.
Therefore, it is vital that local authorities and businesses work to diversify revenue sources and support sustainable local growth strategies.
The government’s emphasis on devolution and local growth funding is a positive move towards empowering local leaders to shape economic strategies that reflect regional strengths and needs.
Conclusion
The UK Spring Statement 2025 introduces important changes across taxation and economic development policy.
As businesses and local economies respond, staying informed about these developments will be essential.
At Cutts and Co Accountancy, we are dedicated to supporting our clients through these shifts, offering guidance and expertise tailored to your specific needs.
Understanding the implications of new tax rules, economic investments and devolution strategies can help your business thrive in a changing environment.
If you have questions or require advice on how these measures may affect you or your business, do not hesitate to contact us.
