From Morningstar: 2025-03-26 10:40:00

Fiscal drag and National Insurance increases in April 2025 will push tax as a share of GDP to a record 37.7% in 2027/28, according to the Office for Budget Responsibility. The Spring Statement included revisions to economic growth and inflation projections, with taxation set to hit historical highs in the coming years.

The government’s existing plans project a record high tax burden, with tax as a share of GDP forecasted to rise from 35.3% to 37.7% in 2027/28. The increase is due to Autumn 2024 Budget changes and frozen tax thresholds leading to “fiscal drag”, pushing more into higher tax bands.

Chancellor Rachel Reeves confirmed the restoration of fiscal rules and plans to balance budgets by 2029/30. Despite global uncertainty affecting spending deficit reduction, Reeves aims for fiscal surpluses of £6 billion in 2027/8, £7.1 billion in 2028/29, and £9.9 billion in 2029/30.

UK GDP forecasts have been cut and then raised, with projections from the OBR showing a decrease to 1% in 2025 before increasing in subsequent years. Inflation is expected to average 3.2% in 2025, dropping to 2% by 2027 as energy prices fall and wage growth eases.

The Spring Statement did not address individual taxation directly, but the government is considering reforms to the ISA taxation regime to encourage investing in growth businesses. The focus is on balancing cash and equities in ISAs to boost returns for savers and support retail investment culture.

The Bank of England’s Monetary Policy Committee held interest rates at 4.5% in its latest meeting. Data suggests a potential rate cut in May, but uncertainty remains due to geopolitical factors and tariffs. The Bank’s next monetary policy report on May 8 will provide further clarity on future interest rates.



Read more at Morningstar: Spring Statement: Taxes to Hit Another Record High