Key Points: UK Spring Budget 2024

Jeremy Hunt highlights the resilience of the UK economy in overcoming challenges such as the financial crisis, the pandemic, and the energy crisis stemming from conflicts in Europe. While recognizing that interest rates are still elevated as efforts are made to combat inflation, he emphasizes the government's commitment to providing lasting tax relief to support families. Describing it as a forward-looking budget aimed at fostering long-term growth, Hunt's vision focuses on creating a more stable and prosperous future for all.

National insurance
Hunt's announcement of the national insurance contribution rate cut from 10% to 8% in April is a significant relief for many workers. This reduction, combined with the previous 2p cut in November, has brought the rate down from 12% to 8%, providing a much-needed financial boost for individuals. For example, for someone earning a £35,000 full-time salary, this adjustment translates to approximately £450 in savings annually. This move aims to ease the financial burden on working individuals and stimulate economic growth in the coming years.

Growth
Hunt's optimistic outlook on the economy predicts a steady growth trajectory, with an expected increase of 0.8% this year and a more robust 1.9% in 2025. These figures surpass the earlier projections of 0.7% and 1.4% made by the Office for Budget Responsibility during the autumn statement in November. Looking ahead, growth is anticipated to reach 2% in 2026 before experiencing a slight dip to 1.8% and 1.7% in 2027 and 2028, showcasing a resilient and stable economic performance over the coming years.

Inflation
Inflation is projected to dip below the government's 2% target in the near future, as mentioned by Hunt, marking a decrease from 4% in January. This achievement comes nearly a whole year ahead of the forecast outlined in the autumn statement. The Bank of England aims to maintain inflation at a steady and low 2%. This significant drop from the peak of 11.1% in October 2022 can be attributed to the alleviation of food and energy prices.

Government borrowing
Hunt explains that the underlying debt, which excludes Bank of England debt, is projected to be 91.7% of GDP in 2024-25 according to the OBR, then 92.8%, 93.2%, 93.2% before decreasing to 92.9% in 2028-29. He highlights that the UK maintains the second-lowest level of government debt in the G7, surpassing countries like Japan, France, and the US. Additionally, he mentions that borrowing is expected to decrease from 4.2% of GDP in 2023-24 to 3.1%, 2.7%, 2.3%, 1.6%, and 1.2% in 2028-29. Hunt emphasizes that by the end of the forecast period, borrowing will reach its lowest level of GDP since 2001.

Public services
Despite initial speculation that day-to-day public spending would be reduced to 0.75%, the chancellor has maintained a 1% increase above inflation. This decision reflects a commitment to supporting essential public services and ensuring their continued effectiveness in serving the community. Additionally, in response to evolving economic conditions, military spending is set to increase to 2.5% of GDP as soon as feasible. This strategic allocation aims to bolster national security and defense capabilities, aligning with the government's priorities for safeguarding the country's interests. The current level of 2% of GDP underscores the government's dedication to strengthening the country's defense infrastructure and preparedness.

NHS

Hunt's announcement of the "landmark public sector productivity plan" marks a pivotal moment in government initiatives to streamline processes and enhance efficiency in public services. The plan, set to be unveiled today, encompasses a range of transformative measures aimed at revolutionizing the way healthcare services are delivered. By leveraging cutting-edge technologies such as artificial intelligence, the plan seeks to alleviate the administrative burden on healthcare professionals, particularly doctors, by automating routine tasks like form filling. Additionally, the digitization of hospital processes will not only improve workflow efficiency but also enhance patient care delivery by enabling seamless coordination among healthcare providers.

Furthermore, the enhancement of the NHS app represents a significant step towards empowering patients with greater access to healthcare resources and information. By optimizing the functionality and user experience of the app, individuals can easily book appointments, access medical records, and receive timely updates on healthcare services. Hunt's emphasis on building a more productive state rather than a bigger one underscores a strategic shift towards leveraging technology and innovation to drive operational excellence and service delivery in the public sector.

The overarching goal of the productivity plan is to establish a model of efficiency and effectiveness that can be replicated across various public services, including education, law enforcement, and government operations. By fostering a culture of continuous improvement and embracing digital transformation, the government aims to enhance service quality, optimize resource allocation, and ultimately deliver greater value to citizens. The long-term vision is to create a nimble and responsive public sector that can adapt to evolving challenges and deliver sustainable outcomes for the benefit of society as a whole.

“I want this groundbreaking agreement with the NHS to be a model for all our public services” including education, the police, courts and public government, Hunt says. In the next spending review, the Treasury will prioritise applications for money from departments that show potential savings for the public purse in the long term.

Child benefit
Hunt has announced a consultation on child benefit rules, proposing to base it on collective household incomes rather than individual incomes starting from April 2026. He has suggested raising the threshold for a high-income tax charge on the benefit from £50,000 to £60,000. Additionally, the upper limit for phasing out the benefit will be increased to £80,000 from the current £60,000. Furthermore, the government's household support fund, initially introduced in 2021 to aid families facing financial challenges, has been extended for an additional six months.

Childcare
Hunt has confirmed that the rates paid to nurseries to support free childcare hours for parents of children over nine months old will be sustained for the next two years. Despite facing challenges with decreasing value due to inflation, this decision aims to provide relief to childcare providers and enable an additional 60,000 parents to join the workforce within the next four years.

Non-dom tax status
The chancellor has announced the abolition of the non-dom tax status, to be replaced by a "modern, simpler, and fairer" system starting from April 2025. This status, previously enjoyed by individuals residing in the UK with certain overseas connections, will no longer exempt them from paying tax on their worldwide income. Instead, after four years, newcomers to the UK will be subject to the same tax regulations as other UK residents.

Property tax
In addition to reducing the higher rate of property capital gains tax from 28% to 24%, Hunt also proposes a comprehensive overhaul of stamp duty relief for those purchasing multiple dwellings. The abolition of this relief aims to streamline the property market and discourage excessive property investment, ensuring a fair and efficient allocation of housing resources. By eliminating this benefit, the government seeks to promote a more balanced and sustainable housing market, where all individuals have equal opportunities to secure a home without facing undue competition or inflated prices. This strategic move reflects the government's commitment to fostering a more inclusive and accessible property market for all citizens, ultimately contributing to a more equitable and vibrant housing sector.

Holiday lets

Hunt's decision to scrap the furnished holiday lets regime signifies a significant shift in tax policy that aims to level the playing field for property owners and tenants alike. By eliminating tax reliefs that previously favored holiday rentals over long-term tenancies, the government is taking a proactive stance to promote a fair and balanced rental market. This strategic move not only aligns with the government's commitment to fiscal responsibility but also addresses concerns about housing affordability and accessibility.

With the potential to generate £300 million annually for the Treasury, the abolition of the furnished holiday lets regime will have far-reaching implications for property investors and renters. By removing the financial incentives that favored short-term holiday lets, the government is signaling its support for sustainable and equitable housing practices. This decision underscores a broader commitment to creating a rental market that caters to the diverse needs of tenants while promoting responsible property ownership.

Overall, Hunt's move to scrap the furnished holiday lets regime reflects a forward-looking approach to tax policy that prioritizes fairness, transparency, and long-term sustainability. As the government continues to navigate economic challenges and social priorities, initiatives like this serve as a testament to its dedication to fostering a more inclusive and resilient housing sector for the benefit of all citizens.

Vaping tax
Hunt has confirmed the anticipated introduction of a "vaping products levy" on imports by manufacturers, specifically targeting the liquid in vapes. This measure, set to take effect in October 2026, aims to deter underage individuals from purchasing these products. The levy is projected to generate £500m by 2028/29, with an additional one-time increase in tobacco duty also being announced.

Alcohol and fuel duty

Alcohol duty was set to increase by 3% from August, but Hunt has decided to freeze it until February 2025, providing much-needed relief to 38,000 pubs across the UK. In a show of support for the beloved British pub industry, Hunt emphasizes the government's commitment to standing behind these establishments.

Hunt has also announced a freeze on fuel duty for another year, maintaining the current level. Despite inflation typically dictating an increase, this freeze continues a trend that has been in place since 2011. Additionally, the 5p reduction in fuel duty, initially introduced in 2022 and set to expire this month, has been extended.

Savings
Hunt's announcement of the new "British Isa" is a game-changer for investors, offering them an additional £5,000 tax-free allowance to incentivize more people to invest in UK assets. This bold move aims to boost investment in the country's economy and support growth in key sectors. The British Savings Bond, set to be launched in April by the state-owned National Savings and Investments, will provide investors with a secure and guaranteed rate of return fixed for three years. This initiative not only promotes a culture of saving and financial planning but also offers individuals a reliable option to grow their wealth over time. Together, these measures reflect the government's commitment to empowering individuals to secure their financial futures and contribute to the overall economic prosperity of the nation.

Windfall tax and energy

Hunt has decided to extend the windfall tax on the profits of North Sea oil and gas companies for an additional year, with the aim of raising an estimated £1.5bn. This measure was initially implemented in response to Russia's full-scale invasion of Ukraine in May 2022, which led to a surge in gas prices impacting the profits of producers. Originally scheduled to end in March 2028, the tax will now continue until 2029.

Furthermore, the chancellor has announced a government investment of £160m in two nuclear sites. The first site, located on the island of Anglesey or Ynys Môn, is the Wylfa facility in north Wales, currently owned by Japan's Hitachi. The government is seeking a partner to collaborate on the development of a nuclear power station at this location. Additionally, the Oldbury site in South Gloucestershire is included in this funding agreement.

As part of the government's commitment to green industries, £120m has been allocated to support the development of technologies such as offshore wind farms and projects focused on carbon capture and storage. This investment underscores the government's dedication to promoting sustainable and environmentally-friendly practices within the energy sector.

The arts
A significant investment of £26.4m has been allocated by the government to enhance the stages of the National Theatre. Additionally, independent films with a budget under £15m are set to receive a new tax credit, while eligible film studios in England will benefit from a 40% relief on their gross business rates until 2034, as provided by the Treasury.

Other measures

The household support fund, a vital resource introduced by the government in 2021 to provide assistance to families grappling with the escalating cost of living, has been extended for an additional six months. This extension comes as a welcome relief to countless households facing financial strain, ensuring continued support during these challenging times.

Furthermore, in a move geared towards bolstering businesses and stimulating economic growth, Hunt has outlined plans to allow full expensing for leased assets. This strategic initiative empowers businesses to deduct investments in crucial assets like new factory machinery and IT equipment from their taxable income, fostering innovation and productivity across various sectors.

Additionally, as part of efforts to support small and medium-sized enterprises, Hunt has announced an increase in the VAT registration threshold from £85,000 to £90,000, effective from the beginning of April. This adjustment is expected to benefit a significant number of businesses, providing them with greater financial flexibility and reducing administrative burdens. By easing the tax burden on these enterprises, the government aims to facilitate their growth and contribute to a thriving and dynamic business landscape.

The government plans to sell a portion of NatWest bank shares this summer, valued at around £7bn after a £45.5bn bailout during the financial crisis. Hunt aims to engage new retail investors in public markets. AstraZeneca to invest £650m in the UK, expanding in Cambridge and building a vaccine hub in Liverpool. The chancellor adjusts air passenger duty, increasing taxes on premium flights by over 10% next year.