Experts Comment: Spring Budget 2024

 

Summary

 

• Chancellor Jeremy Hunt has cut workers’ National Insurance by another 2p in the Budget, meaning it falls from 10% to 8%
• He says the cut, to begin next month, is worth £450 a year for the average worker
• It follows another 2p cut announced in last year’s Autumn Statement – but there is no change to income tax
• New official forecasts say the government will collect 37.1p of every pound generated in the economy in 2028/29 – the highest level in 80 years
• Labour leader Keir Starmer calls the Budget a “last desperate act” and says people are paying “more and more for less and less”
• Hunt also announces a six-month extension to the Household Support Fund, a freeze in alcohol duty, and an extension to the 5p cut in fuel duty
• He increases the VAT threshold for small businesses to £90,000, and announces new taxes on vapes and higher taxes for business class flights
• He says he’s “abolishing” the “non-dom” tax system – and will move the child benefit threshold from £50,000 to £60,000

 

 

Expert commentary:

 

Tom Minnikin, partner at Forbes Dawson, said:

 

 

On VAT

 

 

“The increase in the VAT threshold from £85,000 to £90,000 is a welcome step, but still leaves question marks.

 

“In broad terms, businesses only become liable to charge VAT when their annual turnover exceeds the VAT threshold. Analysts have increasingly pointed to evidence of the threshold distorting behaviour, by discouraging businesses at the margin to grow their output. This issue has become even more stark because the threshold has been frozen since 2017.

 

“Today’s increase may ease these concerns, although it is worth nothing that over the intervening period inflation has been more than 10 per cent. Today’s increase only partially deals with this issue.

 

“More fundamentally though, is now the time to have a more radical think on VAT? Some argue that a much lower threshold, balanced by a reduction in the headline VAT rate would lead to less market distortion, by exempting only the smallest businesses.”

 

 

On further National Insurance cuts

 

 

“The decision to cut National Insurance will result in mixed reactions amongst the general public, many of whom were hoping for a cut in the basic rate of income tax.

 

“For employed earners on an average salary of around £35,000, the cut is worth approximately £450, and is on top of an identical rate reduction last November.

 

“However, the measure does nothing to benefit pensioners and those that earn a living from renting properties, who generally do not pay National Insurance.

 

“It is also a further blow for company owners, who typically remunerate themselves via dividends as opposed to salary, and who also will not benefit from the changes. There was also no reduction in the rate of employers’ National Insurance.

 

“These changes, combined with the impact of the 25 per cent corporation tax rate, mean that small business owners choosing to remunerate themselves via dividends will pay a higher effective tax rate on extracting profits than their employees pay on their salaries at higher income levels. This seems illogical at a time when the Government should be seeking to promote entrepreneurship.”

 

 

On fiscal drag

 

 

“The decision to continue with the freeze on various rate bands and allowances exposes the Chancellor to accusations of giving with one hand and taking with the other.

 

“Whilst all the focus of today’s Budget will be on the National Insurance cut there was no increase in various income tax thresholds, including the personal allowance and basic rate limit. This means that for earners who are on the margins of these thresholds any savings from today’s announcements may be counteracted by the effect of ‘fiscal drag’ as the freezing of the bands lead them unconsciously move into higher tax brackets.

 

“Even with today’s changes, the overall tax burden remains at very high levels.”

 

 

On the UK ISA

 

 

“The introduction of a new “UK ISA” is likely to be welcomed by savers, as it marks the first increase in the ISA allowance since 2017. However, to be truly transformative this needs to be coupled with greater flexibility in the ISA system.

 

“The Chancellor unveiled a new allowance of £5,000 per annum for UK-focused investments. The government will consult on the details, but once introduced the £5,000 limit will apply in addition to the existing £20,000 ISA allowance.

 

“The increased offer is a positive step, both for savers and British businesses.  However, there are other ways in which the ISA system could be improved. For example, at present it can be difficult to switch between stocks and shares ISAs and cash ISAs. A more flexible ISA that allowed savers to move their investments in and out of the two products seamlessly would be a better solution all round.

 

“Evidence shows that the take-up of stocks and shares ISAs is a lot lower than cash ISAs. Having a single combined ISA system might create a more balanced split and lead to greater overall investment in the UK.”

 

 

Pot for Life: 

 

 

Lily Megson, Policy Director at My Pension Expert, said: “Fast-tracking the Pot for Life initiative is a step in the right direction. Small pots are an issue that have plagued the sector for some time, with billions of pounds sitting unclaimed in lost pots. 

“However, this policy doesn’t address the longstanding issue of pension engagement, which is completely intertwined with small pots. The government must go further to ensure pensions are not a case of “out of sight, out of mind” – employees must have access to the support they need to understand how many pensions they have, where they are, how much is in them, and how they are performing. Only then can they make informed decisions about their financial future. 

“We urge the government to go much further; bring forward the pension dashboard, help consumers track down lost pensions, and put mechanisms in place to empower people to better plan for their financial futures.”

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Pension fund reforms 

 

Lily Megson, Policy Director at My Pension Expert, said: “A year after the first mention of the Mansion House reforms, it was reassuring that Hunt built on his plans for pension fund reform. The Chancellor’s aim to unlock pension funds for UK business investment and economic growth is understandable. However, it was crucial that he offered greater reassurances to consumers that the over-arching goal in these reforms was to improve outcomes for savers.
 
“Today’s confirmation that there will be a renewed focus on assessing the performance of DC pensions is a positive news and is to be welcomed. Continuous evaluation of pensions is vital, with under-performing schemes rightly to be placed under the microscope. This will come in the interests of UK pension planners.”

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National Insurance Cuts 

 

Lily Megson, Policy Director at My Pension Expert, said: “There will be millions of people across the UK celebrating the NI cuts. Around 27 million of them, in fact. However, the savings are modest – the average UK salary is around £28,000, and someone earning that much stands to save less than £350 a year by cutting NI rates by 2p. And we mustn’t forget that the impact of the NI cuts are limited to those in work. Pensioners still fall through the cracks. 
 
“Cutting income tax would have cast a much wider net and ensured that pensioners (who pay income on their pensions in retirement) also benefitted from a savings boost. Once again, we must ask ourselves, why has the government taken a limited approach in a move that sacrifices the potential to help millions more people achieve a financially secure retirement? Given the party is lagging behind in the polls and Hunt needs policies that appeal to as many voters as possible, choosing NI cuts over income tax cuts seems a misstep.”

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Triple Lock:

 

Lily Megson, Policy Director at My Pension Expert, said: “Make no mistake, commitment to the triple lock is top of pension-planners’ wish list from the Government, so failure to provide further reassurances will not escape attention. The ongoing debate around the affordability of the triple-lock remains a political hot potato and expect it to be juggled around as the general election draws closer. We already know that the Labour Party intends to commit to the triple-lock in its upcoming manifesto – although the Government has not made any contradictory statements, this policy demands ongoing assurances, meaning any Budget without such assurance rings alarm bells.

 

The Pensions Management Institute is disappointed that the Chancellor has chosen not to heed the concerns of the pensions industry in his Budget speech today.

 

Tim Middleton, Director of Policy and External Affairs, at the PMI said:

 

“We feel frustrated that the Chancellor has chosen to press ahead with the Lifetime Provider initiative. We noted earlier this year that this was the wrong time for an initiative such as this and are concerned at the disruption this could cause for so much of the good work achieved to date by automatic enrolment.”

Mr Hunt also confirmed the reforms to Defined Contribution schemes announced over the weekend. Middleton added:

“Whilst we remain supportive of initiatives that will increase investment by pension schemes in the UK economy, we are concerned at the implied suggestion that this would involve some form of coercion. We believe that trustees should retain absolute control of their investment policy and would like to see clarification of exactly what the Chancellor is proposing.”

The Chancellor has also confirmed that the Lifetime Allowance (LTA) is to be formally abolished from April. Middleton said:

“There were sound operational reasons for deferring the LTA’s abolition and we are disappointed that Mr Hunt has not heeded the industry’s concerns. It was frustrating to hear him discuss his reasoning in which he appeared to confuse the Annual and Lifetime Allowances. Unfortunately, this Budget represents both missed opportunities and an ominously authoritarian approach to those who manage the UK’s registered pension schemes.” 

 

 

Andy Mielczarek, founder and CEO of SmartSave, a Chetwood Financial company, said: “It was good to see the British ISA included in today’s budget. It’s only right that the Chancellor focuses on helping people rebuild and grow their savings after years of high inflation.

“However, while this is generally a positive move, there is still an awful lot to be done to empower people to effectively save, invest and achieve their financial goals. ISAs are just one solution of many, so we need the Government to broaden the scope of its policies to include the wider savings market.

“Steps need to be taken to simplify and incentivise savings. There is also a pressing need for better education and support when it comes to financial planning, helping people to better assess the wide variety of savings products and providers available to them.”

 

NI Cut

 

Andy Mielczarek, founder and CEO of SmartSave, a Chetwood Financial company, said: “Cutting NI will be celebrated, but we cannot escape the limited effect it will have. Someone on a salary of £30,000 will only get an extra £348 in their pocket annually thanks to the change, which will do little to reverse the impact of rampaging energy bills, food prices and living costs over the past two years.

“We should not be overly critical; the Chancellor does not have a bottomless pot of funds to allow for huge sweeping tax cuts. Instead, though, it would have been good to see a greater focus on policies and reforms that could empower people to effectively save, invest, and achieve their financial goals.

“Steps need to be taken to simplify and incentivise savings. There is also a pressing need for better education and support when it comes to financial planning, helping people to better assess the wide variety of savings products and providers available to them. Tax cuts need to be bolstered by greater investment into schemes that protect and serve consumers as they make financial decisions.”

 

 

Lisa Watson, Director of Sales at Close Brothers Motor Finance, said:  “Extending the ‘temporary’ fuel duty cut by 12 months will come as some relief to motorists concerned about the soaring cost of driving from A to B.

“Whilst only likely to have a small positive impact, it’s a step in the right direction, particularly for the 53% of drivers who cite fuel prices as the biggest challenge in the next 12 months. We’ve seen continuous hikes at the pumps over the last few months and this has added further pressure to drivers who already feel they’re faced with increased costs from all lanes, making car ownership difficult to afford for 62% of drivers. What is essential now is that this cut reaches drivers’ fuel tanks and wallets.”

 

 

Research from Close Brothers Motor Finance found:

 

• Six in ten (62%) drivers believe cars are becoming unaffordable
• Seven in ten (70%) admit there are too many additional costs when it comes to the day-to-day running of the vehicle
• Six in ten (60%) drivers are worried about rising costs and many are having to look at ways to cut back when it comes to saving money on their vehicle
• Biggest concerns for drivers in the next 12 months:

1.             Rising fuel prices – 53%

2.             Car insurance hikes – 52%

3.             MOT / servicing costs – 37%

4.             Cost of purchasing a new car – 30%

5.             Road tax hikes – 30%

6.             Not being able to afford the running costs – 26%

7.             Further crackdowns on petrol / diesel vehicles – 22%

8.             Parking charges increasing – 20%

9.             High second-hand car prices – 19%

10.   Introduction of ULEZ / similar schemes – 16%

11.   Lack of infrastructure development, such as charging points – 14%

12.   Not picking the right choice of vehicle for my needs – 11%

13.   Delays in car production – 5%

 

 

National Insurance cut but 35% of Brits still cannot fund their retirement: Research from Senior Capital finds that 32% have not been able to make personal contributions to their pension


Having been heavily predicted in the run-up to this year’s Spring Budget, Chancellor Jeremy Hunt has announced a cut in National Insurance by 2p. This cut in National Insurance will result in a tax cut of £448.60 for a worker earning £35,000 annually. Rudy Khaitan, Managing Partner of Senior Capital – the nation’s leading later-life lending specialist – explains that though this short term measure does provide more funds to Brits through their pay checks, it is still not enough capital to help Brits get through the UK’s cost of living crisis.

New national research from Senior Capital highlights the devastating impact the cost-of-living crisis has had on Brits’ ability to contribute to their pensions, with 35% of Brits are currently unable to fund their future retirements. With household disposable income per head predicted to decline by 1.5% according to the Office for Budget Responsibility (OBR) in 2024, Britain’s recessionary climate seen the cost-of-living crisis to force 32% of the nation to halt personal contributions to their pension pot.

Managing Partner of Senior Capital, Rudy Khaitan, comments:

“In today’s society, many over 55s find themselves in a paradoxical situation – they are ‘asset-rich’ due to the value of their homes, yet ‘cash-poor’ with limited disposable income. As the cost of living continues to rise, many find themselves struggling to make ends meet, despite owning valuable properties.

“Equity release offers a solution to this dilemma by enabling homeowners to tap into the wealth tied up in their homes. It can provide a much-needed cash injection to enhance their quality of life, cover unexpected expenses, or even help their families. Equity release is more than just a financial transaction; it’s a means of bridging the gap between asset wealth and living standards, ensuring that those who have worked their whole lives to build their assets can finally reap the benefits of their hard work.”