Chancellor Jeremy Hunt will deliver the 2024 Spring Budget on Wednesday, 6th of March, amidst chatter about potential tax cuts. There is speculation about how these tax cuts may be funded including the possibility of raising duties on flying business class, scrapping non-dom tax status, and taxing vaping. Market participants will closely watch the Budget announcement as it is particularly important for businesses and households, at a time when the government is trying to navigate the UK economy’s path out of recession.
What is the Budget?
The Budget is an annual statement delivered by the Chancellor of the Exchequer and holds an important place in the UK’s fiscal calendar. It offers an outline of the government’s plans for taxation, spending for crucial public services such as health, education, and law enforcement, and offers a glimpse into the nation’s finances and economic outlook. Along with the Chancellor’s speech there is a detailed report from the Treasury, which will provide more details about the proposed measures’ implications. The independent Office for Budget Responsibility (OBR) also offers its assessment of the government’s plans.
Economic challenges
The UK economy contracted for two quarters in a row last year, so for Chancellor Hunt the challenges towards the nation’s economic recovery are great. Although there are signs that the recession may be short-lived, many households continue to face the pressures of high prices. The Budget will be key for outlining a potential path towards stability while addressing these issues.
Tax cuts
Given the fiscal restrictions, the government’s desire to reduce taxes is a big subject. The Resolution Foundation think tank estimates that cutting the main rate of income tax by just 1p would incur considerable costs that could amount up to £7 billion. Alternatively, lifting the freeze on tax thresholds and minimising the tax burden for millions is another option. The Chancellor has a difficult task ahead, especially when the International Monetary Fund (IMF) and the Institute for Fiscal Studies (IFS) have warned against tax cuts without a clear financial strategy.
There are various ways that can be pursued to generate revenue and offset the cost of tax cuts including revisiting National Insurance rates, levying higher air travel duties and scrapping non-dom tax status. The latter could generate £3.6 billion annually. Additionally, the extension of the Energy Profits Levy and the imposition of taxes on vaping products are some other measures that the government may take to boost its revenue streams.
Other concerns that the Budget may address include fuel duty freezes, inheritance tax reforms, childcare provisions and housing policies. With the government considering such initiatives as 99% mortgages to facilitate homeownership for first-time buyers, the Budget could impact fiscal measures and affect the UK’s -economic landscape for years to come.
Businesses
The budget is possibly the biggest fiscal event before the next election and the government may make bold choices in winning over voters pre-election. Amidst speculation of tax cuts and public spending changes, the business community and industry leaders are hoping for measures that will boost the economy and address economic challenges.
Many businesses are cautiously optimistic with many industry leaders praising the government’s decision to make full expensing permanent, a significant tax relief that promotes investment. There is also an understanding that the government needs to do more to inject the economy with new life, introduce more incentives for businesses, address staff shortages and generally support business growth.
While many businesses may hope for a reduction in Corporation Tax, this is unlikely, as it has been less than a year the Chancellor increased the rate to 25%.
Business groups are lobbying for different measures. For example, BusinessLDN want the Treasury to support business growth and the government to reinstate VAT-free shopping, reform the Apprenticeship Levy, and fund Transport for London. The Federation of Small Businesses are advocating for increases in the employment allowance and VAT threshold, extending business energy advice services and the recovery loan scheme. The British Chambers of Commerce and the Institute of Directors are focusing on a sustainable plan for economic growth, while the Confederation of British Industry are interested in measures that can help reduce labour shortages, expand expensing to cover leased assets, and support high-growth industries through R&D tax credits.
Jeremy Hunt promised he will cut taxes in a “prudent” manner while the Institute for Fiscal Studies urged him to “tread carefully.” The weight on Hunt’s shoulders is heavy as the Budget is also one of the last opportunities to boost the Conservatives’ image in the opinion polls ahead of the general election.