The Spring Budget 2024

On Wednesday Jeremy Hunt, the Chancellor of the Exchequer, took to the dispatch box to deliver his Spring Budget. Before every budget, the newspapers’ headlines are filled with speculation about what may be announced. Many people tune in to watch the budget live, and hours are spent analysing it afterwards. This Spring Budget was no different – perhaps even more so, given that it was the Conservative government’s last big chance to win over voters ahead of the next general election. Whilst there’s no date set yet, the current government can call the election when it suits them – and we’ll likely see it take place towards the end of the year.

Politics aside, we are interested in the nitty gritty of the budget, and what it means for our clients. So, let’s get into it.

Hunt began by setting the scene – following on from the high levels of inflation in the UK, exceeding 11% in October 2022, the Office for Budget Responsibility (OBR) now expect inflation to fall to 2% targets in a few months’ time, and expect a pick-up in economic growth, with GDP forecast to average 0.8% in 2024, which shrugs off the likelihood of a long and deep recession.

Turning to some of the key announcements:

UK ISA

Currently, adults can save £20,000 into Individual Savings Accounts (ISA) – an ISA is a tax efficient wrapper for your money.

Jeremy Hunt announced a new concept – a British ISA, an additional £5,000 allowance which can be used to invest in British companies.

It’s currently unclear how this will work in practice, for example will it include all UK listed companies? We know that many large FTSE 100 listed companies generate most of their revenue from overseas. Will it include UK bonds (gilts and corporate bonds)? There is a consultation open until June 2024 to ask these questions, and to figure out how it will be designed and implemented.

This extra allowance is potentially an exciting change, and one that we will be watching closely.

British Savings Bond

A British Savings Bond was also announced, delivered through NS&I and to be launched in April. This will be a three-year fixed term savings product, but further detail is not yet known.

Child Benefit

Changes to child benefit mean that more individuals will now receive it. The Chancellor recognised unfairness in the current system (that child benefit thresholds are currently based on one parent’s income alone) and is looking to broaden the assessment criteria to include household income.

Deciding that a charge should be levied to recoup some of the benefit based on one income means that single parent families or single earner families are treated unfairly. This change in criteria will take time to iron out through consultation before it is rolled out in 2026.

A quick win in the meantime is an increase in the assessment amount from £50,000 to £60,000, that is the amount of adjusted net income that can be earned before a charge is levied to recoup some of the benefit.

The income threshold at which the charge is large enough to wipe out the child benefit is also being raised from £60,000 to £80,000.

National Insurance Contributions

Hunt saved his standout announcement until last – a further cut to National Insurance contribution rates (NICs). This measure aims to tackle post pandemic inactivity, and essentially puts more money in workers’ pockets.

In the Autumn Statement back in November, the main rate of National Insurance for self-employed and employed workers was reduced by 1% and 2% respectively. That means class 4 NICs for self-employed individuals were due to be cut from 9% to 8%, and class 1 NICs for employed individuals were cut from 12% to 10%.

Set to benefit 27 million employed and 2 million self-employed, the Chancellor announced a further 2% cut, resulting in a rate of 6% for self-employed and 8% for employed workers from 6^th April. This cut will mean that an employee earning £35,000 will pay £449 less in National Insurance contributions, and the reduction is maximised by an individual earning £50,270 or above, who will pay £754 less in National Insurance.

Whilst this is a welcome benefit for those who are below state pension age and working, it is important to note that some allowances and thresholds will still be frozen until 2028, meaning that inflationary based pay rises are likely to increase the amount of tax and NICs an individual pays.

VAT Threshold

The VAT registration threshold is increasing from £85,000 to £90,000 which targets smaller businesses – it’s estimated that this will take around 28,000 small businesses out of paying VAT altogether.

Non-domiciled Rules

Current non-dom rules allow those who live in the UK but aren’t settled here, to avoid paying tax on foreign income.

In his speech, Hunt vowed to shake this up by April 2025, bringing in a new system that would mean arrivals to the UK would pay the same tax as everyone else after being here for 4 years.

What Else?

Other notable mentions include:

• a tax cut from 28% to 24% for higher rate capital gains on property that isn’t your home
• a freeze in fuel duty with the 5p cut maintained for a further 12 months
• the Stamp Duty Land Tax relief for those who buy multiple properties in a single transaction – abolished
• investment in a £3.4bn NHS productivity plan.

What Didn’t We See?

There was nothing in the budget about Inheritance Tax – perhaps not surprising given that HMRC statistics show that less than 4% of deaths resulted in an IHT charge in 2020/21. Nor were there any announcements providing assistance for those trying to get on the housing ladder, perhaps mortgage assistance or stamp duty relief.

In Summary

The Chancellor spent his fiscal headroom on tax cuts for working people, and a freeze in fuel duty, recouping some of the spending with new taxes on vapes and those currently classed as non-doms.  By the end of the day, UK markets ticked up slightly into the green – a nod of approval for the budget. More importantly there were no real surprises for markets – it was vital for Hunt to show that the government has fiscal credibility.

Over the coming days, we’ll take the time to digest the announcements and what they mean for you, and we’ll be back next week with a detailed report.

See you then.