Spring Budget Predictions 2024

Spring Budget Predictions 2024

Anticipation is building as the Spring budget announcement, scheduled for March 6th, draws nearer. Amidst rumours of a potential general election and uncertainty regarding Jeremy Hunt’s priorities, analysts are speculating on what the budget might entail.

While the exact focus remains unclear, there are several prevailing predictions circulating. From potential tax adjustments, to targeted spending initiatives, stakeholders are eager to see how the budget will impact various sectors of the economy.

As the nation speculates, we have put together our main predictions ahead of the Chancellors’ budget with a focus on tax cuts. However, with this being a possible election year, there could be some surprises.

Reduced Income Tax

There have been a plethora of reports hinting at a possible reduction to income tax ahead of a possible general election. It’s been suggested that income tax could be cut by as much as 2p with Conservatives indicating a commitment to reducing tax burdens.

Currently, income tax is levied at the rate of 20% within the basic rate band, 40% for those in the higher rate band, and a maximum additional rate of 45%. This would most likely mean 1-2% reduction into the basic rate of income tax.

An alternative would be to increase the thresholds for the higher rates. The 40% rate applies to income over £50,270, and this figure won’t change until April 2028. Therefore, inflation means more people are having to pay 40% each year. Reducing the number of people paying 40% may be better than cutting the overall tax rate, although it’s less of a headline-grabber and so may not be so attractive to the Chancellor.

One last thing is Child Benefit, which is clawed back for people earning over £50,000 by way of an extra tax. The way this is done has been widely criticised as unfair, and so there could be some help coming there.

Inheritance Tax

Recent news reports have suggested Inheritance Tax (IHT) will be reduced or even scrapped. According to existing regulations, IHT is imposed at a rate of 40% on assets or funds passed down to heirs exceeding the tax-free threshold of £325,000. In the latest available figures released by HMRC in 2020-21, approximately 27,000 estates were subject to IHT raising about £7 billion.

It’s worth mentioning, though, that these figures account for less than 4% of the total number of deaths recorded in the UK during that period. Getting rid of IHT would probably also have a knock-on effect on capital gains tax, as the two taxes are quite closely linked. This may mean it is dismissed in the budget, despite it being an unpopular tax, as the upheaval could affect a lot of people with only a small minority benefitting.

On the other hand, an increase in the level at which IHT is payable is perhaps overdue (it was last changed in 2007) and so this could be an obvious way for the Chancellor to be seen to act on IHT without radical changes to the system.

Fuel Duty

The temporary 5p reduction in fuel duty is set to expire on March 23rd, coinciding with the upcoming March 6th budget. There is speculation that the budget might extend the fuel duty cut and potentially address imminent inflationary increases in the duty.

However, Vehicle Excise Tax (VED) is expected to see an increase with inflation from April, a normal occurrence with every Spring Budget, which could see the 5p discount scrapped following pressure from environmentalist groups.

Pensions

It appears likely that there will be further discussions on pension reform aimed at securing improved outcomes for savers. This may include the introduction of a lifetime provider model to prevent individuals from accumulating numerous small pension pots as they navigate through multiple employers over their careers. This is unlikely to result in any immediate changes but should make it easier for individuals to manage their pension savings once a new system is up and running.

VAT Threshold

Many experts believe that increasing the registration threshold for VAT could have a favourable effect on economic growth. Certain businesses strategically limit their turnover to stay below the £85,000 threshold, thus avoiding the requirement to register for VAT.

Consequently, this threshold may be perceived as a hindrance to the expansion of UK businesses. Set at £85,000 since April 2017, an increase in the threshold appears quite possible.

On the other hand, the UK has a higher threshold than most other countries with a VAT system, so there have been suggestions that it should come down, perhaps to the point where anyone with a full-time business needs to register (perhaps as low as £30,000). The argument here is that if everyone must register anyway, then no-one has a reason to stop growing. That might be a bit of a risky step for an election year, though.

We will be monitoring the Spring Budget announcement closely on 6th March and will release an update soon after. If you would like to discuss any tax related queries, please contact our Corporate Tax Director, Andrew Jackson, at andrewjackson@fiandertovell.co.uk