Spring Budget Review

Jeremy Hunt has unveiled his Budget, and we now know for certain what changes will be brought in. The main thing we discovered was that the veil had been a particularly ineffective one as virtually all of the leading measures that were announced had been well trailed in the days and weeks leading up to his statement.

Below we look into those measures, what they mean for the short-term future of politics and what they mean for our clients.

Having announced £1m of funding for a memorial to Muslims who had served in the First and Second World Wars, Hunt began his speech with a theme that he regularly returned to. The mission is to create greater growth and higher living standards and that is best achieved in a low tax economy that incentivises higher levels of investment. Upon starting his reply, the Leader of the Opposition was quick to remind the Chancellor that the country’s tax burden is now at it’s highest level in seventy years.

The updated forecasts from the Office for Budget Responsibility which have generally been overly pessimistic will have given the Chancellor some increased optimism. Inflation which is now down to 4% is forecast to fall to 2% this year. Growth is predicted to be 0.8% this year and 1.9% next year. The latter prediction is 0.5 percentage points higher than Autumn prediction. Borrowing as a proportion of GDP is set to fall in every year to 94% of GDP by 2028.

While most of this is good news for the Chancellor and Prime Minister, lowering inflation has the unfortunate consequence of depressing the amount of taxation brought in as prices and incomes stop increasing so sharply. The Chancellor’s projections of future income will therefore take a small knock.

Set within this context there were a good number of unsurprising announcements.

Personal taxes

The headline announcement that the Chancellor will hope dominates the media coverage will be the further 2p cut in employees’ national insurance from 10% to 8%. Taken with the 2% cut already announced last Autumn, Hunt’s officials calculate that this will result in a £900 per year saving for the average worker.

There was some speculation that there would also be a cut in income tax, but this was clearly a step too far.

The other announcement on personal taxes was the decision to raise the threshold for the High Income Child Benefit Charge which was removing Child Benefit for more and more families. The threshold for the charge kicking in will rise from £50,000 income per year to £60,000 and the taper will be increased so that all child benefit is only increased once earnings hit £80,000. The Chancellor went on to announce that as of 2026 the tax system will be reformed so that whole household income will be determinant of when the charge is applied as opposed to the income of one parent. This will be very complex to introduce, and I will believe it when I see it.

Fuel duty

Since 2010 successive Conservative Chancellors have made a virtue of freezing fuel duty and following the huge spike in oil prices in 2022, Rishi Sunak introduced a twelve-month reduction of 5p. That reduction was extended for a further twelve months in 2023 and today the Chancellor announced a further twelve-month extension.

Pubs

Well before the Chancellor stood up to deliver the Budget it was announced that he and the Prime Minister would be visiting not one but two pubs for photocalls later in the day. It therefore came as no surprise that he announced a further twelve months freeze in alcohol duty.

Business Investment

The full expensing rules for plant and machinery that were made permanent in the Autumn Statement were a welcome step by the Chancellor to boost incentives for businesses to invest. While he didn’t announce anything as big today there were further announcements including a commitment to extend the scope of full expensing to include leased equipment “as soon as economically possible”.

The devolution deals for Surrey, Buckinghamshire and Warwickshire were all confirmed as was an enhanced deal for the new combined mayoral authority for the North East. The county areas that have been awarded new devolution deals will also be expected to take on the roles of the Local Enterprise Partnerships whose demise was announced last year.

Increased levelling up funding of £100m for cultural projects was announced along with support for specific business projects and schemes such as investment in housing at Barking Riverside and the Life Sciences sector at Canary Wharf. The Greater Cambridge area is to receive another £10m for transport to support the Government’s growth ambitions.

On the nuclear sector, the government has reached a deal with Hitachi to buy the Wylfa power station site on Anglesey for £160m in the hope of building a new nuclear power station. Meanwhile Great British Nuclear will begin the next phase of the small module reactor process with tenders due in June. Linked to this there was also an announcement on improving connections to the National Grid.

While no detail is available yet, the Budget includes plans to allow public authorities greater powers to compulsorily purchase sites to aid better land assembly and hopefully bring forward more brownfield sites for development.

The Chancellor has been focused on improving the pensions sector both to ensure better returns for private pensions and to incentivise more investment in the UK. He will give more powers to the pensions regulator and establish a new vehicle for pension funds to invest in the British economy. Reforms will also be made to ISAs to encourage investment in UK assets.

Other measures to support the economy included the announcement that the VAT threshold for small businesses will rise from £85,000 per year to £90,000, £270m will be invested into advanced manufacturing with a focus on zero emission tech and there will be £26m of funding for the National Theatre.

Household support

The Chancellor announced that the Household Support Fund will be extended for another six months, he will increase the repayment period for emergency loans from twelve to twenty-four months and he is abolishing the £90 charge for debt relief orders. This will provide some relief for those who have been dependent on this support and combined with the increase in Local Housing Allowance that was announced in the Autumn and will begin in April, should help many low-income families.

Public Services

There was speculation that the Chancellor would make cuts to the amount of money planned to be spent on public services in future years but instead he maintained the existing plan to increase departmental spending by 1% per year. He did though say that the public sector would have to spend that money better.

The Chancellor announced new investments to improve public sector productivity with specific focuses on the NHS and the police forces. He admitted that many of the current systems are antiquated so he announced £3.4bn to boost productivity in the NHS and £230m to roll out new tech in the police forces.

Tax rises

In order to pay for the national insurance cut and investments the Chancellor has announced a range of tax hikes including introducing duty on vapes and increasing duty on tobacco, increasing air passenger duty on non-economy flights, abolishing the Furnished Holiday Letting reliefs, abolishing multiple dwellings relief and restricting tax rules on non-domiciled residents to four years as opposed to the current open-ended rules.

Implications for the next twelve months

These announcements don’t tell us a great deal that we didn’t already know but they do confirm that Jeremy Hunt has significant political capital within the current cabinet and is brave enough to use it. The plan to cut national insurance rather than income tax was definitely his. We know that the Prime Minister preferred a cut to income tax.

Of the other moves in the Budget there were none that stuck out as being Hunt projects more than Sunak passions. Both are committed to bringing in measures that reduce taxes and incentivise investment. They have moved the dial slightly in that direction today but the fruits of encouraging and delivering more investment will not be felt for some time. The tax cuts will only be felt by some – many people, including pensioners will only see their Council Tax and income tax bills going up.

Similar announcements made in the Autumn Statement did nothing to improve the popularity of the government and the likelihood of Labour forming the government after an Autumn 2024 general election has only grown since then. It is hard to see how today’s Budget will make any difference to that likelihood.

In making these announcements today the Chancellor has continued to restrict the ability of an incoming Labour Government to make the investments it will want to prioritise without having to raise income tax, national insurance or VAT. The move on non-doms means that one plank of Rachel Reeves plans has already been used up.

The announcements today do offer up some more ways in which economic growth and both public and private sector investment can be boosted. There is still little hope that either will see growth that is equal to or greater than the long-term trends. The Chancellor was keen to boast that on many metrics the UK was outperforming comparable countries including France and Germany. This is all well and good, but the challenges that face the country, its economy, the housing market and overstretched public services need much more than Jeremy Hunt was able to offer today.