Dominic Bourquin, Head of the Tax Consultancy and Corporate Finance at Monahans, offers his thoughts on the 2024 Spring budget.
In his second Spring Budget since becoming Chancellor, Jeremy Hunt’s address was more blustering Boris in delivery than the calm and reassuring approach that businesses need right now.
There is no doubt that this Budget had elements of political point-scoring, but looking beyond the theatrics of the Commons there were some key announcements that many businesses will welcome.
The headline story was the Chancellor’s decision to cut National Insurance Contributions (NIC) by 2p. It is estimated that this will save the average worker around £450 a year although it only partially offsets the negative impact of the continued freeze in income tax personal allowance.
While many of his colleagues had called for a cut in income tax instead, this is a step towards Mr Hunt’s ultimate goal of scrapping NIC altogether. It is hoped this will encourage people back into the workforce and provide a boost to key sectors such as hospitality and manufacturing.
But it may not: with income tax thresholds remaining frozen, workers will continue to pay more tax as their earnings rise with inflation.
In addition, there is the question as to how this will be funded.
The cut is estimated to cost the Government £11 billion in the coming year. Even with monies raised through the abolition of furnished holiday lets, rise of duty on vapes and tobacco, and an end to non-domicile tax breaks (which have been in place since 1799), there is still likely to be a shortfall to the tune of £5 billion, maybe more.
That said, whilst the 2p cut isn’t significant in real terms, it is fair to say that most people would rather have it than not.
The freeze on fuel duty will certainly raise smiles among motorists. This delay in implementing the 5p increase in fuel duty initially postponed in 2022 was initially supposed to be in place for a year to help drive down fuel costs, but has since been extended, this time for a further 12 months.
The Government estimates that this measure will cost the Treasury around £5 billion but will save the average car driver £50 next year, or a total of £250 since the 5p increase was shelved two years ago. For commuters and tradespeople, this will be a welcome relief.
Indeed, February saw fuel prices rise to their highest for five months and for a significant number of people, the 12-month extension will provide a much-needed shot in the arm.
Beyond the hyperbolic language, when it comes to small businesses, I’m afraid the raising of the VAT threshold from £85,000 to £90,000 is more of a damp squib than anything to shout about. In my view, it doesn’t go far enough.
A doubling of the VAT registration threshold to £170,000, rather than a paltry increase of £5,000, would have done far more to incentivise growth.
The difficulty with this Budget was the lack of room within which the Chancellor could manoeuvre, and we find ourselves pondering if it was more bluster than boost.
