It was a statement all about having a plan, with various accusations of Labour’s complete lack of one, in a clear push to encourage voters to not abandon the Conservatives later on this year.
The rhetoric was all there; higher growth since 2010 than Germany, France and Italy, unemployment halved over the same period, and an OBR prediction of inflation falling below 2% within the next ‘few months’, one year ahead of original forecast. However, when looking at the position compared to pre-pandemic levels, the UK lags behind all but Germany in the G7, so there is no doubt that work still needs to be done.
The ‘plan’ is to drive improved productivity within the public sector and cut taxes. The Chancellor commented that those countries with lower taxes were more energised, have more dynamism and show higher growth.
But when it came to tax cutting measures, there was really only one, a further 2% cut in national insurance, for both employed and self-employed individuals. Despite the fact that the Chancellor stated his desire to not have double tax for those in work, no changes were made to the 2% additional rate of NIC, nor the 13.8% employer’s rate that businesses have to pay to take on workers.
The policy costings indicate that the cut will cost the Government £10 billion each year, yet the intention, according to the Chancellor, is to keep lowering the rate, until such time there is a single tax for those in work, as well as those receiving income from other sources.
There was some relief for those with children, with a raising of the threshold at which child benefit is tapered, from £50,000 to £60,000 and a taper period that will increase from £10,000 to £20,000. The intention is to ultimately move this to a household income, basis, rather than in respect of the higher earner, but that is likely to be some way off.
For smaller businesses, an extension to the VAT registration threshold from £85,000 to £90,000 will be welcome, but not earth shattering.
But it wasn’t all about lowering taxes, and given the UK’s high estimated 40% tax rate, compared to GDP, it is no wonder that some of those savings were clawed back.
First to go was the beneficial tax treatment of furnished holiday lettings, which provides favourable capital gains tax treatment, no restriction on tax relief for finance costs and the availability of capital allowances. That is to be abolished from April 2025.
Second to go was multiple dwellings relief for stamp duty land tax purposes, with a perceived abuse of the current rules. Unless a contract was entered into prior to 6 March 2024 or completes before 1 June 2024, the relief is no longer available.
In an attempt to appease property owners, the higher rate capital gains tax rate, for residential properties, is to reduce from 28% to 24% from 6 April 2024.
The next relief to fall was that for non doms. Of course, this has been a hot topic over the last year or so, and one of Labour’s key pledges, so the Chancellor will no doubt feel quite proud of himself for stealing a march on them, before going to the polls.
The new legislation will focus on applying a residency test only. For new arrivals in the UK from 6 April 2025, no tax will be paid on foreign earnings, even if brought into the UK, for four years, after which they will pay tax on all foreign earnings, on an arising basis. For existing non doms, transitional rules will apply for two years from the same date.
The changes will make for a much simpler tax system and, indeed, may encourage new arrivals to bring monies into the UK during that four year ‘grace period’ which of course, will be one of the key objectives for the Government, to help drive growth.
The main focus on spending was the NHS, with the NHS productivity plan adopted in full. That included £3.3 billion on modernising the IT systems, to make the NHS the largest digitally integrated healthcare system in the world, and a further £2.5 billion to reduce waiting lists.
There will be a further focus on general public sector productivity, in an attempt to improve its current poor levels of 6% below that pre-Covid, the aim being to get more out of the money spent, rather than just throwing more at it. This will, no doubt, be music to the ears of those in the private sector who focus on that year after year.
For those happy with the announcements, feel free to raise a glass of your favourite tipple, given the continued freeze on alcohol duty rises until February 2025. But is it enough? Some of the announcements may take the wind out of Labour’s sails, but with personal allowances and basic rate band thresholds still frozen, more people are paying tax now than before Jeremy Hunt took office, which is unlikely to be forgotten when people head to the polls.
For more Spring Budget 2024 analysis, click here.
