Spring Budget 2024: Updates on Cost of Living, Taxes and Public Services

Inflation is anticipated to drop below the Bank of England’s 2% target by the end of 2024, providing relief after 18 months of elevated inflation. Employee National Insurance Contributions, reduced from 12% in the Autumn, will further decrease from 10% to 8% starting April 6. This cut will particularly benefit middle-income earners, potentially saving the average earner an additional £450 annually. Self-employed individuals will also experience a reduction, with contributions decreasing from 8% to 6%, building on the previous Autumn cut.

Alcohol Duty remains frozen until February 2025, and Fuel Duty, frozen since 2011, continues to be unchanged. The future introduction of a vaping levy in 2026 aligns with the government’s “smoke-free generation” initiative. A corresponding increase in tobacco product levies aims to discourage a return to traditional smoking, with the combined levies projected to raise £500 million by 2028/2029.

While many welcome increased take-home pay, the absence of an uplift in personal tax allowances means that rising wages may push individuals into higher tax brackets. This concern about the growing tax burden on working people is widespread.

In terms of public services, the NHS, a significant recipient of National Insurance Contributions, receives an extra £2.5 billion in funding for the next year. Despite the reduction in National Insurance Contributions, the short-term implication is that individuals’ pockets and pay packets won’t be tapped for additional funding.

Investment and Business Taxes witness the VAT threshold for small businesses rising to £90,000 in April, marking the first increase in seven years. Full expensing, extended to leased assets when financially feasible, allows businesses to claim back 25p in Corporation Tax for every £1 invested in IT, machinery, and equipment. Additional funding of £120 million for green energy projects and £160 million for the Wylfa Nuclear site purchase is allocated by the government.

Property taxes see a reduction in the higher rate of tax on profits from selling property from 28% to 24%, aiming to boost revenues through increased transactions. However, Multiple Dwellings Relief is eliminated, impacting certain transactions involving multiple residential properties starting June 1, 2024.

Other Taxation Measures include the abolishment of the “Non-Dom” tax status, replaced by a new residency system from April 2025. A new “British ISA” will be introduced, allowing investors a further £5,000 ISA Allowance for UK-focused shares. The “windfall tax” is extended to 2029, targeting North Sea oil and gas companies, and Air Passenger Duty increases for Business Class passengers.

Public Services and Welfare witness full funding of £3.4 billion for the NHS’s productivity plan and an increase in Full Child Benefit to households with a highest-earning parent up to £60,000, with partial payment up to £80,000.

Looking Ahead: While expected inflation relief may alleviate some pressures, high interest rates (5.25%) and borrowing costs pose challenges for individuals and businesses. Council Tax bills for 2024/2025 are imminent, and political uncertainties suggest businesses may wait for clarity on future tax and growth plans before making significant decisions.