The 2024 Spring Budget is just weeks away, with commentators hopeful of tax giveaways ahead of a general election later this year.
Chancellor Jeremy Hunt will deliver his latest Budget on Wednesday, 6 March.
Analysts are hopeful that inflation remaining steady rather than rising in January could leave room for tax cuts in the red book to woo voters.
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This will most likely be the chancellor’s final fiscal update before a general election is held.
There are also hopes for changes in areas such as inheritance tax, capital gains tax, child benefit, ISAs and pensions.
Or will a backdrop of weak economic growth and low productivity thwart the government’s plans to implement the cuts that many are hoping for?
Will Hunt reduce spending to fund tax cuts?
Hunt has said there is less flexibility for tax cuts in the 2024 Spring Budget than there was last Autumn.
Speaking to the BBC on 1 February, he said: “I need to set people's expectations about the scale of what I'm doing because people need to know that, when a Conservative government cuts taxes, we will do so in a responsible and sensible way.”
However, subsequent reports suggest he is looking at cutting public spending as a way to help fund them. According to the Financial Times, sources close to Hunt have said that Treasury officials are considering “reducing projected spending rises to about 0.75 per cent a year, releasing £5bn-£6bn for Budget tax cuts.”
The level of taxation in the UK is currently at a record high, and tax cuts are a clear way for the Conservative Party to keep its voter base on side – especially with a general election hovering ever closer on the horizon. Hunt will want to pull out all the stops. However, a tough economic backdrop could mean his hands are tied.
The Chancellor received the latest forecast from the Office for Budget Responsibility (OBR) on Wednesday, and reports suggest this indicated very little flexibility for him to play with. The Financial Times writes, “One Treasury insider said the ‘fiscal headroom’ available to Hunt in the latest forecast was little more than the £13bn he had left in reserve after the Autumn Statement in November”.
This news comes in a tough week for the Conservative Party.
On 15 February, the Office for National Statistics (ONS) released the latest growth figures, which revealed that the UK dipped into recession in the final quarter of 2023. One of the five promises Rishi Sunak set out in 2023 was to grow the economy – so this is not a good look in what is very likely to be an election year.
Two by-elections also took place on 15 February in Wellingborough and Kingswood, and Labour overturned large Conservative majorities in both. This swing in allegiance among the voter base could be read as a clear initial indication that the country is ready for a change of leadership.
Against this backdrop, the Spring Budget becomes even more politically charged.
For now, Hunt has a couple of weeks left to finalise his plans, which will be revealed on Wednesday, 6 March. In the meantime, we have pulled together a round-up of measures that could spring out of the March 2024 Budget.
Inheritance tax reform
IHT is currently paid by fewer than 4% of estates but high house prices and frozen IHT thresholds mean more people are predicted to fall into the net.
It is a controversial charge as most of the wealth and assets people leave behind have already been taxed and it makes it harder to leave an inheritance to a loved one.
IHT reforms would be popular with traditional Tory voters and there are even suggestions the tax could be axed.
Other suggestions include cutting the IHT rate or increasing the tax-free thresholds.
“This will again draw criticism that this will favour those who are better off at a time when people continue to struggle through the cost-of-living crisis,” says Susannah Streeter, head of money and markets at Hargreaves Lansdown.
“However, it is certainly a tax in need of reform, and it is highly likely to be targeted for upheaval in March.
“Even increasing nil-rate bands and revisiting gifting allowances would play a major part in freeing many caught in the tax net and would enable more people to pass money down the generations, supporting their family members when they need it most.”
Income tax cuts
National Insurance rates were cut during the Autumn Statement but there are hopes that attention will turn to income tax in the Spring Budget.
Sian Steele, head of tax at Evelyn Partners, says the fairer income tax-cutting move would be to break the threshold freeze and raise the personal income tax allowance or the threshold for the higher-rate band.
“The personal tax allowance was £12,500 in April 2019: if it had been raised in line with the consumer prices index it would have been set at around £15,150 last April and if we assume inflation of 6% for this financial year it would be about £16,000 by next April,” she says.
“Likewise, the higher-rate tax threshold which was £50,000 in April 2019 – and is drawing huge numbers of people into paying 40% tax - would have been raised to about £60,600 by this April and by next April would be well over £64,000.”
Graham Loosley, partner at Mercian Accountants, suggests there could be a 1p or 2p reduction to the basic rate of income tax.
“With polls favouring the opposition Labour Party, the Conservatives will be using tax cuts as a tool to win back voters,” he says.
“Focusing on lower and middle-income earners might prove more electorally beneficial, however. As such, the economic performance between now and the Budget will influence the available fiscal space and the public's receptiveness to these measures.”
Dividend and capital gains allowances restored
But could there be a last-minute pre-election respite?
‘’Halting plans to slash the thresholds for dividend tax and capital gains tax would relieve pressure on both investors and entrepreneurs,” adds Streeter.
“These thresholds were already cut significantly in April 2023, and are set to be halved again in April 2024, meaning higher tax bills for investors and people who run their own business and pay themselves in dividends.
“Given the government’s growth agenda, and drive to encourage investment into UK companies, halting the planned threshold cuts could help promote this agenda and help the London Stock Exchange retain its lustre.’’
Introduction of a Great British ISA
Rishi Sunak and Jeremy Hunt are reportedly split over proposals to introduce an additional ISA allowance specifically for investment in British companies.
The idea of a Great British ISA was mooted last year before the Autumn Statement, but in the end, nothing was announced.
The proposal involves savers being handed an extra £5,000 ISA allowance if they put money into UK-listed companies via a ringfenced tax wrapper, in a bid to boost the economy.
It’s understood that if the tax-efficient product was introduced, the changes would not come into force until the 2025-26 tax year.
Streeter is critical of the proposal: "Mooted plans for a British ISA to help direct investors’ money into UK-listed companies adds unnecessary complexity, could fail to achieve its aims, and could have a negative impact on UK investors."
She would prefer to see an increase in the overall £20,000 ISA allowance which "would boost UK companies anyway and continue to enable sensible diversification."
Hunt is reportedly facing opposition to these plans from political advisers who have warned it would add unnecessary complexity to the ISA regime, The Financial Times reports.
Tom Selby, director of public policy at AJ Bell, agrees that one of the key reasons ISAs have been popular with investors is their simplicity.
"While the ISA allowance is overdue an upgrade, restricting that extra allowance to UK investments would layer on extra complexity to a product that has already become increasingly complicated over the years," he says.
“This feels more like a gimmick than long-term policymaking in the interests of savers and investors."
Selby suggests a much simpler solution would be to increase the overall ISA allowance and leave individuals with the freedom to invest in a way that suits their needs and appetite for risk.
"Many would naturally choose to invest in the UK of their own volition, meaning there would be a benefit to UK firms without the layering on of unnecessary complexity," adds Selby.
Lifetime ISA reforms
Campaigners including personal finance expert Martin Lewis plus multiple savings and investment firms have been lobbying the government to reform the lifetime ISA.
The £450,000 limit on the value of property bought with a lifetime ISA has not been reviewed since the product was launched in 2017.
If the Lifetime ISA limit had increased in line with average UK house prices, it would be around £560,000 today.
There are also calls to reduce the penalty for people who access their money early.
The 25% penalty for accessing money for purposes other than buying a first home or for retirement removes the government bonus, and also a chunk of people’s savings.
Reducing the early-access penalty to 20% means people will not lose any of their own savings.
Jim Islam, chief executive at LISA provider OneFamily, comments: “We urge the government to support first-time buyers by reducing the unfair lifetime ISA penalty and updating the outdated house price cap in this year’s Spring Budget."
These views have been echoed by UK Finance but it has also called for the first-time buyer stamp duty threshold of £425,000 to remain permanent rather than being returned to £300,000 as is currently scheduled in April 2025.
Pension details unveiled
We could see a further announcement about plans to create a "lifetime pension" or "pot for life".
The idea is that the employee rather than their boss chooses the pension scheme that contributions go into - and they keep that same "pot" if they change jobs.
A consultation was launched in last year's Autumn Statement, and finished this month.
The Spring Budget might also include more detail about the auto-enrolment extension.
The Auto-enrolment Extension Bill received Royal Assent in September. It introduces powers to reduce the age for being automatically enrolled to 18, and enable pension saving from the first pound earned.
But it's not clear when any changes will happen. The bill includes a statutory requirement to consult on the implementation approach and timing - could a consultation be announced in Hunt's Budget speech, or perhaps a separate document may just quietly emerge on 6 March?
Child benefit threshold increased
The chancellor is mulling a possible rise to the £50,000 High Income Child Benefit Charge threshold, introduced by the Conservatives in 2013.
Parents have to pay back 1% of their family's child benefit for every extra £100 they earn over the £50,000 limit, via the High Income Child Benefit Charge.
It means if a parent earns £60,000 or more, the charge wipes out the full amount of child benefit claimed.
Critics say the threshold is unfair, as it means one person earning £60,000 doesn't receive any child benefit, but a household with two people earning £50,000 each can keep the full amount.
The Association of Taxation Technicians (ATT) has called for the government to up-rate the £50,000 threshold to reflect inflation.
It said that applying inflation to the current threshold would increase it to £67,100. And the point at which full clawback of child benefit receipts occurs (currently £60,000) would rise to £80,500, when adjusted for inflation since 2013.
Raising the limit would extend child benefit to hundreds of thousands more middle-income families.
Marc Shoffman is an award-winning freelance journalist specialising in business, personal finance and property. His work has appeared in print and online publications ranging from FT Business to The Times, Mail on Sunday and The i newspaper. He also co-presents the In For A Penny financial planning podcast.
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