Initial response
Spring Budget 2024

06 March 2024

No one will be surprised that in today’s pre-election Spring Budget, the chancellor’s more significant tax cutting measures were targeted towards individual taxpayers – especially hard-working families.

His 'budget for long-term growth' focused on 'making work pay', public sector productivity and promoting the UK as a 'global capital for creativity'. But what will be the impact on you and your business?

Key highlights from the Spring Budget

Reduction in employee NIC

The standard rate of employee’s National Insurance Contribution (NIC) will reduce by a further 2 percentage points. This takes the rate from 10% (effective since January 2024), to a new low of 8% from April 2024. Combined with the cut announced in last year’s Autumn Statement, this will save the average worker over £900 a year.

Employers will not see the benefit of the NIC reduction, as their rates are staying the same. In view of the previously announced increase in National Minimum and Living Wage rates from 1 April 2024, employers will still be facing an increase in employment costs.

As NIC is UK-wide, the reduced rate will apply to employees in the devolved nations.

Self-employed

Following the reduction of Class 4 National Insurance in the Autumn Statement, and the abolition of Class 2, self-employed individuals will also benefit from a further reduction in the rate of Class 4 announced today, from 8% to 6% on their profits.

Non-dom regime

The chancellor acknowledged the tension between ensuring that overseas individuals are incentivised to invest in the UK, but also that they pay a fair amount of tax. After some changes to the non-dom regime in recent years, the chancellor has indicated that the current system will be abolished, and the concept of domicile will be removed from the UK tax legislation. The new regime will commence on 6 April 2025 and will include transitional arrangements.

High Income Child Benefit Charge

The perceived unfairness of the High Income Child Benefit Charge becoming repayable based on individual earnings rather than household earnings was acknowledged and will be subject to a wider review. In the meantime, the tapering threshold has been increased to £60,000 and Child Benefit becomes fully repayable when the higher earner receives £80,000 per annum.

Residential property

Provided holiday rental properties met certain criteria, the furnished holiday lettings regime (FHL) regime meant that these types of short-term lettings were tax advantaged for the landlord when compared with longer term tenancies. The FHL regime is abolished from 6 April 2025.

As a secondary and unexpected measure, the higher rate of Capital Gains Tax on the sale of residential property is reduced from 28% to 24%. This will be welcomed by landlords who have come under increasing pressure with interest rate rises.

VAT turnover threshold rises to £90,000

With the turnover threshold for VAT registration frozen at £85,000 since 2017, the unexpected rise in the threshold to £90,000 will make up some of the ground lost to inflation over the past seven years. However, it does not address the key problem arising from the UK’s hard VAT threshold – the ‘cliff edge’ effect, where many small businesses are discouraged from growing their turnover in case the addition of VAT prices them out of their consumer-facing market.

Full Expensing for assets for leasing

The chancellor today announced that the government will seek to extend full expensing to assets for leasing (to broadly match that available for plant and machinery investment). While no doubt welcomed by the leasing sector, the chancellor made it clear that this would only be introduced once fiscal conditions allow this. Draft legislation is due to be published shortly.

‘Oil and Gas Windfall tax’

The Energy Profits Levy, introduced in 2022 to ensure that oil and gas producers in the UK pay their fair share of tax from extraordinary profits, is being extended by an additional year to 2028-29.

Audio-Visual Expenditure Credit

A UK Independent Film Tax Credit will be introduced at a rate of 53% on qualifying film production expenditure for films with budgets under £15m that meet the necessary requirements. In addition, the credit for visual effects costs in film and high-end TV will be increased to 39% from April 2025, and the 80% cap will be removed for qualifying expenditure for visual effects costs.

Theatre Tax Relief (TTR), Orchestra Tax Relief (OTR) and Museums and Galleries Exhibitions Tax Relief (MGETR)

From 1 April 2025, the increased rates of TTR, OTR and MGETR temporarily set during the pandemic will be permanently extended.

Economist's view on the Spring Budget

The chancellor had two aims today; to give his party a boost in the polls without spooking the Bank of England and financial markets. While we won’t find out if he succeeded in his first aim for a few days, he looks to have achieved the second, as financial markets have taken the latest round of tax cuts in their stride.

Indeed, financial markets are still pricing in a roughly 40% chance of the first cut in interest rates coming in June and two-year gilt yields, which are the best measure of where mortgage rates are going, were unchanged at around 4.3%.

Calm financial markets mean that this further injection of fiscal stimulus should help to drag the economy out of recession. We estimate that the net fiscal giveaway of about net £13bn should boost the economy by 0.1% to 0.2% this year. What’s more, by focusing tax cuts on National Insurance, which encourages people to work more, and freezing fuel and alcohol duty, the modest fiscal stimulus announced today is unlikely to have a significant impact on inflation this year. That means the Bank of England can largely ignore today’s announcements.

But perhaps even more important than the measures announced today were the things the chancellor didn’t mention. The chancellor has only met his fiscal rule, that the debt-to-GDP ratio has to be falling in five years’ time, because of implausibly small, predicted rises in real departmental spending from 2025. Considering the pressures on defence and health spending he mentioned, combined with tax rises that will never happen, such as increase in fuel duty, this will be quite a feat to pull off. Throw in higher interest rates over the medium term, and the outlook for discretionary fiscal spending looks even more challenging.

The real message from today is that whoever wins the next election will be faced with some extremely difficult decisions. And there is a fairly good chance that today’s tax cuts will have to be reversed in the next parliament, once fiscal reality sets in.