Rachel Reeves (Image: DX)
Rachel Reeves faces a pivotal moment in her Chancellorship this week. When she stands at the despatch box to deliver her highly anticipated Spring statement on Wednesday, she will need to produce some kind of alchemy with the Treasury’s dwindling coffers.
As one former Treasury minister infamously once noted, “there is no money”. Rachel Reeves' ￡40 billion tax-raiding nightmare Halloween budget has stifled economic growth, shattered business confidence and created a jittery jobs market. Not to forget the impact of her cuts to winter fuel payments on pensioners and the inheritance tax hammerblow to farmers.
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Following a grim winter, households are also bracing themselves for bill hikes across the board starting next month, with energy, water and council tax all set for huge increases.
While “Awful April” is set to affect millions of homes, small businesses are also preparing themselves for much bigger bills.
In the Autumn Budget, the Chancellor focused on improving growth and investment in the economy but that cash has to come from somewhere.
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And small businesses are set to bear a heavy burden, with changes to National Insurance, minimum wage and other taxes.
The Chancellor has ruled out tax cuts and she has rejected calls by some MPs for her to change her “iron-clad” fiscal rules to balance the books.
All this points to brutal spending cuts which could even surpass George Osborne’s austerity-era blitz.
Ms Reeves is attempting to fill a hole of between ￡15 billion and ￡20 billion in the public finances after the Office for Budget Responsibility, the fiscal watchdog, downgraded its growth forecasts.
In October’s budget the Chancellor pencilled in an average 1.3 per cent increase in departmental spending from 2026-27 onwards.
She is expected to reduce this to about 1 per cent in an effort to balance the books.
The Institute for Fiscal Studies has estimated that reducing it to 1.1 per cent would save roughly ￡5 billion a year by the end of this parliament.
The detail of where the cuts will fall will be left to the spending review in June.
However, unprotected departments - those outside the Department for Health and Ministry of Defence - have been told to expect cuts of as much as 11% to their budgets.
The scale of the cuts led to a cabinet revolt last week, when ministers raised concerns that it would hinder their ability to deliver on the government’s priorities.
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Those raising concerns included Ed Miliband, the energy secretary, Yvette Cooper, the home secretary and Shabana Mahmood, the justice secretary.
Ms Reeves will seek to attempt to blame much of the gloomy economic outlook on the worsening global economic outlook since Donald Trump began imposing strict tariffs.
But the recent economic downgrades are embarrassing for the Prime Minister and Ms Reeves, who have repeatedly said in public that growth is their "number one priority" in office.
Critics point the finger at Labour's decision to increase taxes by ￡40billion in October in what was the largest tax-raising Budget in decades.
Ms Reeves's decision to raise National Insurance on businesses has been directly blamed for Britain's worsening economic prospects.
Surveys have shown business confidence plummeted before Mr Trump took office, with the British Chambers of Commerce finding two thirds of firms were concerned about the tax burden by early January.
Shadow Chancellor Mel Stride has branded the Chancellor a “growth killer” by raising taxes to record highs and burdening businesses with extreme employment legislation.
Last month, the Bank of England halved its rate for economic growth from 1.5 per cent to 0.75 per cent.
Inflation is expected to rise from 3% to 3.75% at the end of the year. The official inflation target is 2%, a number hit in the latter months of the Tory government after an 18-month drive by Rishi Sunak to bring it down from double digits.
To make matters a lot worse for Rachel Reeves and Sir Keir Starmer, next month will see millions of Britons clobbered by bill rises.
Price increases will impact everything from energy to council and car tax as well as broadband and mobile tariffs.
It's been estimated that the combined price rises could add a huge ￡660 to annual household costs.
Politically, this could be hugely damaging for Labour as we’re just around the corner from local elections.
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From April 1 the energy price cap will increase, adding ￡9.25 a month, or ￡111 a year, to the average household's bills.
Energy regulator Ofgem sets the cap and has confirmed the average dual fuel bill for those not on a fixed deal will rise from ￡1,738 to ￡1,849 a year.
It is the third consecutive quarter that the around 22million households on standard variable tariffs (SVTs) will see an energy price increase.
At the same time, households in England and Wales will see their average annual water bills increase by ￡123.
Ofwat has approved five years of price increases, the largest of which will be seen in April, followed by smaller percentage increases in each of the subsequent four years.
The exact increase residents will see will be set by individual water companies.
Council tax is also going up, by 15.6% in some areas with the average around 5%, which will add over ￡100 to a typical Band D property's annual bill.
Other bills going up include mobile and broadband, the TV licence fee and car tax.
More than 40 million mobile and broadband customers are set to face price hikes, the rate of which depends on your provider.
The standard colour TV Licence will rise from ￡169.50 to ￡174.50 a year while the price of a black and white licence will also go up from ￡57 to ￡58.50.
April will also bring some big changes to car tax charges.
Rates of Vehicle Excise Duty (or car tax) will rise dramatically for the highest emitting motors, potentially leading to an increase of nearly ￡3,000.
From April 1, 2025, any car that emits more than 255g/km of CO2 will be required to pay an additional ￡2,745 to use the road.
Business are facing punishing increases too.
One of the biggest changes for small businesses will be an increase in National Insurance contributions, from 13.8% to 15% in April.
The threshold at which it is paid has also been slashed from ￡9,100 a year to ￡5,000 from next year.
At the same time, the Government is increasing the Employment Allowance from ￡5,000 to ￡10,000 and removing the ￡100,000 threshold, meaning all employers will be eligible.
It represents a steep increase in the amount businesses will now have to pay and surveys suggest it has already put some business owners off from taking on additional staff.
A poll by the Federation of Small Businesses at the end of 2024 found that 33% of small employers expect to reduce headcount, up from 17% in the previous quarter as a result of tax changes.
At the same time, the number of firms hiring is down from 14 to 10%, while 56% expect to keep their workforce the same.
An increase in the living wage will also add to labour costs for small businesses.
Ms Reeves announced that the National Living Wage will increase by 6.7% to ￡12.21 per hour for over-21s and ￡10 for 18-21 year olds.
While good news for employees, it only adds to the pain for businesses still struggling to recover from the pandemic, particularly in hospitality.
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Hospitality businesses have warned that the changes paired with the increase in NICs will lead to widespread job losses and closures, which in turn will feed through to higher prices.
The government’s Employment Rights Bill will also introduce costly changes to how small businesses operate.
Capital gains tax (CGT) rates for business disposal will rise from 10 to 14%, which could hinder growth.