Budget 2024: Update on the new budget and its impact

In March, the Chancellor delivered the budget for 2024. This year’s budget, being delivered in an electoral year and a current poor economic condition, meant that it was always likely to be more of a tax giveaway to boost the electoral rather than a plan to rebuild the economy.

This year’s headliner will be the cut from 10% to 8% for national insurance contribution from April. This comes on top of a 2p cut in the autumn statement in November, which reduced the rate from 12% to 10%. The cut will benefit the average worker by £450 a year. However, despite the generosity, it remains to be seen the extent of the impact of the measure. Income tax thresholds have been frozen which means employees will continue to pay further tax as their wages increase with inflation.

For businesses the budget was underwhelming, the VAT threshold will be increased from £85,000 to £90,000 which will be beneficial to small businesses, but its overall impact will likely be minimal with only a £5,000 rise. Jeremy Hunt, however, did offer promise for the future that when economic condition allows, he plans to allow full expensing to apply to leased assets.

The Chancellor may have personal conviction and potential policies for lower taxation but was restricted by the current poor economic condition. The cost of leaving Europe, Covid support, and the support of Ukraine are massive bills and the borrowing that has resulted will be a burden on the taxpayer for a long time which must be repaid or, maybe in the short-term, refinanced at lower rates.

A government can only try to engineer conditions and create policies for prosperity. Until the economic condition improves, a coordinated growth strategy for further economic growth that could support that debt, and then grow the economy, eludes us.

Here is a summary of the main takeaways from the budget:

National insurance

National insurance contribution rate will be cut from 10% to 8% of pay from April. This comes on top of a 2p cut in the autumn statement in November, which reduced the rate from 12% to 10%. It is estimated that the 2p cut to national insurance would be worth about £450 a year for someone on a £35,000 full-time salary.

Growth

Economy is expected to grow by 0.8% this year and 1.9% in 2025. That is slightly stronger than the 0.7% and 1.4% growth rate expected by the Office for Budget Responsibility (OBR) at the time of the autumn statement in November.

Inflation

Inflation is expected to fall below the government’s 2% target in a few months’ time”, The Bank of England’s long-term target is to keep inflation at a “low and stable” 2%.

Government borrowing

Underlying debt, which excludes Bank of England debt, will be 91.7% of GDP in 2024-25 according to the OBR, then 92.8%, 93.2% and 93.2% before falling to 92.9% in 2028-29.

Property tax

Government will reduce the higher rate of property capital gains tax from 28% to 24%. Also announced the abolition of stamp duty relief for those buying more than one dwelling.

Savings

A new “British Isa”, giving investors a £5,000 extra tax-free allowance to “encourage more people to invest in UK assets”. Hunt says a new British Savings Bond will be launched in April, delivered by the state-owned National Savings and Investments. It will offer a guaranteed rate, fixed for three years.

Other measures

Hunt says he plans to allow full expensing to apply to leased assets. Full expensing allows businesses to offset investment in items such as new factory machinery and IT equipment against tax.

VAT registration threshold will be increased from £85,000 to £90,000 from the start of April.

He confirms that the government plans to sell a chunk of shares in NatWest bank in the summer. The bank was bailed out during the financial crisis to the tune of £45.5bn to help save the UK’s financial system from collapse. The state’s remaining one-third share in the bank is now worth about £7bn.