AUTUMN BUDGET ............ AS BAD AS THE HYPE?
Phil Mitchell 30 October, 2024
The Chancellor, Rachel Reeves delivered the long-awaited Budget, which could be viewed as the most hyped ever, featuring in the media since the Labour party was elected. Lots of predictions circulated over the summer with Treasury leaks then starting over the last couple of weeks. Many believing the leaks were aimed at softening the blow of what was coming, but in respect of the tax increases, many may say they were not as bad as was being hyped.
While briefings about a hefty increase to National Insurance (“NIC”) were correct, the suggestion of an ongoing freeze in income tax thresholds and significant increases in Capital Gains Tax rates did not materialise. No changes to Pension Tax relief, or scrapping the tax-free lump sum, but from 2027, pensions will form part of the for estate of Inheritance Tax.
The Chancellor’s speech lasted for 77 minutes, and can be broken down in three parts:
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OPENING Blaming the previous government for the legacy inherited, and the results of the Office of Budget Responsibility (“OBR”) review of the previous governments forecasting resulting in the Chancellors £22bn black hole. The report’s conclusion was that the OBR were not provided with the full information.
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MIDDLE Tax and government spending.
- END The pre-announced change in borrowing rules, and what investments would be made.
The Chancellor confirmed she is "focused on our mission to grow the economy" while setting out the plan to raise taxes by £40bn, with £25bn being raised by the increase and changes to employers’ NIC. There were changes to capital gains tax rates, some with immediate effect, but nowhere near as bad as was being predicted. The devil is in the detail, as although not being introduced immediately, there are changes to business asset disposal relief (10% tax rate on qualifying business disposals).
The Chancellor announced she was "restoring stability to our public finances and rebuilding our public services", setting out detailed major spending plans, alongside a host of specific capital initiatives. As was already trailed before the speech, the Chancellor advised the Government will return the UK economy to stability which will create the right conditions for investment. The government plans to install “guardrails” to make sure that spending is "wise", to ensure that the investments will deliver returns for taxpayers. The OBR reports that the investment plan will increase GDP by 1.4% in the longer term but will reduce growth for a period from 2027.
Based on what is presumed the correct information being supplied to the OBR, the forecasts provided:
- GDP growth will be 1.1% in 2024, 2.0% in 2025, 1.8% in 2026, 1.5% in 2027, 1.5% in 2028, and 1.6% in 2029.
- CPI inflation will average 2.5% 2024, 2.6% in 2025, then 2.3% in 2026, 2.1% in 2027, 2.1% in 2028 and 2.0% in 2029.
The OBR published an assessment of the growth impacts of the Government’s policies over the next decade. It estimated that the proposals in the Budget would permanently increase the supply capacity of the economy, boosting growth. The Chancellor pledging to maintain the 2% inflation target and published a new charter for the OBR.
In respect of tax increases, businesses are covering more than 50% of the £40bn, being asked to “contribute more" with the employer NIC changes. The Chancellor said "difficult decisions" had to be made to restore economic stability, and employers would benefit in the future from having a healthier workforce with spending on the NHS, together with better educated and trained employees, with spending on the education system.
With the NIC increase, in addition to the national minimum wage announced yesterday, for many businesses - especially small businesses (although there are some enhanced reliefs for very small businesses) - there is a significant cost to businesses. The arguments whether this is the correct way to grow the economy will be brought out over the next few weeks!
Although hit with the higher employment costs, retail, hospitality and leisure businesses will benefit from changes to business tax rates. From 2026-27, permanently lower tax rates will be introduced for this sector. Until the change on which further detail is to follow, for 2025-26, certain properties will receive 40% relief up to a cash cap of £110,000 per business.
As we keep flagging, work on Covid Fraud has not gone away. The Chancellor has appointed a Covid Corruption Commissioner. In addition, to make sure value is being achieved for public services, a new Office for Value for Money is being appointed. The Chancellor is looking for department inefficiencies, increased use of technology and cross department services, with someone monitoring to make targets are being hit and improvements made.
The Chancellor is investing in improving HMRC's customer services, including answering 85% of phone calls where customers want to speak to an advisor, as well as transforming “HMRC into a digital-first organisation, with a ‘digital transformation roadmap.’” There is also to be more investment in the recruitment of more staff and training for HMRC, which if successful can only be a benefit with the current issues the taxpayer and agents (including Harbour Key) are having.
Outside of blaming the previous Government, and the long list of investment projects, there are some significant tax changes, and a lot of detail in the papers released post the speech. We would recommend that you read our tax change summary in the link below.
Whether the Chancellor’s plan to increase Government borrowing and to spend on capital investment works out in the long term is a wait out and see. From a tax raising perspective, most will feel it could have been worse (unless you are an employer), but again this could have been the tactic - paint a bad picture and then soften the blow.
DATES FOR YOUR DIARY
- Key tax dates for the period July 2024 to December 2024 can be found by clicking HERE!
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