Spring Budget 2024: Budgeting for an election
Initial messaging around cuts to income and inheritance tax had led to high expectations for this year’s Spring Budget. In reality, however, the Chancellor’s announcements were rather more modest, with the ongoing ‘promise‘ of better things to come – particularly after the upcoming election, if the government remain in power.
Faced with a technical recession, and with inflation still above target, Jeremy Hunt’s scope for the tax cuts he presumably would have preferred to make was very limited. After the economic turmoil of late 2022, it is clear that the government are not willing to risk spooking the financial markets by way of ‘unfunded’ tax cuts, and yesterday’s budget certainly adhered to this.
What are the headlines?
The Chancellor opened his speech with some good economic news, announcing that headline inflation is due to fall below the 2% target within the next couple of months – nearly a year earlier than previously forecast. With this positive backdrop, he then went on to make the following key announcements:
- National Insurance tax cuts: National Insurance will be cut by 2p for every pound. For employees, this is a reduction from 10% to 8%, and for the self-employed, from 8% to 6%
- British Individual Savings Account (ISA) tax allowance: Investors will have an additional tax-free allowance of £5,000 for investing in UK shares in their ISAs
- British Savings Bond initiative: A new savings bond is to be introduced by National Savings and Investments (NS&I) to offer savers a guaranteed rate fixed for three years
- Public sector reforms: A new Public Sector Productivity Plan aims to increase value for money in the public sector, with a big boost in ‘digitising’ the NHS and increased spending
- Capital gains tax cuts on property sales: The highest rate of capital gains tax on property sales is being reduced from 28% to 24%
- Second home holiday lets tax breaks removal: The Furnished Holiday Lettings regime will be abolished, so second home owners letting out their properties will no longer benefit from tax breaks on profits
- Non-domicile tax status abolition: The current ‘non-dom’ system, which allows foreign nationals who live in the UK but are officially domiciled elsewhere to avoid paying UK tax on some forms of income, will be abolished in favour of a residency based regime – although we await further details regarding how this will be implemented
- Changes in child benefit – increasing threshold and taper: Welcome news for many families.
What do we think is most significant?
Income tax and National Insurance
As was well-flagged in the weeks leading up to the budget, rather than a headline-grabbing but very expensive cut in income tax, the Chancellor has again focused on reducing National Insurance, which he considers to be a tax on work. On top of the cut introduced in January, this represents a one-third cut and is intended to stimulate incentives to work.
Saving and investment initiatives
Announcements were made relating to savings and investment initiatives, with a particular focus on supporting UK businesses.
The most significant of these, in our opinion, was the additional £5,000 ISA allowance proposed to encourage investment into UK assets.
At CGWM, we think this a welcome change – one which would help to reverse the trend of capital outflows from the UK stock market, which saw 49 companies leave between November and January alone. We believe it would also be of particular benefit to the Alternative Investment Market (AIM), and therefore improve options for those looking to mitigate inheritance tax through investing in UK companies. Indeed, our CEO David Esfandi co-signed an open letter to the Chancellor in the Times calling for such a measure just last week. While this is currently only a consultation and there is no guarantee it will happen, we hope this is something the Conservative government will be able to deliver on.
On top of this, the Chancellor’s announcements around Defined Contribution and Local Government pension funds – which would require them to disclose the geographical make up of investments – suggests the potential for legislative requirements to invest in the UK. While this appears to be attractive, it may have unintended consequences for pension plan members, so we await further details which we will study carefully in due course.
Pension planning
No further changes have been made to the pension regime, following last year’s announcement of the abolition of the lifetime allowance regime, which is still due to come into effect from 6 April 2024. The Chancellor also stated that work is ongoing regarding the idea of a pension ‘pot for life’. Though no changes were announced, the legislation itself is still complicated – if you would like to discuss your individual circumstances, please get in touch.
Business tax and incentives
Additional support was announced for the creative sector, such as the film industry, and investment into clean energy. The Chancellor confirmed a continuation of the business rates discount of up to 75% for the struggling hospitality sector.
A surprise announcement was an increase in the VAT threshold from £85,000 to £90,000. This will be good news for many small businesses.
Final thoughts
This felt like a budget where the Chancellor wanted to deliver more but was restricted by economic circumstances. The UK remains stubbornly in a low or no growth cycle, with inflation higher than it needs to be for interest rates to fall significantly, challenges the next government is also likely to face. With no changes announced to personal income tax allowances, more people will be paying income tax – the ‘fiscal drag’ continues.
Though this was not the most exciting budget announcement of recent times, for investors, the incentives to invest in UK assets certainly add interest, while for those in or seeking employment, there are some additional incentives to work – although only time will tell if any of this will be impactful. On first review, this looks to be a cautious budget for cautious times – but as ever, we will need to wait for the full details before we can fully judge the impact of this final budget before the election.
Let us contact you
If you want to discuss your financial plans, and how you might be able to take advantage of these changes, please get in touch as we have experts in our team who will be able to help you.
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This was always going to be a challenging balancing act for the government, with economic, fiscal and political influences all in play - the latter becoming ever more important as we draw closer to a General Election.
The news that the government has hit one of its three economic priorities for 2023, the halving of headline inflation, has arguably provided more flexibility for stimulating the economy. However, the Bank of England has made it clear that the inflation battle is yet to be won, and it is little over a year since we all witnessed what happens when financial markets lose confidence in government policy. While government finances are now in better shape than had been feared only a few months ago, the reality of its large budget deficit remains. This restricts scope for decisive action to reduce the burden of tax – a stated government objective.
What are the key announcements?
Within this challenging yet more positive background than could have been expected, below are a few of the key announcements that caught our eye. The headline announcements concerned National Insurance cuts and encouraging business investment:
- The main rate of Class 1 employee National Insurance (which impacts the majority of salaried workers) will be cut from 12% to 10%. Unusually, this is due to take place part way through a tax year – on 6 January
- There was also good news for the self-employed, with Class 2 National Insurance being abolished, saving those individuals £192 a year, and Class 4 contributions being reduced from 9% to 8%
- The ‘Triple Lock’ pension guarantee is being fully honoured, with the state pension set to increase by 8.5% from next April. Similarly, the National Living Wage is being increased by 9.8%, in line with inflation
- The Chancellor promised ‘110 measures to boost business growth’; while we have yet to count them all, one notable measure is making so-called ‘full expensing’ permanent, although the main corporation tax rate remains at 25%
- The government will consult on a ‘pot for life’ pension approach, whereby employers would be legally required to pay contributions into an existing pension scheme if the employee prefers this, rather than being forced to open a new pension plan, as is currently common. This has the potential to reduce the current complexity of accumulating pension schemes throughout one’s working life, though we will need to see how this will work in practice.
- Though only mentioned in passing in the Chancellor’s speech, documents released later in the day provided further clarification on the abolition of the lifetime allowance (LTA) for pensions savings. We will expand on this in detail once we have digested the Autumn Finance Bill, which will provide more information and undoubtedly further draft legislation. If you would like to discuss these changes in the meantime, please get in touch.
What was not included?
The Autumn Statement was also noteworthy for what was not included, despite media speculation. For example, there was no mention of Inheritance Tax, as was widely predicted in reports beforehand. There were also no allusions made to any changes in the main rate of income tax, capital gains tax or personal allowances.
Perhaps this is a signal to wait for the Spring 2024 budget?
Final thoughts
The Chancellor was in an upbeat mood, describing this as ‘an autumn statement for growth’. Encouraging business investment is clearly to be welcomed, but some of the measures included to encourage more people into work, such as the tougher requirements for those on benefits, may be seen to be more controversial.
As ever, the devil is in the detail, and we will need to wait for the full details of these changes, as well as outlines of how they will be implemented, before we can cast judgement. Therefore, unlike some commentators, we prefer to be cautious, and will provide further comment as appropriate over the coming weeks and months. We live in interesting, and fast-moving, times, and here at Canaccord Genuity Wealth Management, we are committed to keeping our clients informed and up to date.
The tax treatments set out in this communication are based on our current understanding of UK legislation. It depends on the individual circumstances and may be subject to change in future.
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The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity.
This is not a recommendation to invest or disinvest in any of the companies, themes or sectors mentioned. They are included for illustrative purposes only.
The information contained herein is based on materials and sources deemed to be reliable; however, Canaccord Genuity Wealth Management makes no representation or warranty, either express or implied, to the accuracy, completeness or reliability of this information. Canaccord is not liable for the content and accuracy of the opinions and information provided by external contributors. All stated opinions and estimates in this article are subject to change without notice and Canaccord Genuity Wealth Management is under no obligation to update the information.
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Investment involves risk and you may not get back what you invest. It’s not suitable for everyone.
Investment involves risk and is not suitable for everyone.