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Budget Summary

Nov 01
0

Autumn Budget Statement 2024

By | Budget Summary, Latest News, Uncategorized

The first Budget from a Labour government since March 2010, and the first ever from a female Chancellor, proved to be the defining event that had been widely anticipated. From the moment in late July when Rachel Reeves unveiled her “£22 billion black hole” and announced means-testing for the winter fuel payment, it was clear her Budget premiere would be a challenging one for both the government and the governed.

As Budget Day neared, talk of the black hole was replaced by a steady flow of rumours about tax increases and also, to a lesser extent spending cuts, totalling as much as £40 billion. In addition, there were suggestions that government borrowing – already overshooting the March 2024 Budget projections by around £7 billion – would rise by £20 billion to fund NHS and infrastructure projects.

In the event, the Chancellor delivered tax increases amounting to £41 billion by 2029/30. By far the largest element of this was the expected rise in employer’s national insurance contributions (NICs). The 1.2 percentage point rate increase, combined with a £4,100 cut in the secondary threshold will yield nearly £25 billion a year by 2028/29. At that level it more than counters the
cost of the cuts to employee and self-employed NICs introduced by Jeremy Hunt.

Other significant tax increases included higher capital gains tax rates and a future reduction in inheritance tax business and agricultural reliefs. Despite the additional revenue, the Office for Budget Responsibility (OBR) projects that increased spending will mean that borrowing will still be over £70 billion in 2029/30. Not without reason does the OBR say, “…this Budget delivers a large, sustained increase in spending, taxation, and borrowing”.

Read the full statement here.

Mar 07
0

Spring Budget Statement 2024

By | Budget Summary, Latest News

The early trailers in January 2024 for what is probably Chancellor Jeremy’s Hunt’s last ‘fiscal event’ featured Prime Minister Rishi Sunak promising “more to come” on tax cuts.  At the time, Mr Sunak’s bullish viewpoint puzzled some commentators because the Treasury had yet to receive even an initial assessment of the UK’s financial health from the Office for Budget Responsibility (OBR).

As Budget Day neared, a mix of OBR computation and the government’s expectation management dampened down the speculation around tax cuts and suggestions emerged about the possibility of counterbalancing tax increases. It began to sound as if the government’s election strategy would rely more on fiscal responsibility and less on the reductions in NICs or income tax demanded by many of its backbenchers.

In the event, the Chancellor delivered both tax cuts and, to a lesser extent, tax rises. The headline 2024/25 tax cut was another two percentage point reduction in the main rates of NICs for employees and the self-employed, with an initial cost of £10 billion. At only about 5% of that outlay, the easing of the thresholds for the HICBC was a welcome (and surprise) reform.

Tax rises included the predicted ‘adopting’ of the Labour party’s plan to abolish non-domicile taxation from April 2025 and, from the same date, the end of the furnished holiday lets regime. Together, these are projected to yield a little under £3 billion by 2028/29.

Nevertheless, the OBR says that Mr Hunt will meet his fiscal rule of debt falling as a proportion of gross domestic product (GDP) in 2028/29, by which time total borrowing will
exceed £3,000 billion. The margin by which the Chancellor meets the rule is just £9 billion, which the OBR notes is “a tiny fraction of the risks around any forecast”.

Read the full statement here.

Nov 23
0

Autumn Budget Statement 2023

By | Budget Summary, Latest News, Uncategorized

Jeremy Hunt’s second Autumn Statement was set against a much less financially turbulent background than his first.  However, politics still loomed large with a likely election in the next 12 months prompting calls for tax cuts from within the Conservative party. Until recently the Chancellor had attempted to stall such demands with warnings of “difficult decisions” on the public finances owing to a worsened fiscal outlook since his Spring Budget. One reason that he highlighted for the deterioration was the sharply increased cost of government borrowing.

Nevertheless, the Chancellor, who had argued only two months ago that tax cuts were “virtually impossible”, appears to have had a change of heart. Echoing the Prime Minister, Mr Hunt suggested that the achievement of halving inflation in 2023 marked an economic inflexion point that permitted a new policy approach.

The outcome was an Autumn Statement that had been initially trailed as focusing on longer-term issues, but which prioritised short-term tax cuts over maintaining expenditure in later years.
On the long term front, the Chancellor confirmed as expected that ‘full expensing’ of corporate investment in plant and machinery would be made permanent at a cost of £10.7 billion a year by 2027/28.  The most headline-grabbing moves were cuts to national insurance.

Some of the rumours, such as IHT reform, did not come to fruition, but there is still a chance – the Spring Budget is now less than four months away.

Read the full statement here

Mar 16
0

Spring Budget 2023

By | Budget Summary, Investment News, Latest News, Uncategorized

The first Budget since October 2021 was widely expected to be an uneventful affair. Five months ago, the then new Chancellor, Jeremy Hunt, presented an Autumn Statement that was more of a Budget than many formal Budgets. Not only did his Autumn Statement result in a greater increase in the tax burden than most Budgets – £55 billion by 2027/28 – it was also accompanied by a Finance Bill.

With an election likely in autumn 2024, Mr Hunt’s ‘Budget for growth’ looked set to be a steady-as-you-go fiscal non-event.  Yet it turns out that over the next three tax years, Mr Hunt will hand back about £65 billion of the extra tax that he had planned to raise last November.  Although by 2027/28, he will still be about £40 billion a year better off.

The largest element of his three-year giveaway is the introduction of temporary full expensing for corporate investment in new plant and machinery. This goes some way to counter the impact of the corporation tax rate increase to 25% due in April 2023.  The aim behind this relief – stimulating economic growth – drove his extension of free childcare. It also provided justification for the surprise abolition of the pension lifetime allowance (LTA) and increases to the annual allowance. However, the benefits of the pension reforms to high earners have been tempered by a new cap on tax-free cash.

Whether the Chancellor succeeds in his growth agenda will not be clear until well after the next election. As Paul Johnson, Director of the Institute of Fiscal Studies, said: “Once again Jeremy Hunt can be grateful that the Office for Budget Responsibility is more optimistic than the Bank of England. It handed him some room for manoeuvre.”

Read the full article here

Sep 28
0

Fiscal Statement summary

By | Budget Summary

With a new King at the Palace and a new Prime Minister at Number 10, it was no surprise that the new Chancellor at Number 11 used his first statement to the House of Commons to signal a “new era” for fiscal policy.

It turned out to be a striking change of direction, as the Chancellor opened his speech, saying: “We will be bold and unashamed in pursuing growth, even where that means taking difficult decisions”.

Gone was the Sunak era’s post-Covid emphasis on fiscal responsibility. Instead, in what the Government dubbed its ‘Plan for Growth’, Kwasi Kwarteng set out an approach prioritising tax cuts for individuals and businesses over immediate repairs to the public finances.

The Chancellor’s assumption is that cutting tax rates will boost economic growth and so increase the overall tax take.

This was Mr Kwarteng’s first real test as Chancellor, 18 days into the job, with inflation sitting at 9.9 per cent and energy prices spiking, interest rates rising, a weakened pound, plus the economic recovery from Covid by no means complete.

Only a day earlier, the Bank of England’s Monetary Policy Committee had raised interest rates sharply by half a percentage point to 2.25 per cent – the highest level in eight years – in a bid to stave off spiking inflation.

Despite being a Fiscal Statement rather than a Budget, the policies trailed in the days and weeks running up to the speech suggested that it might prove to be more significant an event than many full Budgets.

  • Income Tax
  • National Insurance/ Health and Social Care Levy
  • IR35 Off-payroll Working Rules
  • Corporation Tax
  • Stamp Duty Land Tax (SDLT)
  • Annual Investment Allowance and SEIS
  • Investment Zones
  • Energy Bills
  • Conclusion

Income Tax

In a speech full of significant announcements, perhaps the most notable related to Income Tax.

The Chancellor announced that the Additional Rate of Income Tax, which is currently 45 per cent on income over £150,000 will be scrapped entirely from April 2023.

He then moved to bring forward the cut in the Basic Rate of Income Tax to 19 per cent planned for April 2024 to April 2023.

National Insurance Contributions/ Health and Social Care Levy

Another landmark policy of the Johnson Government was the 1.25 per cent Health and Social Care Levy paid by employees and employers to help meet the cost of social care.

The current tax year is a transitional year in which the increase has been applied to National Insurance Contributions and it was to have become a standalone tax from April 2023.

Now, the Chancellor has announced that the charge will be scrapped and will no longer apply from 6 November 2022. The move also scraps the planned increase in Dividend Tax, which were due in April 2023.

He said the reason for the move was to support smaller businesses, help households and boost economic growth.

IR35 off-payroll working rules

In an unexpected move, the Chancellor announced that the reforms to the IR35 off-payroll working rules in 2017 and 2021 for individual contractors operating via personal service companies in the public and private sectors respectively would be scrapped.

The change means that it will no longer be the responsibility of the organisation engaging contractors’ services to determine whether a contractor should pay tax on the same basis as an employee. Instead, that responsibility will revert to the contractor, as was the case previously.

Cancellation of planned Corporation Tax increase

The last Chancellor but one, Rishi Sunak, had announced a plan to increase the rate of Corporation Tax from 19 per cent to 25 per cent from April 2023 for companies with profits of more than £250,000. Those with profits of between £50,000 and £250,000 would have benefitted from tapered relief, while there would have been no increase for those with profits of £50,000 or less.

In a striking change from the previous Government’s policy, and consistent with the Prime Minister’s leadership campaign pledge, Mr Kwarteng announced that the planned increase will no longer go ahead and Corporation Tax rates will remain at 19 per cent.

He said that the rationale for the change is to encourage the investment needed to help the economy grow.

Stamp Duty Land Tax (SDLT)

In what might prove to become a tug of war between the Treasury and the Bank of England, just a day after many homeowners learned of a painful interest rate rise, the Chancellor offered substantial consolation in the form of a cut to Stamp Duty Land Tax (SDLT).

Indeed, just yesterday, the Governor of the Bank of England wrote to the Chancellor to warn him that tax cuts might mean even sharper interest rate rises.

Undeterred, the Chancellor pressed ahead with a move to double the SDLT threshold from £125,000 to £250,000 with immediate effect. For first-time buyers, the threshold will rise to £425,000 on properties of up to £625,000. The measure will apply permanently.

Annual Investment Allowance (AIA) and SEIS

In another surprise move, the Chancellor announced that the Annual Investment Allowance (AIA) would not fall back to £200,000 in 2023 but would instead remain at its current £1 million level permanently.

Meanwhile, he said there would be a two-thirds increase in the amount companies can raise through the Seed Enterprise Investment Scheme (SEIS) to £250,000 from April 2023. At the same time, the Annual Investor Limit will rise to £200,000.

Investment Zones

The Chancellor also announced the launch of up to 40 Investment Zones. In England, he said the Government is considering time-limited tax incentives for 10 years, including 100 per cent Business Rates relief, 100 per cent first-year allowances for qualifying expenditure of plant and machinery and an enhanced Structures and Buildings Allowance.

He said the Government is also considering zero-rate Employer National Insurance Contributions (NICs) on salaries of new employees in Investment Zones up to £50,270 a year, as well as full Stamp Duty Land Tax (SDLT) relief on land and building bought for commercial or new residential development.

The Chancellor said he will work with the Devolved Administrations to offer similar incentives in Investment Zones across the UK.

Energy Bills

Following on from the Prime Minister’s announcement on 8 September of the Energy Price Guarantee and the Secretary of State for Business, Energy, Innovation and Skills in relation to business energy costs, the Chancellor reiterated the support being offered.

He said that the Energy Price Guarantee, alongside the £400 credit already announced will cut bills by around £1,400 for a typical household in comparison to the levels they were expected to reach without Government action.

Meanwhile, he confirmed that businesses, charities and public sector organisations will benefit from equivalent relief if they had not locked into a fixed-rate tariff by April 2022. That measure will last for six months from 1 October 2022.

The Chancellor said that the Government’s intervention will reduce inflation by around five percentage points.

Conclusion

The speech was a dramatic statement of the fiscal philosophy being pursued by the new occupants of Number 10 and Number 11 Downing Street. They hope that by reining in energy bills and cutting taxes, consumers will be prompted to spend and businesses will be more likely to invest, ultimately benefitting the public finances through increased tax receipts.

Whether that’s likely to be the case will be a point of serious contention amongst economists and various factions of the Conservative Party, especially given rising inflation and the possible impact on interest rates. Many will see the measures as a serious gamble.

What is certain, however, is that businesses will be more interested in what actually comes to pass than any abstract debate about whether the Government is taking the best course of action.

Link: The Growth Plan 2022

 

Oct 28
0

2021 Autumn Budget

By | Budget Summary, Latest News

The first autumn Budget for three years was a three-part presentation. The Chancellor’s well-trailed speech was accompanied by the first multi-year Spending Review since 2015 and the latest Economic and Fiscal Outlook (EFO) from the Office for Budget Responsibility (OBR).

Mr Sunak’s previous two Budgets had been dominated by the pandemic, which has wreaked havoc with the public finances. Third time around, the backdrop was brighter, at least relatively speaking.

In addition to recent helpful borrowing data, the Chancellor had the £42 billion of tax increases he announced in March and September. The extent of a further windfall was revealed in the Budget Red Book, which shows that suspending the State pension ‘triple lock’ next April will save £5.4 billion in 2022/23, rising to £6.7 billion four years later. It is therefore not surprising that few new tax-raising measures emerged in Mr Sunak’s second formal Budget of 2021. The reports from the Office for Tax Simplification on inheritance tax and capital gains tax have been left to gather more dust on the shelves of 11 Downing Street.

Mr Sunak was in spending rather than taxing mode on this occasion. He made two significant changes to Universal Credit, partially reversing the impact of the £20 a week reduction that took effect earlier this month. There were also cuts to business rates, air passenger duty and the cost of a pint of beer.

The Chancellor took advantage of better than OBR-projected economic performance both to spend more and to put some money aside. He must hope that his war chest is enough to cover whatever COVID-19 and rising inflation/interest rates conspire to deliver in the coming year.

Read the full report here.