The UK’s 2024 Spring Budget unpacked: Lower taxes, better services, and more investment
In a move towards propelling the UK economy into a brighter future, Chancellor Jeremy Hunt unveiled the ‘Budget for Long Term Growth’ on Wednesday, 6th March 2024. The budget reflects a strategic alignment with promising economic indicators, including falling inflation, consistently rising wages, and a growth trajectory outstripping European counterparts.
Overview:
Changes in personal taxes and support schemes
With the UK economy turning a corner, all eyes were on Chancellor Hunt’s budget to sustain and capitalise on the momentum. The fiscal strategy is poised to put over £900 annually back into the pockets of the average worker, buoyed by a second cut in Employee National Insurance tax from 10% to 8%, benefiting a staggering 27 million working individuals. Furthermore, self-employed workers are set to reap rewards with a 2p reduction in the NICs main rate, translating to savings of £650 when combined with previous cuts.
The Chancellor’s budget outlines a comprehensive package of personal tax cuts, totaling a substantial £20 billion, effectively reducing the personal tax rate to its lowest level since 1975. Notably, measures such as reforming the High Income Child Benefit Charge and enhancing support for working families are projected to uplift around half a million households, with an average boost of £1,260 per family.
National Insurance reduction
Effective from April 6, 2024, the government has enacted a reduction in the main rate of employee National Insurance, slashing it by 2p from 10% to 8%.
Additionally, the government has extended its tax-cutting measures to self-employed individuals, further reducing the main rate of self-employed National Insurance. This additional 2p cut supplements the previous 1p reduction announced during the Autumn Statement, alongside the elimination of Class 2 contributions.
Consequently, starting April 6, 2024, the main rate of Class 4 NICs for the self-employed will see a notable decrease from 9% to 6%. When combined with the removal of the Class 2 requirement, this initiative is expected to result in average savings of £650 per year for self-employed individuals earning £28,000 annually.
When considering the cumulative impact of these adjustments alongside those introduced during the Autumn Statement, the collective tax relief surpasses an impressive £20 billion per annum, constituting the most extensive cut to employee and self-employed National Insurance in history.
HIBC changes
The government is set to implement significant changes to the High Income Child Benefit Charge (HICBC), aimed at providing relief to hard-working families and addressing concerns regarding fairness in its application.
Starting April 2024, the income threshold triggering the imposition of the HICBC will rise from £50,000 to £60,000. Furthermore, the rate at which the HICBC is levied will be halved, transitioning from 1% for every additional £100 earned above the threshold to 1% for every £200. Consequently, individuals will not face the full withdrawal of Child Benefit until their earnings reach £80,000 or beyond.
The government anticipates that approximately 485,000 families, diligently managing the expenses associated with raising children, will experience an average boost of £1,260 in the fiscal year 2024/25. Moreover, this adjustment will remove around 170,000 families from the burden of paying the tax charge.
Acknowledging concerns regarding the current method of assessing the HICBC on an individual basis, the government aims to rectify this disparity. For instance, while dual-income families with each earner making £49,000 (resulting in a combined household income of £98,000) may escape liability for the HICBC, a single parent earning slightly above £50,000 could face the charge.
To address this discrepancy, the government is planning to transition to a household-based assessment for the HICBC by April 2026, with consultations slated to commence in due course. This strategic shift aims to ensure a fairer and more equitable approach to assessing the HICBC, aligning with the government’s commitment to supporting working families and promoting financial stability.
Energy Profits Levy on oil and gas windfall profits
Additionally, recognising the prolonged windfall profits of the oil and gas sector due to elevated prices, the sunset clause on the Energy Profits Levy will be extended until March 2029. The bill was initially introduced as a means of financing assistance for households grappling with escalating bills due to surging energy prices following Russia’s invasion of Ukraine.
This extension is anticipated to generate £1.5 billion in revenue while concurrently fostering investment in the UK’s energy security. Moreover, a commitment has been made to legislate for the abolition of this levy should market prices regress to historical norms earlier than anticipated.
New non-dom tax regime rules
The Chancellor also took decisive measures to streamline and ensure equity within the tax system. Effective April 2025, the ‘non-dom’ tax regime will be dismantled and substituted with a more equitable framework. Under this system, newcomers to the UK will be subject to the same tax obligations as all residents after a four-year period, yielding an estimated annual revenue of £2.7 billion by 2028/29.
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Stimulating growth in key industries
The budget underlines a strategic thrust towards nurturing high-growth sectors, positioning the UK as a global leader. Significant tax reliefs and investments, spanning creative industries, life sciences, and advanced manufacturing, aim to fuel innovation and drive economic expansion.
R&D tax credits for key sectors
Noteworthy initiatives include a £360 million package to support R&D in key sectors and a £120 million injection to bolster supply chains for offshore wind and carbon capture and storage.
Within this allocation, £92 million is designated for life science manufacturing facilities aimed at advancing drug development and diagnostics. Additionally, £200 million is allocated for the advancement of clean aviation technology, with nearly £73 million earmarked for the development of electric vehicles.
Notably absent from the announcement was any mention of structural reforms to the R&D tax credit scheme, a matter that had been eagerly anticipated by startups. Historically, Chancellor Hunt has implemented cuts to this popular scheme, only to backtrack on some of these changes in subsequent budgets.
Nevertheless, a pledge was made to “enhance the efficiency of the R&D tax reliefs system.” To achieve this, HM Revenue and Customs (HMRC) will establish an “expert advisory panel” tasked with enhancing the administration of the R&D tax credit scheme.
This initiative addresses a significant concern within the technology sector, which had been highlighted by the Startup Coalition. Companies within the sector had voiced grievances over prolonged delays and instances where they were required to repay tax breaks years after their initial receipt.
Tax reliefs for key industries
Propelled by new tax incentives and strategic investments, the UK is poised to solidify its position as a global leader in high-growth industries. A comprehensive funding initiative exceeding £1 billion will bolster the nation’s creative sectors, ushering in a new era of innovation and growth.
Within this expansive investment plan, substantial support will be directed towards the UK’s vibrant creative industries. This includes the implementation of enhanced tax reliefs aimed at reducing the production costs associated with visual effects in high-end television and film productions. Moreover, eligible film studios will benefit from a newly introduced 40% relief on gross business rates, slated to remain in effect until 2034. Additionally, a novel tax credit scheme will be established to support independent British films operating within a budget of less than £15 million.
Recognising the cultural significance of various artistic institutions, orchestras, museums, galleries, and theatres are slated to receive notable tax incentives. Specifically, touring productions will enjoy a permanent 45% tax relief, while non-touring productions will benefit from a 40% relief, fostering a conducive environment for artistic endeavours across the nation. Furthermore, a dedicated fund of £26 million will be allocated to finance essential maintenance and repair works at the esteemed National Theatre, ensuring its continued contribution to the cultural landscape of the UK.
Additionally, a total of 28,000 small and medium-sized enterprises (SMEs) will be removed from VAT registration, thereby incentivising them to pursue investment and expansion initiatives.
Capital Gains Tax reductions on property
Effective from April 2024, the elevated rate of Capital Gains Tax (CGT) on property will be reduced from 28% to 24%. This adjustment is poised to reinvigorate the residential property market, thereby bolstering thousands of jobs that are dependent on its vitality.
Boosting public sector productivity and NHS funding
Recognising the pivotal role of public services, particularly amidst ongoing challenges, the budget earmarks substantial investments to bolster productivity and efficiency. A landmark Public Sector Productivity Plan, backed by a £4.2 billion injection, seeks to harness cutting-edge technology like AI to streamline operations and drive substantial savings, with the NHS receiving a significant £3.4 billion boost for digital transformation, aimed at unlocking £35 billion in productivity savings by 2030.
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Other announcements from the new budget
Expanding upon the largest-ever investment in childcare in English history, nurseries and preschools will receive safeguarding against escalating expenses. This assurance comes in the form of a commitment that future funding will increase in alignment with a blend of inflation, earnings, and the National Living Wage. Such certainty is crucial for the sector’s growth and successful implementation of childcare provisions. As a result, some parents utilising the full 30 hours of childcare stand to save up to £6,500 annually.
Additionally, the average car driver will save £50 this year as the 5p cut and freeze to fuel duty is maintained until March 2025, while pubs, breweries and distilleries will benefit from a further freeze to alcohol duty until February 2025 – which will also save consumers money on their favourite tipple.
Finally, funding in the hundreds of millions will be allocated to extend the Long Term Plans for Towns to 20 additional locations, promoting opportunity and development nationwide. Simultaneously, a variety of cultural projects will receive support, enriching communities across the country. Moreover, local leaders will gain increased authority to enhance their areas through additional devolved powers. Particularly noteworthy is the new North-East trailblazer devolution deal, which carries a substantial funding package, potentially exceeding £100 million, aimed at bolstering the region’s growth aspirations.
In conclusion
Chancellor Jeremy Hunt’s ‘Budget for Long Term Growth’ epitomises a strategic blueprint for steering the UK towards sustained prosperity and resilience. With a judicious blend of lower taxes, targeted investments, and enhanced public services, the budget sets the stage for a dynamic economic resurgence, reaffirming the UK’s position as a beacon of economic dynamism and innovation on the global stage.
