As usual, I set time aside to watch the Spring Budget and this year was no different, although it does annoy me how often key announcements are “leaked” before the Statement itself. I am sure this is partly done to see how the policy is perceived to allow some final changes before the announcement itself is made. Having said that, this was a relatively lengthy budget statement and there were some announcements I was not expecting.
Firstly, Mr Hunt delivered an optimistic speech incorporating lots of facts about growth, jobs, and inflation down to 4% with the expectation to fall to 2% within the next couple of months. He maintained the fuel duty freeze and 5p cut for another 12 months which will help contribute to the decreasing inflation for the UK.
National Insurance
So, the big headline already in the press was confirmed with National Insurance being cut by a further 2% for employees and the self-employed from April 2024. If you are earning say £40,000 per annum, you will now be saving a combined £91 per month from April compared to the rates in December. Mr Hunt aired the desire to make a fairer tax system for the employed vs passive income taxpayers and suggested that further National Insurance cuts would be made in the future as and when it was affordable.
Capital Gains Tax
Apparently, it has been proven that the increased rate of capital gains tax of 28% on residential property has resulted in less tax collection, and as a result, the rate has been cut to 24% from April 2024. What was not mentioned is that there is already a plan to reduce the annual exemption from £6,000 to £3,000 in April and consequently individuals will be paying tax on more of the gain in any case.
Child Benefit
I was impressed with the child benefit announcement which I have long felt was an unfair clawback as it had potential to penalise families with one main earner over those families that earn more but spread between both parents. Firstly, from April 2024 the clawback of child benefit will only commence once an individual’s income exceeds £60,000 rather than the current £50,000 and it will only be fully repaid when income hits £80,000 rather than £60,000 as set previoulsy. For a 2 child family Child Benefit is worth £2,074 per annum and so significantly more than the national insurance saving above. It is the equivalent to over 3 percentage points reduction in taxation for an individual currently earning £60,000 per annum with 2 children.
The Chancellor went further with the aim for child benefit repayment to be on household income rather than an individual’s income from 2026. This would be a much fairer system and I fully support this measure.
Businesses
On the face of it there seemed little to help small businesses.
We are about to complete the first full financial year with mainstream corporation tax rates at 25% and there was no discussion on corporation tax rates. The Chancellor reiterated the “full expensing” in respect of IT and plant & machinery investment but for many small businesses, this does not necessarily provide any further tax relief than they already had with the Annual Investment Allowance.
For me, Business Rates reform is urgently needed as this is an indiscriminate tax payable based on your property with no consideration of how profitable you are as a business.
Value added tax threshold has been increased to £90,000 from April 2024. This will help some small businesses to stay out of VAT registration if it is favourable to do so, but as it has not moved since 2017 and given the high inflation we have had, it is not a real term increase.
Public Spending
It is not good to hear that the UK is still 6% less productive than it was pre pandemic. I support the ambition to invest in our public services to drive productivity and it is suggested that a £3.4bn overhaul of NHS IT systems will unlock £35bn in savings / efficiencies. I have no doubt that the NHS IT systems needs an overhaul, I will just have to hope these savings can be unlocked but only time will tell.
Final thought
Mr Hunt talked a lot about a “Budget for Long Term Growth” which sounds good. However, it is businesses that need the support and with National Living Wage increase going ahead in April 2024 by 9.8% to £11.44 per hour, can all businesses cover this cost? As I have said before in my comments – what about the more experienced staff who earn marginally more than those on minimum wage, should they not get a pay rise as well? If they don’t then why take on the extra responsibility? This level of increase is surely a driver for wage inflation across the board.
Mr Hunt referred to ambition for the future and this is clearly a last-ditch attempt to help salvage the conservative position prior to a general election. If Labour are elected and they decide to reverse some of these policies, then it will directly hit working families which will not go down well at all. Will we have a new Chancellor by the time of the Autumn Statement? Only time will tell…
If you have any questions regarding the 2024 Spring Statement then please call your local Lambert Chapman contact on 01376 326266.