Jeremy Hunt delivered his much-awaited budget on 7 March. Given the upcoming election and challenging public opinion, the government has recently been under significant political pressure to assuage voters.
The headline measure was the cut to National Insurance rates, following a similar cut already announced in November 2023. Child benefit rules are also to be overhauled, and a new British ISA allowance is set to provide tax breaks for individuals investing in UK companies.
The key points are outlined below.
The Economy
- The rate of inflation (currently 4%) is expected to reduce to the Bank of England target of 2% within a few months. This is an improvement on the Autumn statement’s forecast, which suggested that this target would not be reached until 2025.
- Economic growth is projected to be 0.8% this year and 1.9% in 2025. Again, this is higher than estimated in November.
- The rates are estimated to be 2%, 1.8%, and 1.7% in the three subsequent years, respectively.
- 2022/2023 saw the largest drop in living standards since Office for National Statistics records began in the 1950s. However, real household disposable income is expected to return to pre-pandemic levels by 2025/2026, two years ahead of the November forecast.
- Tax revenue is expected to rise to 37.1% of GDP by 2028/2029, the highest level since 1948. Despite highly publicised efforts to cut taxes, the freeze in personal tax thresholds means that most people will continue to pay more tax.
- Public spending will grow at 1% in real terms rather than in line with inflation. This represents an 8% real terms drop since the policy was introduced in 2021.
- Borrowing for the current tax year is estimated as £113 billion, which is £11 billion below the Office for Budget Responsibility’s November forecast.
Tax
- As of April 2024, the rate of National Insurance contributions for employees will be cut from 10% to 8%. This is expected to save around £450 per year for someone earning an average salary of £35,000.
- This follows the 2% cut (from 12% to 10%) already announced in November.
- Non-dom status will be scrapped by April 2025. This refers to people who live in the UK but are domiciled (i.e. have permanent links) abroad and, therefore, only pay UK tax on UK income. The new rules mean that after four years of living in the UK, anyone with non-dom status will pay the same tax on worldwide income as other residents.
Work and Benefits
- The earnings threshold for starting to lose Child Benefit will be increased from £50,000 to £60,000. Additionally, the level at which the benefit is lost completely will increase from £60,000 to £80,000. This will apply from April 2024.
- Plans are in place to apply the limitations to household income rather than individuals starting in April 2026.
Investing
- A new ‘British ISA’ scheme is to be introduced, offering investors an additional £5,000 ISA allowance to invest in British assets.
- This is due for a consultation, with details and the timeline still to be announced.
Property
- The capital gains tax rate (CGT) on property sales will reduce from 28% to 24%. This will benefit landlords and second homeowners who sell their properties, as CGT does not apply to the sale of a main residence.
- However, the furnished holiday let scheme will be scrapped. This will reduce tax breaks on short-term lets and ultimately make it less profitable to let to holidaymakers than to long-term tenants.
Alcohol, Tobacco, & Fuel
- Plans to increase alcohol duty by 3% in 2024 have been scrapped. Current rates will be frozen until February 2025.
- Tobacco duty will increase and a levy on vape products will also be introduced in October 2026.
- The fuel duty will also remain frozen for at least one more year. The 5% cut introduced in 2022 was due to expire this month but has now been extended.
Public Sector
- Plans to digitise the NHS and make it more efficient are being introduced. Some of the measures mentioned include AI form-filling and making improvements to the NHS app.
- Military spending is due to increase from 2% of GDP to 2.5%.
Childcare
- Free childcare hours for children aged 9 months and over will continue for the next two years.
- However, nurseries continue to struggle with rising costs and limited resources, which means that the free hours will not necessarily translate into more nursery places. Additional support has been promised, but concrete details are sparse.
The Arts
- Independent films with a budget of below £15 million will benefit from a new tax credit.
- Film studios will also benefit from 40% relief on business rates until 2034.
- The National Theatre will receive a £26.4 million upgrade to its stages.
Conclusion
The new measures will mainly benefit middle-to-high earners, along with a small boost for property owners wishing to sell.
One of the main criticisms of the NI cut is that it benefits a specific portion of the population – people who are working and earning a reasonable income. The overall tax burden on the population will continue to increase given the freeze to the allowances and thresholds, which is expected to remain in place until 2028.
Doubts have also been raised about spending plans, which, along with the NI cut, will be funded in part by higher borrowing. Public finances are tight, and it has been argued that money could be better spent on public services. However, with Labour still leading the polls, it’s possible that this will be the next government’s problem to solve.
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