UK Budget 2024: Key Points and Takeaways

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Chancellor Jeremy Hunt presented the UK Spring Budget.

UK is rallying to enter the upcoming general election in the middle of a fiscal landscape that is characterized by the highest tax levels since 1948, despite Chancellor Jeremy Hunt’s initiative to reduce national insurance contributions by 2p. This reduction, along with a complex interplay of increased borrowing and subtle tax adjustments, facilitated a £14 billion stimulus package. Chancellor Hunt’s overarching objective is to progressively phase out national insurance contributions for both employees and the self-employed.

However, the lack of groundbreaking announcements in the budget, except for the elevation of the child benefit threshold to £60,000, has notably diminished the likelihood of an impromptu snap election in May. This decision comes at a time when the UK economy is officially navigating through a recession.

Expectations among Conservative Members of Parliament were high, as they anticipated a budget that would resonate positively with the public, potentially narrowing the gap with the opposition Labour Party in pre-election polls. Nonetheless, the reality remains that living standards continue to face pressure, with millions facing the prospect of ascending into higher tax brackets. The Office of Budget Responsibility’s projections indicate that incomes are expected to linger below the levels witnessed at the culmination of the previous parliamentary term in 2019

National Insurance

Chancellor Hunt confirmed a reduction in the national insurance contribution rate from 10% to 8% of pay, effective from April. This follows a previous 2p reduction announced during the autumn statement in November, lowering the rate from 12% to 10%. The estimated annual benefit of this 2p reduction for an individual earning a £35,000 full-time salary amounts to approximately £450.

Economic Growth

Projections presented by Chancellor Hunt show an expected economic growth of 0.8% for the current year, with a more optimistic outlook of 1.9% growth, in 2025. These forecasts surpass the earlier expectations of 0.7% and 1.4% growth, respectively, as forecasted during the autumn statement in November. The following years are envisaged to witness a gradual growth trajectory, with anticipated rates of 2% in 2026, followed by modest dips to 1.8% and 1.7% in 2027 and 2028.

Inflation

A projection of a decline in inflation rates is expected to dip below the government’s 2% target in the coming months. Chancellor Hunt highlighted a reduction from 4% in January to a level significantly lower than anticipated in the autumn statement, effectively almost a year ahead of previous forecasts. This downward trend in inflation, from a peak of 11.1% in October 2022, is attributed to easing pressure in food and energy prices.

Government Borrowing

Forecasts for underlying debt, excluding Bank of England debt, indicate a trajectory reaching 91.7% of GDP in 2024-25, followed by incremental increases to 92.8%, 93.2% and a subsequent decrease to 92.9% in 2028-29. Chancellor Hunt emphasizes that the UK maintains the second-lowest level of government debt among G7 nations, surpassing countries like Japan, France, and the United States. The budget outlines a decline in borrowing as a percentage of GDP, from 4.2% in 2023-24 to progressively lower levels of 3.1%, 2.7%, 2.3%, 1.6%, and 1.2% in the fiscal year 2028-29.

Public Services

Despite speculations suggesting a reduction to 0.75%, the Chancellor has maintained a 1% increase in day-to-day public spending above inflation. Notably, military spending is slated to rise to 2.5% of GDP once economic conditions permit, an increase from the current 2% of GDP allocation.

NHS

Chancellor Hunt has announced a stark public sector productivity plan, set to streamline operations within the National Health Service (NHS). Initiatives include leveraging AI to reduce administrative burdens on healthcare professionals, digitizing hospital processes, and enhancing the functionality of the NHS app. This productivity drive aims to foster a more efficient state apparatus, emphasizing productivity over mere expansion.

Chancellor Hunt remarked that he wanted this groundbreaking agreement with the NHS to be a model for all public services. He underscored the Treasury’s commitment to prioritize funding applications from departments demonstrating potential long-term savings for the public purse in the upcoming spending review.

Child Benefit

An imminent consultation on child benefit rules is poised to revamp the existing framework, transitioning from individual to collective household income assessments. Chancellor Hunt announced adjustments to the threshold for high-income tax charges on child benefits, raising it from £50,000 to £60,000, and expanding the taper limit to £80,000.

Childcare

Continuing support for parents, Chancellor Hunt emphasized the continuation of rates paid to nurseries to fund free childcare hours for children aged over nine months. This initiative aims to alleviate financial pressures on families while facilitating the entry of an additional 60,000 parents into the workforce over the next four years.

Non-Dom Tax Status

To foster fairness and simplicity in the tax system, Chancellor Hunt declared the abolition of non-domiciled tax status, slated for implementation from April 2025. This reform ensures that individuals residing in the UK are subject to equitable tax treatment, irrespective of their overseas affiliations.

Property Tax

Chancellor Hunt’s budget entails a reduction in the higher rate of property capital gains tax, from 28% to 24%. Additionally, stamp duty relief for individuals purchasing multiple dwellings will be abolished. These measures are expected to recalibrate the property market dynamics while contributing to the government’s revenue streams.

Holiday Lets

Plans to scrap the furnished holiday lets regime have been unveiled, signalling a strategic shift in tax policy to enhance rental market dynamics. This initiative, expected to generate £300 million annually for the UK Treasury, underscores the government’s commitment to fostering equitable taxation across diverse sectors.

Vaping Tax

Addressing concerns regarding youth access to vaping products, Chancellor Hunt confirmed plans for a vaping products levy on imports by manufacturers. This levy, slated for introduction in October 2026, aims to discourage underage consumption while bolstering public health initiatives. Additionally, a one-off increase in tobacco duty was announced, aligning with the government’s broader agenda to combat smoking-related health challenges.

Alcohol and Fuel Duty

In a move to support the hospitality sector, Chancellor Hunt announced a freeze on alcohol duty until February 2025, benefiting thousands of pubs across the UK. This decision underscores the government’s commitment to preserving the vitality of the British pub culture. Furthermore, fuel duty will remain at current levels for another year, providing relief to motorists amidst fluctuating energy prices.

Savings

To incentivize domestic investment, Chancellor Hunt introduced a new “British Isa,” offering investors an additional £5,000 tax-free allowance. This initiative aims to stimulate investment in UK assets while fostering economic growth and resilience. Additionally, the launch of a British Savings Bond, administered by the National Savings and Investments, will provide investors with a guaranteed rate fixed for three years, promoting financial stability and inclusivity.

Windfall Tax and Energy

The extension of the windfall tax on North Sea oil and gas companies underscores the government’s commitment to equitable taxation and revenue generation. This measure, expected to raise £1.5 billion, addresses concerns surrounding energy sector profitability while safeguarding public interests. Furthermore, strategic investments in nuclear energy and green industries underscore the government’s commitment to sustainable development and energy security.

The Arts

To bolster the cultural sector, Chancellor Hunt announced significant investments in the National Theatre, aimed at upgrading its infrastructure and enhancing artistic capabilities. Additionally, independent films with budgets below £15 million will receive a new tax credit, fostering creativity and diversity within the film industry. Furthermore, eligible film studios in UK will benefit from a 40% relief on gross business rates until 2034, promoting innovation and economic growth in the creative sector.

Other Measures

Extensions to the household support fund underscore the government’s commitment to addressing cost-of-living challenges faced by families across the UK. Chancellor Hunt’s plans to allow full expensing for leased assets aim to incentivize business investment and stimulate economic growth. Moreover, adjustments to the VAT registration threshold and the proposed sale of NatWest bank shares highlight the government’s strategic approach to fiscal management and public asset utilization.

An announcement of AstraZeneca’s £650 million investment in the UK signals a vote of confidence in the country’s life sciences sector. This substantial commitment, aimed at expanding vaccine manufacturing capabilities and bolstering research infrastructure, underscores the UK’s position as a global leader in healthcare innovation.

A one-off adjustment to air passenger duty on non-economy flights reflects the government’s commitment to environmental sustainability and responsible tourism. This measure, expected to generate additional revenue while promoting eco-conscious travel practices, aligns with broader efforts to mitigate the aviation sector’s environmental footprint.

As UK prepares for the general election, Chancellor Hunt’s budgetary measures underscore the government’s commitment to fostering long-term prosperity and sustainability.