The latest Budget was an important speech for the Chancellor, Jeremy Hunt, and his Government, as he laid out key measures likely to affect his party’s success at the ballot box later this year.
Although a date for the next general election is still yet to be set, this is likely to be the last time that Mr. Hunt will have a chance to introduce significant changes to taxation and funding and so he didn’t hold back.
Before his announcement, it was unclear exactly what direction the Government would take, following caution from several think tanks about the dangers of significant tax cuts.
While the speech began by outlining the ongoing challenges of the cost-of-living crisis and its main driver, inflation, it soon turned to measures that would boost the economy and personal finances – both in the short and longer term.
The raucous noise from both benches only sought to highlight the importance of the measures announced by the Chancellor.
Mr. Hunt went on to declare that this would be a “Budget for long-term growth” and began outlining measures in the following areas:
Growth outlook and inflation
Inflation has been a double-edged sword for the Chancellor, both feeding the rising costs experienced by businesses and the general public, while also filling up The Treasury’s coffers through fiscal drag.
When he stepped into the role, the nation was experiencing one of its highest inflation rates in recent history – at more than 11 per cent – the Chancellor was pleased to announce in his speech that things were back on track.
Measures taken by the Bank of England and the Government, as well as improving global economic conditions, mean that the nation is now on target to hit the all-important two per cent in ‘months’, according to Jeremy Hunt.
The growth statistics produced by the Office for Budget Responsibility (OBR) were also more positive than expected following the Autumn Statement.
According to the OBR’s latest report, GDP growth is expected to reach 0.8 per cent – up from 0.7 per cent growth expected in November 2023.
Similarly, forecasts for 2025 and 2026 show growth will increase to 1.9 per cent and 2.2 per cent respectively. These rates are both higher than previous estimates from the Autumn Statement.
While this will be looked at as a step in the right direction, the reality remains that the UK’s long-term growth outlook remains relatively weak.
Tax relief for businesses
Previous Budgets and Statements have seen the introduction of new reliefs and reforms to existing allowances and thresholds for SMEs.
However, this latest speech seemed far more subdued. The headline increase to the VAT registration threshold to £90,000 will help some smaller businesses, but it comes after a seven-year freeze.
This means that this increase, while useful, will be largely wiped out by the impact of inflation during this period.
The newly permanent Full Expensing capital allowance will also be amended to include expenditure on leased assets, “when fiscal conditions allow”. This will create additional opportunities for businesses to reduce their Corporation Tax liabilities in future.
No further changes were announced to the R&D tax relief scheme, but businesses are already preparing for the previously announced merger of the SME and R&D expenditure credit (RDEC) scheme from 1 April this year.
The Chancellor also singled out the UK’s creative industries with a series of new tax reliefs worth £1 billion.
Eligible film studios in England will receive a 40 per cent relief from business rates for the next 10 years.
Additionally, the introduction of a new UK Independent Film Tax Credit is set to take place, alongside an increase in the tax credit rate by five per cent and the elimination of the 80 per cent cap on visual effects costs under the Audio-Visual Expenditure Credit.
Funding for enterprise and key projects
The Chancellor also unveiled a plan to bolster investment in UK firms with the introduction of a new 'British ISA', allowing individuals to invest an additional £5,000 annually in UK equities, beyond the existing ISA limits.
This initiative aims to foster a new generation of retail investors and position the UK as a global innovation hub akin to Silicon Valley.
Hunt also proposes changes to pension fund regulations, requiring disclosures of UK equity investments to promote domestic investment.
Furthermore, the Government will explore ways to simplify the process for individuals to transfer their pension funds when switching jobs.
This strategy includes compelling local authorities and defined contribution pension funds to reveal their investments in UK stocks, highlighting that currently, only four per cent of pension fund assets are invested in UK shares.
Initially outlined in the Advanced Manufacturing Plan in November 2023, the Government pledged to make the UK the premier global location for starting, expanding, and investing in a manufacturing business.
This commitment is being actualised, with the Budget detailing the next stages of implementing the £4.5 billion funding package for these sectors. This funding includes over £2 billion for the automotive industry and £975 million for aerospace, available for five years from 2025.
Property tax
It quickly became apparent during his speech that the Chancellor wanted to tackle key property issues in the UK.
He first announced that the current Furnished Holiday Lettings (FHL) tax regime would be abolished from April 2025 to encourage holiday homeowners to dispose of their properties and discourage future purchases of homes in areas of high demand.
He then went on to confirm plans to adjust Capital Gains Tax (CGT) for second and additional home sales for higher and additional rate taxpayers to bolster the housing market by reducing their CGT rate from 28 per cent to 24 per cent.
The lower rate will continue at 18 per cent for gains within an individual's basic rate band. This move aims to motivate landlords and owners of second homes to sell their properties, thereby increasing availability for various buyers, including first-time homebuyers and is expected to generate additional revenue throughout the forecast period.
Starting 1 June 2024, the Government will eliminate the Multiple Dwellings Relief, which currently provides a discount for bulk purchases under the Stamp Duty Land Tax system.
Personal tax
The individual taxpayer was very much the focus of Mr. Hunt’s speech, and he dedicated a substantial amount of his time to outlining new tax measures that would focus on putting more money into the hands of working families.
However, to fund this, the Chancellor announced that those with broader shoulders would have to bear the expense.
With this preface, he announced that the current non-dom tax rules would be replaced with a new residence-based regime.
The new regime will be implemented from 6 April 2025 and will introduce a transitional process for existing non-doms to move them on to the new system. The Government also plans to shift towards a residence-based system for Inheritance Tax (IHT).
This, and the cushion provided by higher Treasury revenues due to fiscal drag, meant that the Chancellor could once again cut National Insurance Contributions for employees and self-employed workers.
From 6 April 2024, the Government will reduce the primary rate of Class 1 employee National Insurance Contributions (NICs) from 10 per cent to eight per cent.
Additionally, it will implement an extra 2p reduction in the main rate for self-employed National Insurance, adding to the 1p reduction announced in the Autumn Statement.
Consequently, starting from 6 April 2024, the primary rate of Class 4 NICs for self-employed individuals will decrease from nine per cent to six per cent.
Reforms to the High Income Child Benefit Charge will also see the thresholds based on total household income, rather than the highest earner.
Meanwhile, the current £50,000 threshold will increase to £60,000 from April 2024 as taxpayers transition to the new system. The rate of the charge will also be halved so that Child Benefit is not repaid in full until you earn £80,000.
Closing thoughts
The Spring Budget was packed with measures that were focused more on the individual. While the Autumn Statement that preceded it offered more for businesses.
Together, they provide a framework for the upcoming election. While many may accuse the Government of trying to buy votes, many of the measures will help taxpayers with the cost-of-living crisis and support further economic growth.
This also includes further measures to extend the household support fund, freeze alcohol and fuel duty and a one-off adjustment to rates of Air Passenger Duty (APD) on non-economy passengers.
If you take the politics out of the equation (if you can) and look at the measure presented there are plenty of opportunities for businesses and individuals alike to reduce their tax bills and seek out new opportunities.
The next question on most people’s lips will be when the general election shall be called and what will the opposition’s economic measures look like.
For now, however, there are plenty of actions to take away from this Budget in the coming weeks and months.
Link: Spring Budget 2024
