Will the upcoming pre-election budget provide a lot of vote sweetening giveaways?
Can the government's finances enable the Chancellor to cut taxes?
These are the significant questions facing Chancellor, Jeremy Hunt, as we approach the UK Budget 2024. Both Hunt and the Prime Minister, Rishi Sunak, have stated in recent months that their aim is to reduce the level of taxation. However, the Chancellor has since gone on the record to play down expectations as to how much he can reduce the tax burden in the next fiscal announcement.
All of this despite Hunt citing other countries with lower tax burdens as an example of the route that can be taken to boost economic growth. The reality is he is limited by the tax take compared to the cost of servicing the UK's debt. According to the FT, the Treasury’s own modelling indicates Hunt has just £14bn of fiscal “headroom” against his own target of cutting debt as a share of UK economic output in 5 years time.
The government will only know the final numbers a few weeks prior to the Budget. This will dictate how much room for manoeuvre they have, if any, in terms of any potential tax cuts and by how much. Depending on the state of the nation's finances, we may see more tax announcements later in the year at the Autumn Statement, just before heading to the polls.
In this post we cover what tax announcements could be made, as well as other potential policies that may be introduced:
The Budget is a statement made by the Chancellor of the Exchequer to members of Parliament in the House of Commons. It covers annual financial plans for the economy including tax legislative changes, and public spending declarations based on an independent analysis of the UK's economic performance and fiscal circumstances.
The Spring Budget will take place in the UK on Wednesday 6 March 2024 from approximately 12.30pm, just after Prime Ministers questions. The Budget is also referred to as the 'Spring Budget' based on the time of year when it takes place which is not long before the end of the tax year, being 5 April.
Any fiscal headroom that the Chancellor can find, or engineer, might be used to fund a cut in the basic rate of income tax. As with the cut to National Insurance Contributions (NICs) introduced in January, it may be that another 2% reduction is announced to bring the basic rate of income tax down to 18%.
There may even be further reductions to NICs that were first announced in the Autumn Statement 2023.
It is said that many Conservative MPs want the Chancellor to reduce, or even abolish Inheritance Tax (IHT) altogether. However, HMRC statistics reveal that just 27,000 estates paid IHT in the 2020/21 tax year, and that equates to less than 4% of UK deaths in that timeframe.
These numbers should be balanced with the reality that the Nil Rate Band (NRB), the inheritance tax threshold, has been frozen since the 2009/10 tax year. Furthermore it is set to remain frozen until the 2027/28 tax year meaning inflation and fiscal drag will likely expose more estates to this form of taxation.
There could therefore be reforms to some of the various IHT reliefs made available, and also a potential increase to the NRB. These may be the first in a set of announcements with a view to eventually getting rid of IHT as a tax altogether, after the General Election.
It has been mooted that the government want to provide more help for people wanting to buy their own home. This may signal a return, in some form of another, of the Help-to-Buy scheme for first-time buyers. Any updated version of the scheme, or new policies, will likely aim to assist but not distort the property market.
Current rules mean claimants have to pay back 1% of their family child benefit for every £100 of income they earn above the £50,000 High Income Child Benefit charge threshold. In instances where you, or your partner, earn £60,000 or more then the charge equates to the full amount of child benefit claimed.
It has been argued this is unfair as a couple earning £50,000 each, or £100,000 of combined income, can obtain the full amount of child benefit. By comparison an individual, such as a single parent, earning £60,000 doesn't receive it.
Raising the threshold may be a partial solution but as the threshold at which individuals also start to pay higher-rate tax is very similar (£50,270), it could be part of further tax changes in relation to the basic-rate Income Tax band.
The Lifetime Individual Savings Account (LISA) threshold for buying a home is currently £450,000. If you use such funds to purchase a home that costs more than that, then this triggers clawbacks of the LISA subsidy and further penalties. The Chancellor may therefore raise the limit, or even abolish it. Such a move would be welcome news for many first-time buyers.
The Chancellor wants to use taxpayer’s savings to boost investment in UK businesses. This could mean reforms to the Individual Savings Account (ISA) rules to favour investment exclusively in UK listed entities. There have also been rumours about potential increases to the ISA limits. The current annual £20,000 contribution limit has been in place since 2017/18.
According to the Independent, the government is considering proposals to allow young, first-time buyers to purchase a property with a 1% deposit. This 99% mortgage plan could be an extension to the Help-to-Buy scheme that assisted first time-buyers in purchasing new build properties with deposits of 5%.
VAT
It has been mooted that the VAT registration threshold, currently set at £85,000 could rise. This has been static since 2017 and the Federation of Small Businesses (FSB) want it to increase to £100,000.
As part of an ongoing review of employee share schemes the Government has been consulting on reforms to the Save-As-You-Earn (SAYE) and Share Incentive Plan (SIP) to help boost employee participation. Policy changes that make them more attractive to employees would not be surprising.
Given the UK is no-longer subject to EU restrictions on state aid, the government can potentially remove some of the current restrictions on the Enterprise Investment Scheme (EIS). One potential area would be to remove the requirement for companies to be less than seven years old to qualify for EIS. Another, removing the capital limits, would significantly expand the number of businesses that could qualify and gain access to potential funding for growth.
According to the Local Government Association, it is concerning that one in five council leaders in England fear the possibility of declaring bankruptcy within the next 15 months. They have identified a significant funding requirement of £1.6 billion to address this issue.
In response to this, Michael Gove, the Levelling Up Secretary, has confirmed that English local authorities will receive an additional £600m in funding. This boost in financial support could potentially increase the core spending power of these authorities by up to £4.5bn.
However, The Guardian has reported that almost half of the £4.5bn boost is contingent on the assumption that every local authority in England raises council tax by the maximum limit of 4.99% in April.
Various business groups have submitted their wish lists to the Chancellor to boost SME growth, improve the economy, and help in the push towards net zero Carbon emissions. Below is a summary of what they're asking for:
The Institute of Directors (IoD) is urging for stronger measures to address those corporate businesses that are slow to settle invoices, in effect making late payments. They propose that the government should release bi-annual rankings showcasing the average time it takes to settle invoices.
Additionally, the IoD suggests that public sector organisations with more than 250 employees should be obligated to disclose their payment practices.
The IoD, in its Spring Budget submission to the Chancellor, is urging Jeremy Hunt to provide tax credits to companies that invest in training their employees to address the current and future skills shortages. The IoD is also calling for the introduction of a VAT exemption for private sector training programs that aim to meet Britain's skills needs.
They also suggest allowing sole traders to deduct the costs of re-skilling in new areas for their business for tax purposes. Furthermore, the IoD is also advocating for increased flexibility in accessing Apprenticeship Levy funds, while ensuring that SMEs receive 95% of the funding for apprenticeship training costs.
The Federation of Small Businesses (FSB) has made a strong plea to the Chancellor, urging him to raise the Employment Allowance from £5,000 to £6,500. The FSB claims this move would empower small employers to hire up to four additional employees, all while accommodating the new National Living Wage (NLW) of £11.44, without having to worry about the burden of a 13.8% jobs tax.
The FSB has also highlighted how the increase may enable businesses to manage the forthcoming NLW hikes in April more effectively. Doing so means firms could be better equipped potentially to navigate the challenges posed by rising wage costs.
Prior to 2020, tax-free shopping allowed tourists coming in from outside the EU, to claim back their VAT on goods bought in the UK. This made them 20% cheaper. This was then abolished by Rishi Sunak (then Chancellor) in 2020.
The tax is seen as putting London at behind other European cities such as Milan and Paris in the competition to attract wealthy visitors. This is why the British Chambers of Commerce (BCC) has urged the Chancellor to ditch it. Estimates from the BCC claim that the tax costs British retail £1.5 billion per year and also negatively impacts the UK tourism and hospitality sector.
The content of this post was created on 13/02/2024 and updated on 28/02/2024.
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