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Jeremy Hunt final before the election

Our economy is creaking, people want tax cuts, but they also want more money spent on public services. So, the fundamental question to be answered is, can we have both? Regrettably, the answer is almost certainly no, unless the economy grows and productivity shows a significant increase.

Labour’s shadow chancellor Rachel Reeves has complained that Chancellor Jeremy Hunt has given us a few ‘goodies’ with one hand, but has taken significantly more with the other. Is she right or is the Chancellor correct that his budget is a boost for workers and will stimulate economic growth?

So, which of the dynamic duo is on the money? The quick answer is that they both are! But first, a brief rundown of the main measures contained in this year’s budget:

National Insurance : As a result of last year’s Autumn Statement, the rate of NIC for workers fell from 12% to 10% on 6th January, but a further 2% cut to NIC’s will come into effect on 6th April 2024, and the self-employed rate already set to move from 9% to 8% with effect from 6th April 2024, will now reduce to 6% from that date. 

However, whilst the NIC rate for earnings up to £50,270 has been reduced, the 2% rate on higher earnings for both the employed and self-employed is untouched. These changes are expected to benefit an estimated 29m working people, but there is no help for struggling businesses as, once again, employers’ national insurance is unchanged.

Non-dom tax breaks : The special non-dom tax status will be abolished from April 2025, potentially raising up to £3bn, the only concession being that new arrivals to the UK would not pay any tax on foreign income and gains for their first four years of UK residency, but after that, they’d pay same tax as other UK residents.

Changes to HICBC (‘hick-bick’) : As I complained in my Blog on 15th February, the high-income child benefit charge (nicknamed “hick-bick”) is grossly unfair to many individuals and it appears that Mr Hunt agrees with me. Whist he’s not abolishing it (far too expensive!) he is raising the current limit for full child benefits to be paid by £10k to £60k with partial HICBC being  paid where highest earner earns up to £80k.

A fundamental inequality of the policy remains though, as whilst a single-parent earning £80,000 will repay all the Child Benefit received each year, a two-parent household where each earns £60,000 will not be affected by HICBC at all. Mr Hunt acknowledged this and announced a consultation on measures to change this basic inequity, with the changes set to be implemented on 6th April 2026.

The so-called ‘sin’ taxes : There is to be a new tax on vaping products from October 2026, linked to the levels of nicotine with tobacco duty also to go up (E.G. £2.00 per 100 cigarettes) at the same time, to ensure vaping remains cheaper. The good news for drinkers is that alcohol duty, due to rise on 1st August, will be frozen for at least six months. 

Motoring & energy : Not only is fuel duty to be frozen again, but also  the 5p per litre temporary cut on petrol and diesel, due to end later this month, has been extended by 12 months. The ‘Windfall’ tax on the profits of energy firms, has also been extended by 12 months, but bad news for flyers with Air passenger duty rising for business class tickets.

Housing : The good news is that the rate of Capital Gains Tax on profits from selling property is being cut from 28% to 24%. The bad news is that tax breaks for owners of holiday let properties is to be scrapped as is the Stamp duty tax break when purchasing multiple properties in England or Northern Ireland. 

Business and investment : The threshold before a business must register to pay VAT has been raised  to £90,000 from April, with a hint that it will be raised to £100,000 over the next two years. Also, the treasury loan scheme for small businesses is being to be extended until March 2026. 

There are also a number of other modest tax reliefs for touring music productions and a new tax credit for independent UK films with a budget of less than £15million.

Who is on the money, Rachel or Jeremy?

So, who is right, our current Chancellor or Labour’s Chancellor in waiting? Well, Jeremy Hunt is correct, as ordinary workers will be a few hundred quid better off in the short term and it’s likely that with inflation going down rapidly, that there will be noticeable economic growth, but Rachel Reeves is also correct, if we just look at the changes over the lifetime of this parliament.

Whilst the Institute for Fiscal Studies (IFS) has said households will be worse off at the upcoming election than they were at the start of this parliament, they also say that overall, this year’s budget has been positive for workers. They’ve calculated that those on above average earnings will gain around £1,000 a year from the proposed tax changes, but they also point had that the dreaded ‘fiscal drag’ means that the government is clawing back a portion of the money, by continuing the freeze on tax thresholds.

Tax accountant’s view

Once again, we have a *curate’s egg” budget, but in my opinion, taking the budget as a whole, Jeremy Hunt has actually made a half-decent fist of it, given the extremely limited options available to him.

The dispassionate observer might have suggested the obvious option of ‘they who use pay’. This would be involve targeting the fastest growing section of our population, retirees and pensioners, who do not pay NIC on their pension income but who disproportionately use various governmental support services, especially the NHS.

At least Jeremy Hunt did not take this nuclear option, especially as this group’s tax burden will rise because of frozen tax thresholds. I may be getting cynical as I get older, but is this because, the over-60’s tend to always vote in general elections, with a disproportionate amount of them historically voting Tory!