Spring Budget

Heading into this budget, there was an expectation that there would be tax breaks to drum up support ahead of the looming general election. A follow on from the Autumn statement then, which saw National Insurance cut and new initiatives introduced to get more people back into the workforce. Despite those changes it has been highlighted that the tax burden is as high as it has ever been in the UK, so there was a general feeling that either National Insurance, or Income Tax would be cut again in the 2024 budget.

Of course, winning votes wasn’t the only reason why we expected to see Tax cuts. The UK is now officially in recession, and with inflation trending down, putting more money into people’s pockets via tax cuts, would help stimulate a pretty stagnant economy.

However, the UK’s recession is presently very light. To be fair, there are even positive signs that it might also be short lived. Inflation is on track to hit the UK’s target of 2% at some point over the summer, and the next interest rate movement is expected to be down. In fact, financial markets are still pricing in roughly a 40% chance of the first interest rate cut to come in June. A fall in interest rates would make cash savings less appealing, and would provide a boost to the housing market, so perhaps against this backdrop, the chancellor might have been less inclined to make significant changes. He then needed to be a little careful not to give away too much, as this might encourage inflation, just at the time when that aspect seems to be coming under control. We all remember the effects of a giving away too much to stimulate growth. See Liz Truss for further details!

So, what were the headlines to spring from the budget? Pretty unsurprising to be honest and not particularly inspiring.

A summary of the key changes is below:

• From April 6^th Employee National Insurance Contributions will be cut by 2p from 10% to 8%, and for self-employed, National Insurance Contributions will be cut from 8% to 6%.

• The threshold at which small businesses must register to pay VAT increases from £85,000 to £90,000 from April 2024.

• The budget saw the introduction of a new ‘British ISA’ which will provide another £5,000 of annual tax-free investment in UK equities. This won’t be available just yet though.

• Non-domicile tax status will be abolished and replaced by a “modern, simpler and fairer” system from April 2025. After 4 years, those coming to the UK will pay the same tax as other UK residents.

• The Chancellor announced plans to allow full expensing to apply to leased assets. Full expensing allows businesses to offset investment in items such as new factory machinery and IT equipment against tax.

• Stamp Duty relief is to be abolished for those buying more than one dwelling in a single transaction. The higher rate of Capital Gains Tax of 28% for residential properties is reduced to 24%.

• The Recovery Loan Scheme changes to “Growth Guarantee Scheme” and support has been extended to continue to allow small businesses to access funding.

• Creative Industries saw a package of tax reliefs announced for their benefit, with plans for a new tax credit for independent films. HM Treasury estimate this to be worth £1 billion in support over the next five years.

• The Chancellor announced up to £120 million pledged to build supply chains for new green technologies.

• “Windfall” tax on the profits of energy firms has been extended until 2029, having previously been scheduled to end in March 2028.

• The Furnished Holiday Lettings (FHL) tax regime will be abolished from April 2025. Eliminating the tax advantage for landlords who let out short-term furnished holiday properties over those who let out residential properties to longer-term tenants.

• The freeze on alcohol duty will be extended to February 2025, and a freeze on Fuel Duty is extended for 12 months.

Although the measures that the chancellor announced in this year’s Spring Budget should help stimulate the economy, he chose to leave out a detail which may be more important for the economy over the next few years. He did not mention that his fiscal headroom of £8.9bn is a mere fraction of the £27bn average that has been enjoyed by his previous chancellors. This means that there is very little wiggle room in case things don’t go according to plan. If the UK is to stimulate its economy in the longer term, it needs to reduce taxation, which currently sits at an 80-year high. The problem is that the country needs to increase tax if it wants to repair the NHS, improve its education system and develop its beleaguered transport infrastructure. The expense incurred by this government getting its economy through Covid, and providing subsidies against rising energy costs, has made a significant dent in the country’s coffers, so whoever wins the next election is going to be faced with some extremely difficult decisions about tax and spending. They say a week is a long time in politics. They are not wrong.

Have a great weekend everyone!