By Kel Nwanuforo
If at first you don’t succeed, try, try, try again. – W.E. Hickson
The Conservative Party’s struggle to turn around its enormous deficit in the opinion polls continues. Having tried a number of tactics – including steady-as-she-goes, ‘change option’ and ‘friend of the motorist’ – of late the Prime Minister has settled on ‘tax cutter’ to boost his political fortunes.
To this end, at last year’s Autumn Statement, Chancellor Jeremy Hunt was authorised/directed (delete according to your reading of events behind the scenes) to cut National Insurance contributions for employees by 2 percentage points.
The polls didn’t move.
In today’s Budget, Chancellor Jeremy Hunt was authorised/directed to cut National Insurance contributions for employees by 2 percentage points.
Try, try, try again.
Yes, the headline today was the cut in the main rate of National Insurance from 10% to 8% in April, coming hot on the heels of the prior cut from 12% in January.
Will it have the desired effect for the government this time? Taking both moves together, an average earner will save around £900 a year – a sizeable reduction in tax by historical standards. Yet the cuts come on the back of hefty tax rises, surveys find voters reporting gripes in several areas and the opinion poll gap has been stubborn for many months now. Time will tell.
Elsewhere, another key change concerned imminent reforms to the High Income Child Benefit Charge, which affects mid- to high-earners with children. The point at which benefit starts to be removed will shift upwards to £60,000 from the current £50,000 and taper away at a lower rate.
How are these giveaways to be funded? At least in part, through the abolition of the ‘non-domiciled’ tax status for wealthy overseas-based nationals. This was a crafty political move on Mr Hunt’s part, as this underpinned several of Labour’s own spending plans. Now that that money has already been spent, Keir Starmer will have to come up with a fresh plan.
See below for our full summary containing the other tax changes announced today.
Those with spare income to invest will welcome the Chancellor’s announcement of a new ‘UK ISA’ allowance of £5,000, additional to the standard £20,000 permitted each year. As the name suggests, this new supplement is intended to encourage investment into the FTSE. The relative listlessness of the home market has started to attract attention from the political class of late – and with good cause.
In recent years, the UK has attracted notably less interest from investors, fewer new companies listing and delivered lower returns than America, which dominates the global market and features heavily in Asset Intelligence portfolios. Today’s announcement represents one way by which the Chancellor hopes to reverse this trend – and as it presents an opportunity for savers to reduce their tax bills too, then so much the better.
Looking at the bigger picture, the news was largely positive, though do bear in mind that we were hardly starting from the sunlit uplands. The independent Office for Budget Responsibility expects inflation to fall below the government’s 2% target in a matter of months, a year earlier than previously expected. Meanwhile, the economic growth forecast for this year was upgraded from 0.7% to 0.8%, with next year’s figure up from 1.4% to 1.9%.
So – Rishi Sunak and Jeremy Hunt have tried and tried again. Will they succeed? Pretty soon, you decide.
Key measures announced for England (national variations for Scotland, Wales and Northern Ireland may apply)
Personal taxation
- The main rate of employee National Insurance is to be cut from 10% to 8% from 6 April – additional to the previous 2 percentage point-reduction which took effect in January
- Class 4 National Insurance – paid by self-employed people earning between £12,570 and £50,270 – is to be cut from 9% to 6% in April
- The High Income Child Benefit Charge will be assessed on the basis of household income, rather than on an individual basis at present, from April 2026…
- … and in the meantime, from this April, the threshold at which it starts to be levied will rise from £50,000 to £60,000. Additionally, the taper rate will be halved – meaning people with incomes up to £80,000 will now retain some Child Benefit
Other taxation
- For disposals of residential property only, the higher rate of Capital Gains Tax will fall from 28% to 24% on 6 April
- The Furnished Holiday Lettings tax break will be abolished from April 2025
- The ‘non-domiciled’ tax status for the foreign income of overseas-based nationals is to be abolished, replaced by a new, less generous regime from April 2025
- Alcohol duty freeze extended until 1 February
- Fuel duty freeze extended for another year
- Air Passenger Duty for basic economy class flights will rise in line with inflation in 2025-26. For higher classes, the rise will be above inflation
Pensions and savings
- A ‘UK ISA’ allowance of £5,000 is to be launched for investment in UK assets, additional to the standard annual ISA allowance of £20,000
- New ‘British Savings Bonds’ will be launched by National Savings & Investments from April 2024. These will offer a fixed rate for three years
- A retail offer of part of the government’s holding in NatWest is planned for “this summer at the earliest”
