Chancellor Rachel Reeves delivered her Spring Statement on Wednesday, focusing on the nation’s finances rather than personal taxes. Unlike last year’s Autumn Budget, which introduced tax increases for investors, this Spring Statement emphasised cuts to government spending that aim to close a shortfall in the UK’s budget. There were no changes to individual savings accounts (ISAs) or pensions.
Read on to discover the key announcements and their potential impact on the UK economy and investors.
Spending cuts and lower economic growth
The chancellor announced spending cuts and a less optimistic outlook for the UK economy after the Office for Budget Responsibility (OBR), which analyses the UK’s public finances, warned of a more challenging and uncertain backdrop1. The UK would have faced a £4.1 billion hole in its budget in 2029-30 without these changes. However, the spending cuts, which include welfare reforms and a reduction in the day-to-day spending of government departments, are expected to plug the gap and restore the surplus that was forecast at last year’s Autumn Budget.
The OBR also revised its forecasts for UK economic growth, halving its 2025 projection from 2% to 1% but increasing its 2026 and 2027 projections to 1.9% and 1.8%, respectively. Earlier this year, our economists halved Vanguard’s forecasts for UK growth in 2025 due to weak forward-looking activity data, particularly in the jobs market. In spite of the OBR’s downgraded short-term economic outlook, the announcements have not further impacted our UK growth outlook.
Global diversification remains key
The Spring Statement was delivered amid a challenging market environment for investors. The downgrade to UK economic growth comes in the context of recent stock market turbulence, with US share prices falling this year after more than a decade of strong growth. In contrast, European shares have shown resilience after previously underperforming.
This underscores the importance of investing in a globally diversified portfolio that spreads your investments across different industries and regions of the world. Growth opportunities in some regions and industries can offset downturns elsewhere.
Our economists expect low annualised2 returns of 2.9%-4.9% for US shares over the next decade3. Regions outside the US are expected to outperform, with returns of around 7.1%-9.1%. However, please note that these returns are projected and are not guaranteed. Just as the strong performance of US shares over the past 15 years doesn’t mean you should invest all your money there, the recent outperformance of European shares doesn’t mean you should focus solely on Europe.
The key is to ensure your investments suit your goals and attitude to risk. Shares generally offer higher potential returns but come with greater swings in prices. Bonds4, on the other hand, are typically more stable but offer lower potential returns. Our economists expect annualised returns of 4.3%-5.3% for UK bonds and 4.6%-5.6% for global ex-UK bonds over the next decade.
No changes to cash ISAs
There was speculation that the chancellor would overhaul ISAs by lowering how much people can save in cash ISAs each year or even scrapping cash ISAs entirely. While the chancellor did not refer to a review in her speech, the written statement explained that the government is looking to ensure the ISA regime offers the right balance between cash and investing. A review of the ISA regime could be seen later this year.
The underlying message is the government wants to encourage people, and give them the confidence, to move from saving to investing. Over long periods, history has shown that investing in shares typically delivers better returns than holding cash. This makes investing a powerful way of helping you achieve your long-term financial goals, even when stock markets are choppy.
Of course, investments can go down as well as up in value, but it’s impossible to know the ‘best’ time to invest. No-one knows when markets have reached the bottom, but buying when share prices have fallen can be a good long-term strategy. It can help you take advantage of lower prices and potentially see higher returns when the market recovers.
Remember, the current tax year ends on 5 April
The chancellor didn’t make any changes to tax breaks for investors, making it a timely reminder to maximise your 2024-25 ISA and pension allowances before the current tax year ends on 5 April.
You can invest up to £20,000 in ISAs this tax year. Your ISA investments grow free of income tax, dividend5 tax and capital gains tax, meaning more of your money goes towards your future. You can’t carry over any unused allowance to the following tax year, so it really is a case of ‘use it or lose it’.
You can also save up to the lower of £60,000 or 100% of your annual earnings into a pension and benefit from tax relief on contributions6. The government automatically tops up your contributions by 20%, turning an £80 contribution into £100. Higher-rate and additional-rate taxpayers can claim an additional 20% or 25%, respectively, by filing a self-assessment tax return.
Tax relief can significantly boost your retirement savings, so topping up your pension is well worth considering. You might be able to contribute more than £60,000 by carrying forward7 any unused pension allowances from the previous three tax years. To qualify for tax relief, your earnings must be at least equal to the amount you wish to contribute.
Notes: All data in this article are sourced from Spring Statement, HM Treasury, March 2025 and reflect information available at the time of publication.
1 Office for Budget Responsibility (OBR)
2 Annualised returns show what an investor would earn over a period of time if the annual return was compounded (i.e. the investor earns a return on their return as well as the original capital).
3 All projected returns are based on Vanguard forecasts as at 31 December 2024.
4 Bonds are a type of loan issued by governments or companies, which typically pay a fixed amount of interest and return the capital at the end of the term.
5 Dividends are the payments some companies make to their shareholders out of their profits.
6 Your pension annual allowance might be lower than £60,000 if you have a high income or you’ve already flexibly accessed your pension pot. To work out if you have a reduced (tapered) annual allowance, see HMRC’s website.
7 Carry forward is only available to those who were a member of a registered pension scheme during the relevant time period.
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Any projections should be regarded as hypothetical in nature and do not reflect or guarantee future results.
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