Spring Budget 2024: What does it mean for business?
What is the Spring Budget?
The Spring Budget is a statement presented to the House of Commons by the Chancellor of the Exchequer which includes a review of the nation’s finances and the present economic climate, as well as the government’s policy proposals across a range of measures, including taxation and public expenditure. In the 2024 Spring Budget, the Chancellor focused on three of the five priority areas that the Prime Minister identified at the start of 2023; to halve inflation, to grow the economy and reduce debt. The Chancellor’s Budget placed a heavy emphasis on tax cuts to achieve these priorities.
Public Finances
The Chancellor announced that the latest projections by the Office for Budget Responsibility (OBR) anticipate Consumer Price Inflation (CPI) falling to its 2 per cent target in Q2 2024.
The OBR also forecast real household disposable income (RHDI) per person to grow by 0.8 per cent in 2023-2024 and continue to grow in each year of the forecast.
The OBR also noted that underlying debt is set to fall as share of GDP to 92.9 per cent in 2028-29. The wider measure of headline debt falls in every year from 2024-25 to reach 94.3 per cent in 2028-29. Borrowing is forecast to fall in every year, reaching £39.4 billion or 1.2 per cent of GDP by 2028-29.
The Spring Budget, combined with the Autumn Budget of 2023, is estimated to deliver a total of £20 billion for workers according to OBR statistics.
Business Taxation
Key announcements in budget on business taxation included an in the VAT registration threshold from £85,000 to £90,000 and plans to extend the Recovery Loan Scheme targeted at supporting SMEs to access finance, renaming it the “Growth Guarantee Scheme.”
The government also announced over £1 billion of new tax reliefs for the UK’s creative industries. This includes introducing a 40 per cent relief from business rates for eligible film studios in England for the next 10 years, introducing a new UK Independent Film Tax Credit and increasing the rate of tax credit by 5 per cent and removing the 80 per cent cap for visual effects costs in the Audio-Visual Expenditure Credit. A permanent extension will be made to tax relief for theatres, orchestras, museums and galleries, and £26 million of funding will be provided to upgrade the National Theatre’s stages and infrastructure.
The Government also announced a new duty on vaping, due to come into effect from October 2026. The OBR estimates that this new duty will raise £445 million in 2028-29. In addition to this, Tobacco duty will also be increased from October 2026, which the OBR estimates to raise a further £170 million in 2028-2029.
Further, the Spring Budget announced an intention to extend the UK’s windfall tax and on the profits of oil and gas companies until 2029.
Property Taxes
The Chancellor has announced plans to abolish the Furnished Holiday Lettings tax regime by April 2025, with draft legislation to be published in due course. This is intended to level the playing field between short and long-term lets, removing the current incentive for landlords to offer short‑term holiday lets rather than longer-term homes.
The Chancellor also announced that from 1 June 2024, the government will abolish Multiple Dwellings Relief, a bulk purchase relief in the Stamp Duty Land Tax regime. Property transactions with contracts that were exchanged on or before 6 March 2024 will continue to benefit from the relief regardless of when they complete, as will any other purchases that are completed before 1 June 2024. The government intends to engage with the agricultural industry to determine if there are any particular impacts for the sector that should be considered further.
Employee National Insurance Contributions
Further to the 2 per cent National Insurance cut announced at the Autumn Statement 2023, the Chancellor has announced a further 2 per cent reduction in the main rate of Class 1 employee NICs from 10 per cent to 8 per cent from 6 April 2024, making the combined basic rate of Income Tax and employee National Insurance Contributions 28 per cent.
The Chancellor also announced a further 2 per cent cut in the main rate of self-employed National Insurance (on top of the 1p cut announced at Autumn Statement 2023). This means that from 6 April 2024 the main rate of Class 4 NICs for the self-employed will now be reduced from 9 per cent to 6 per cent.
The government has announced plans to launch a consultation later this year to deliver its commitment to fully abolish Class 2 National Insurance. This follows the announcement at Autumn Statement 2023 that from April 2024 no self-employed person will be required to pay Class 2, whilst those who pay voluntarily will continue to be able to do so to build entitlement to contributory benefits.
The OBR forecast that, as a result of the reductions to NICs at the Spring Budget, total hours worked will increase by the equivalent of almost 100,000 full-time workers by 2028-29. Combined with the impact of the NICs cuts announced at Autumn Statement 2023 the OBR anticipates that total hours worked will increase by the equivalent of around 200,000 full-time workers by 2028-29.
Capital Gains Tax
The Chancellor also used this budget to announce a cut in the higher rate of Capital Gains Tax for residential property disposals from 28 per cent to 24 per cent. The lower rate will remain at 18 per cent for any gains that fall within an individual’s basic rate band. The government anticipates that This will encourage landlords and second home-owners to sell their properties, making more available for a variety of buyers including those looking to get on the housing ladder for the first time, while also raising revenue over the forecast period.
Private Residence Relief will remain in place, meaning the vast majority of residential property disposals will pay no Capital Gains Tax.
Inheritance Tax
In the full budget, the government also announced the intention to move to a residence-based regime for Inheritance Tax (IHT) and will consult in due course on the best way to achieve this. No changes to IHT will take effect before 6 April 2025.
Non-Dom Taxation
The Chancellor has additionally announced government intentions to abolish the current tax regime for non-UK domiciled individuals (‘non-doms’). To take its place, he outlined plans for a new regime whereby anyone who has been tax resident in the UK for more than four years will pay UK tax on their foreign income and gains, as is the case for other UK residents.
Transitional arrangements for existing non-doms claiming the remittance basis will include an option to rebase the value of capital assets to 5 April 2019 and a temporary 50 per cent exemption for the taxation of foreign income for the first year of the new regime (2025-26). The government will also offer a two-year Temporary Repatriation Facility for individuals who have paid tax on the remittance basis prior to 6 April 2025 to bring previously accrued foreign income and gains into the UK at a 12 per cent rate of tax.
From 6 April 2025, the government intends to introduce a new residence-based regime. Individuals will not pay UK tax on any foreign income and gains arising in their first four years of tax residence, provided they have been non-tax resident for the last 10 years. Eligible employees will also be able to claim Overseas Workday Relief in their first three years of tax residence for income from employment duties carried out overseas.
Childcare Support
In the Autumn Budget the Government announced the expansion of support for eligible working parents of children aged nine months to three years to 30 hours a week of free childcare for 38 weeks a year. The first stage of this is anticipated to be rolled out in April, when eligible working parents of two year olds will be entitled to 15 hours of childcare a week.
To support the sector to deliver the expansion of childcare support, the government is confirming that the hourly rate providers are paid to deliver the free hours offers will increase in line with the metric used at Spring Budget 2023 for the next two years. Along with planned reforms to local funding rules, this is intended to give providers more certainty on future funding to support business investment.
Child Benefits
The Chancellor also announced plans to reform Child Benefits. Currently, a household with two parents each earning £49,000 a year will receive Child Benefit in full, while a household earning less overall but with one parent earning over £50,000 will see some or all of the benefit withdrawn. In this budget, the Chancellor announced plans to consult on moving to a system based on household income by April 2026.
In the meantime, from April 2024, the government has announced that the threshold for the High Income Child Benefit Charge will be increased to £60,000. The rate of the charge will also be halved so that Child Benefit is not repaid in full until an individual earns £80,000. The government estimates that nearly half a million families will gain an average of £1,260 in 2024-25 as a result.
Cost of Living
The Chancellor announced a number of measures intended to address the cost of living crisis. These included maintaining the rates of fuel duty at current levels for a further 12 months, through extending the temporary 5p cut and cancelling the planned increase in line with inflation for 2024-25, as well as extending the alcohol duty freeze from 1 August 2024 until 1 February 2025.
Further, it has been announced that an additional £500 million (including Barnett impact) has been allocated to enable the extension of the Household Support Fund in England from April to September 2024, to continue providing targeted support to vulnerable households with the cost of essentials such as food and utilities, as inflation continues to fall.
Managing Debts
To support households struggling with problem debts, the government has announced plans to make it easier for individuals to access a Debt Relief Order (DRO). DROs are a personal insolvency debt solution for individuals who cannot pay their debts. The government plans to remove the £90 administration fee associated with DROs from 6 April 2024. The government is also raising the maximum debt value threshold from £30,000 to £50,000 and increasing the maximum value of motor vehicle that an individual can retain from £2,000 to £4,000, from 28 June 2024.
The government also announced plans to increase the repayment period on budgeting advance loans taken out by claimants on Universal Credit from 12 months to 24 months. This will apply to new Budgeting Advances taken out from December 2024 and will reduce the monthly repayments on these loans. This is intended to relieve financial pressure on low-income households on Universal Credit.
Public Services
A number of announcements were made to support and increase the productivity of public services. To begin with, the Chancellor announced the Public Sector Productivity Plan which included confirmation of a £4.2 billion investment to improve public service delivery, ensuring taxpayers get better value for money, through implementing better technology, freeing frontline workers from time-consuming admin and making earlier inventions to reduce costs.
Additionally, the NHS is set to receive an additional £3.4billion as part of the Productivity Plan to invest further into tech and digital transformation, improving services such as the NHS app, piloting AI and rolling out universal electronic patient records. The government antipates that as a result, patient care will improve and over £35 billion in productivity savings will be achieved by 2030.
The Chancellor also outlined that there will be £800 million invested to boost productivity across other public services, including £230 million for drones and facial recognition technology and £75 million to roll out the Violence Reduction Unit model across England and Wales. Investments into non-NHS public services will deliver up to £1.8 billion of benefits by 2029, with further measures including digitising jury bundles and expanding the use of AI across government to spot and catch those engaged in fraud.
Defence spending is expected to reach 2.3 per cent of GDP in 2025, following £11bn investment announced at the Spring Budget in 2023.
Further Investment
The Chancellor announced a number of new investments in key growth areas and outlined plans aimed at supporting businesses of all sizes to grow. To begin with, a package of investment was outlined with the intention of establishing the UK as world leader in a number of industries. Investments outlined include over £1 billion in new tax reliefs for creative industries, £270 million in automotive and aerospace R&D projects and £120 million for the Green Growth Industries Accelerator, to help build supply chains for offshore wind and carbon capture and storage.
Additionally, the budget announced a £45 million investment into medical research to develop new medicines for diseases such as cancer and dementia. The UK’s ability to manufacture medicines will be boosted by AstraZeneca’s £650 million investment in developing a manufacturing hub located in Liverpool and their ambitions to expand their footprint in Cambridge.
The Chancellor has also announced plans to further fund the Long Term Plan for Towns to 20 new places, over £240 million funding for building new homes in Barking Riverside and Canary Wharf, alongside a new life sciences hub, and a new £160 million deal to acquire two sites, which will be used to develop the UK’s nuclear capacity and improve the nation’s energy security.
Draft legislation is expected to be published to extend full expensing - a £10 billion tax cut for businesses and SMEs will be supported to invest and grow, through a £200 million extension of the Growth Guarantee Fund, helping 11,000 small businesses to access finance.
Pensions and savings reforms have also been introduced including a new UK ISA, allowing an additional £5000 annual investment in UK equities.
To boost capacity in the planning system, the Chancellor also committed £3 million to match industry-led funding for a skills and education programme to attract more people to take up roles as local planners in planning authorities.
The government has additionally announced £15 million in new devolved funding to the West Midlands Combined Authority to support culture, heritage and investment projects. Other local leaders also been further empowered with a new North-East trailblazer devolution deal and powers devolved to Buckinghamshire, Warwickshire and Surrey.
What is the GBCC Response to the Spring Budget 2024?
With a general election on the horizon, it’s no surprise to see that the Chancellor has used the limited fiscal headroom at his disposal to push for headline grabbing tax cuts – it’s just a shame that more weren’t prioritised for business given the widespread challenges many are still facing.
There were elements in the Budget which will please the business community – namely additional support around childcare measures to help plug labour market shortages, extending the parameters of the full expensing scheme to encourage firm level investment and additional funding to help tackle anti-social behaviour and street crime – all of which helps high streets and city centres more attractive for visitors.
It was also pleasing to see plans announced around using AI to drive productivity gains in the public sector and additional pension reforms in a bid to crowd in more investment.
From a local perspective, it was reassuring to see money made available for the WMCA for culture projects – especially in the context of funding cuts we’ve seen announced by Birmingham City Council - and recognition of the British Chambers of Commerce’s calls for the Government to match private sector investment to increase local planning capacity.
However, many businesses will feel the Chancellor has missed a trick in truly turning the dial on the fundamental issues firms continue to grapple with.
Extending the terms of the loan recovery scheme will be welcomed by many businesses still grappling with debts racked up during the pandemic, however raising the VAT threshold will do little to tackle the bunching issue.
Whereas National Insurance cuts for employees heavily trailed, it was disappointing not to see the equivalent scheme for employers which in itself acts a major break on job creation.
It was also disheartening to see that continued reform of the business rates system and reintroducing tax-free shopping was left off the agenda with both measures more likely to offer a timely boost to the hospitality and retail sector than freezing alcohol duty.
Ultimately, businesses will be left feeling a sense of regret that the Chancellor didn’t show more ambition in creating a blueprint for growth which would drive confidence and unlock widespread investment.