Budget Summary
On 6 March 2024, Chancellor Jeremy Hunt delivered his “Budget for Long Term Growth”, designed to provide the UK with “more investment, more jobs, better public services and lower taxes”. A variety of schemes and reforms have been announced which aim to help bring the UK out of the economic slowdown we have seen over the past few years and promote growth and reinvestment into the UK economy.
In an effort to encourage investment into the UK stock market, Hunt announced the potential introduction of the British ISA. This would provide a further £5,000 allowance on top of the standard £20,000 ISA Allowance to invest in UK shares. HM Treasury are currently consulting with industry providers on how to best design and implement the British ISA, and this will run until 6 June 2024. HM Treasury have also introduced the British Savings Bond, offering a fixed rate of return for 3 years which could be a comfortable alternative for those with a lower risk appetite. There is both an income and growth version of this bond available, each of which paying just over 4% per annum in interest. These bonds are fully backed by HM Treasury, and you can invest up to £1 million into each which is a far greater amount than the typical protection afforded to deposits of £85,000 under the FSCS. These new products should allow UK individuals to invest more into the UK economy, promoting economic growth while also benefitting themselves from the growth on their investments, however the details of the British ISA scheme are still unknown.
It has also been announced that UK pension schemes will be required to publish the asset allocation of their investments, and more specifically their UK domestic investments. This is part of a larger push by the Government to unlock the wealth held in these pension funds and redirect this into investments into the UK and its companies. Other countries, such as Australia, have implemented a similar strategy and have produced positive outcomes for large parts of the population, as it promoted growth in both local companies and the long-term performance of pension funds.
Some of the most significant changes announced in the Spring Budget were related to one of the Prime Minister’s main economic priorities, permanent cuts to taxation. Most notably, Jeremy Hunt announced a further reduction of 2% to the National Insurance Contribution Rate, which will save an individual earning £30,000 per annum a further £350 per annum. On top of the 2% NI cut announced in January, this would amount to a total NI saving of circa £700 per annum. If you are utilising a Salary Sacrifice arrangement to make pension contributions, you should review your levels of contributions in light of these changes. Similar measures have been introduced for Self-Employed workers, along with a welcome increase in the VAT Threshold to £90,000. The hope is that these reforms will promote growth in smaller businesses, as the relatively high tax burden on the UK population has proven a significant barrier to growth.
The Budget also announced a reform to the High-Income Child Benefit Charge, which has been squeezing young families where one parent was earning over £50,000 a year. This threshold has been increased to £60,000, and the tapering of the benefit is now calculated over a £20,000 excess of this threshold, instead of a £10,000 excess. This means that if the higher earner in the household earns less than £80,000 a year, they will receive some level of Child Benefit. The system is still flawed as if one individual in the household earns over £80,000, the household will receive no benefit, but if both parents were earning just under this threshold, they would be entitled to some support. This has been acknowledged by the Government and they hope to introduce a more comprehensive solution by 2026.
There was a mixed message on property, with the higher rate of Capital Gains Tax chargeable on the sale of second properties being reduced from 28% to 24%, alongside the abolishment of the Furnished Holiday Lettings regime in 2025. The controversial Non-Dom Tax Regime has also been scrapped, which should hopefully raise significant sums in tax receipts over time. Other smaller measures, such as the extension of the Energy Profit Levy, a new duty on vapes, and an increase in Tobacco Duty, have all been introduced to help fund innovation in the UK public sector.
With the ever-increasing importance of technology in our world, there has been a further spending commitment aimed at increasing the efficiency and productivity of public institutions such as the NHS. Dubbed the ‘Public Sector Productivity Plan’, the NHS is due to receive a further £3.4bn in funding, with the aim of using modern technology to reduce the administrative burden on current NHS staff, updating and consolidating the outdated IT systems currently in use, and increasing the number of virtual appointments offered to provide better access to NHS services. A further £800m of funding will be provided to improve IT systems in other public institutions such as the police and justice system, which should result in more efficient and cost-effective public services when they come to fruition. This is likely to take some time, and the public sectors’ track record on seeing such projects through is not outstanding.
Overall, the Spring Budget has introduced measures which try to balance the need of many different parties and it must be recognised the chancellor had little fiscal headroom following on from the pandemic support, the support for Ukraine and the general slowing of the global economy. While this budget does not solve all the problems the UK is facing, it does go some way in easing the pressure on UK household budgets and improving the overall efficiency and investment into the UK economy.