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Spring Budget: Hunt to cut national insurance but leave income tax

Published 05/03/2024, 11:44
Updated 05/03/2024, 13:42
© Reuters Budget 2024: Hunt to cut national insurance but leave income tax - latest updates

Proactive Investors -

  • Energy levy to be extended
  • Air Duty to rise again
  • Manufacturing package
  • AI and drones boost
  • Non-dom status under threat
  • Individual taxes likely to be cut
  • National Insurance might be lowered again
  • 99% mortgages off the table
  • Hunt urged to extend welfare support
  • Budget is on Wednesday 6 March

National insurance will be cut but income tax left unchanged in budget

National insurance will reportedly be cut by 2% in Wednesday’s Spring Budget, but Chancellor Jeremy Hunt will leave income taxes unchanged.

According to Telegraph-cited government sources, such a cut to income tax was deemed by Hunt to be too expensive, given the potential knock-on effects to inflation.

However, the reduction in national insurance will likely save the average UK worker £450 a year, stretching to £900 when combined with last autumn’s cut, which came into effect in January.

The latest cut will take effect in April, next month, and comes as the government looks to offer giveaways in what is likely to be its final budget before the next general election.

Motor industry calls for electric vehicle incentives

Flagging private demand for electric vehicles has prompted merchant bank Close Brothers to call for incentives for consumers in Wednesday’s Spring Budget.

Battery electric vehicle registrations increased by 22% to 14,991 in February, Society of Motor Manufacturers and Traders (SMMT) data showed on Tuesday, against a wider 14% uptick in car sales over the month.

However, such growth was dominated by firms buying cars for their fleets, with fewer than one in five new EVs being bought privately.

“While battery EV market share and volumes continue to grow during the first year of mandated targets for manufacturers, the increase in uptake is entirely sustained by fleets, thanks to compelling fiscal incentives,” the industry body said.

Close Brothers Motor Finance director Lisa Watson noted muted demand put government targets for 22% of cars sold in the UK this year to be electric in jeopardy.

Just 12% of private new car buyers now consider electric models, down from 14% a year ago, Watson said, citing Close Brothers’ research.

“Both consumers and manufacturers will be hoping that the government’s spring statement will address concerns surrounding EV uptake, such as inadequate infrastructure, and contain incentives to encourage widespread EV adoption,” she added.

Energy windfall tax to be extended

Chancellor Jeremy Hunt is reportedly poised to extend the windfall tax on energy companies by a year in next Wednesday’s budget.

The energy profit levy, which was introduced in May 2022, could now run until 2029 as a result, according to Reuters-cited sources.

Energy firms had initially been taxed 25% of their profits before Hunt lifted the levy, which came after a surge in fuel prices following the outbreak of war in Ukraine, in November 2022.

North Sea oil and gas companies have been left paying 75% in tax since, with electricity generators also being charged 45%.

Hunt also extended the levy’s end date from 2025 to 2028 in November 2022.

Air passenger Duty to be hiked

An increase in Air Passenger Duty for business class passengers is being looked at as a way to raise cash for cuts elsewhere, according to the latest leaks.

APD has been a favourite avenue to boost government revenues in recent years and went up again in the last Budget.

Currently, business class passengers pay £13 in duty for domestic flights, £26 for flights up to 2,000 miles, £191 for up to 5,500 miles and £200 for further than that, though these rates are already scheduled to rise slightly from April.

Spring Budget stamp duty cuts likely - analyst

Stamp duty cuts could be a key part of Chancellor Jeremy Hunt's plan to win votes with his Spring Budget this Wednesday, analysts say.

“We hope to see a long-term plan for new homes, including social housing, however, we expect we will see more short-term fixes,” ASK Partners chief executive Daniel Austin said ahead of the statement.

A stamp duty holiday or reprieve may well be among the tools Hunt uses to attract votes from buyers as a result, Austin forecast.

This is as developers likely hope for eased regulation around building at brownfield sites, he said.

“The government will be faced with a challenge - striking a balance between trying to increase housing supply and therefore affordability by supporting developers and private landlords, but appealing to voters who do not want to see greenfield development.

“The planning system remains hotly political and as a result, landlords and developers are unlikely to see much in their favour.”

£360 million for manufacturing

Ahead of Wednesday’s Spring Budget, Chancellor Jeremy Hunt has announced a £360 million investment to support the country's life sciences and manufacturing sectors.

The investment will be distributed among various companies and projects that are developing advanced technology in key economic sectors.

Notably, £7.5 million will assist two pharmaceutical companies, Almac and Ortho Clinical Diagnostics, in expanding their manufacturing facilities in the UK, contributing to a combined investment of £84 million.

“We’re backing the industries of the future with investment to make the UK a leader in manufacturing, securing highly-skilled jobs and delivering the change our country needs for a brighter future," stated Hunt.

£200 million is earmarked for a joint investment in zero-carbon aircraft technology, with the automotive industry getting £73 million for R&D projects focused on electric vehicle (EV) technology.

This includes funding from the government through the Advanced Propulsion Centre UK (APC), aiming to reinforce the UK's position in EV manufacturing.

Business and Trade Secretary Kemi Badenoch commented on the announcement, saying it builds on the success of last year's Advanced Manufacturing plan and aims to grow the economy and secure the future of British manufacturing.

Additionally, the announcement includes increased funding for the Green Industries Growth Accelerator (GIGA) to support the expansion of low-carbon manufacturing.

Technology reforms

Jeremy Hunt is set to deliver an £800 million package for technology reforms in Wednesday's Budget aimed at freeing up NHS and police time, the Treasury has announced.

Speaking over the weekend, Chancellor Jeremy Hunt called it part of a “public sector productivity drive”.

Under the plans, artificial intelligence technology will be used to attempt to cut down NHS waiting times by a third, and drones will be deployed by the police services to attend to road collisions.

Government urged to extend welfare support

Vulnerable Brits could receive more cash to help them through the cost-of-living crisis after nearly ninety MPs pleaded with Jeremy Hunt to continue the Household Support Fund (HSF).

Initiated in 2021 and set to finish in March, the HSF has distributed £2.5 billion to help with the assistance of vulnerable people in managing expenses for essentials such as food, water, and energy.

In January, charity the Joseph Rowntree Foundation revealed that more than a fifth of UK residents are living in poverty, with many having experienced sharp downturns in their financial situations since 2017.

In their letter, MPs and Lords said: “Keeping the HSF will help to offset the cost of living crisis that still so many families are facing. It is simultaneously the right thing to do and the fiscally prudent choice.

“We believe that removing the HSF will push more people into poverty and destitution at this time and worsen their health and their children’s.”

99% mortgages off the table

The government has reportedly scrapped plans for taxpayer-backed 99% mortgages, according to a Telegraph article citing a Treasury insider.

“It’s off the table. It was one idea put forward by officials out of maybe 30. Headroom has drastically reduced since then, so we need to refocus the Budget,” said the insider.

A senior banking source added: “It was just a headline grabber. Most first-time buyers won’t be able to afford it anyway.”

Under the scheme, homebuyers would have been given a step onto the property ladder with just a 1% deposit, underwritten by the government.

Santander (BME:SAN) UK chief Mike Regnier earlier warned that the scheme would drive up risk for lenders, despite the government backing.

1% homeowners would also be at risk of slipping into negative equity in the event of a fall in home prices.

Homebuyers can still find deposit-free mortgages on the market.

Skipton Building Society recently revealed its newly launched no-deposit mortgage has attracted around 500 borrowers, totalling around £62 million.

Non-doms could be scrapped

Non-domiciled status for millionaire ex-pats living in the UK could be scrapped in the forthcoming Budget to help Chancellor Jeremy Hunt raise cash, reports today suggested.

Under the current non-dom rules, foreign nationals who live in the UK, but are officially domiciled overseas, don’t pay tax on overseas income or capital gains.

Arguments for and against the scheme have been raging since the then Labour leader Ed Miliband first said he would scrap it in 2015.

Supporters say attracting high net-worth individuals to the country outweighs any potential tax loss.

Labour is proposing to bring a new more tightly controlled regime to generate £2 billion earmarked for the NHS.

One wrinkle for Jeremy Hunt is that PM Rishi Sunak’s wife Akshata Murty, the daughter of an Indian billionaire, was one of those people using Non-Dom status for her time in the UK until it was made public in 2022, since when she took herself off the register.

Another issue for Hunt is that he publicly defended non-dom status when Labour proposed its new policy.

“These are foreigners who could live easily in Ireland, France, Portugal, Spain. They all have these schemes. All things being equal, I would rather they stayed here and spent their money here,” he said in a radio interview.

According to the Telegraph, which ran the Non-Dom story, Hunt will announce tax cuts on 6 March with reductions in National Insurance or income tax or both likely.

Range of individual tax cuts possible

Tax cuts are a certainty in the Spring Budget but where and by how much has been sparking many debates recently.

Rob Morgan, Charles Stanley's chief investment analyst suggests “a modest package of tax cuts, mostly focused on individuals,” looks a likely scenario.

So what’s possibly on the table next week, according to Morgan.

Income Tax cuts

The personal allowance, representing the initial slice of income you pay no tax on, was £12,500 in April 2019 but if it had been raised in line with inflation it would be well over £15,000.

Yet it has hardly moved.

Similarly, the higher rate tax threshold which was £50,000 in April 2019 would be approaching £65,000 by now if it had been revised upwards with the Consumer Prices Index (CPI).

As a result, the freeze has drawn huge numbers of people into the 40% rate as wages have risen.

Some upward movement on the tax bands or a cut to rates would be welcome.

The £50,000 High-Income Child Benefit Charge threshold is also ripe for reform, says Morgan.

ISA allowance

ISAs (or Individual Savings Accounts) are one of the most tax-efficient ways of saving because any returns are tax-free, says Morgan.

"The Treasury is reportedly looking at increasing the amount that can be saved into them, and possibly carving out part of the allowance to be used only for UK shares.

“On the surface, a proposed additional allowance for UK stocks, a so-called ‘British ISA’, presents an elegant solution to two issues: The UK’s waning shareholder culture and the general lack of interest in the UK stock market, as well as the increasing tax burden on small shareholders.

The ISA allowance has been £20,000 since the 2017/18 tax year, so seven consecutive tax years at this level and another freeze for 2024/25 would make it number eight, so there could be some movement on the overall level this time around.

Inheritance tax

A reform of inheritance tax (IHT) would be popular with many traditional Tory voters and there are even suggestions that the tax could be axed altogether at some point.

IHT is charged at a rate of 40% on the value of estates worth more than £325,000, but if you are married or in a civil partnership you can pass on your allowance to your partner, meaning no tax is payable until the combined estate is above £650,000.

Inheritance tax could be reformed in some way, but it would be a significant cost to abolish it entirely, says Morgan.

Receipts amounted to approximately £7bn in the 2022/23 tax year and they are set to increase as the value of estates rise and the thresholds outlined above remain frozen.

A pledge to reform rather than a Budget surprise is more likely, he suggests.

CGT and dividend allowances

Many investors are being caught by reductions in the dividend and capital gains tax allowances and now report and pay tax on modest sums.

The dividend allowance was slashed in April 2023 from £2,000 to £1,000 and it will be cut in half again from £1,000 to £500 in the next tax year.

In the tax year 2017/18, it was £5,000.

CGT allowances have fallen from £12,300 to £6,000 for this tax year and will fall again to £3,000 from April 2024, so more people will have to pay tax on their investment profits.

Abandoning plans to reduce the thresholds for dividend tax and capital gains tax again would relieve pressure on investors and entrepreneurs alike.

Stamp Duty

Stamp Duty Land Tax is once again in focus with housing market activity slowing.

Presently, purchases of less than £250,000 do not incur stamp duty, but it is charged at 5% of the next £675,000 of house purchase value up to £925,000 and ratchets up further after that.

National Insurance cut

A reduction in National Insurance is one of several tax cuts being planned by Chancellor Jeremy Hunt in next week’s Budget, according to reports on 27 Febraury.

Hunt has already announced one cut in National Insurance, from 12% to 10% starting this year but is considering lopping a further 1% off the Levy to give a boost to the economy.

Known by critics as a “tax on jobs” the last NI cut was predicted to boost employment by around 28,000, but a further reduction would cost £4.5 billion according to the report in the Times and limit the scope for more headline-grabbing initiatives.

In an election year, hopes for the Tories seemingly rest on the Chancellor pulling something miraculous out of the hat next Wednesday, 6 March.

Vape tax under consideration says Times as chancellor looks to raise cash

Chancellor Jeremy Hunt could announce a new tax on vapes at next Wednesday's spring Budget.

Vaping products are subject to VAT but not the same levy as is applied to cigarettes.

Tobacco duty could also increase at the Budget, to ensure that vaping remains cheaper, sources told the Times.

Big tobacco firms Imperial and BAT (LON:BATS) fall on vape tax news

Last month, plans were announced for UK-wide restrictions on disposable vapes, to tackle the rise in youth vaping.

"Although the industry is jostling for position in the vaping market, given the volumes declines in tobacco, these products are still a relatively small part of the picture," Streeter said.

"Investors had also been expecting greater regulation in the sector, so a potential increase in tax isn’t a wild surprise and given they are global companies a change in UK fiscal policy won't move the dial too much."

Read more on Proactive Investors UK


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