This Spring budget is March 6 (Image: Getty)
The Chancellor of the Exchequer, Jeremy Hunt has less than three weeks to go until the Spring Budget.
Households will watch the Budget keenly for any changes to taxation and benefits that could give a boost to their own financial outlook after years of uncertainty, stretched disposable incomes and languishing living standards.
The chancellor has been called to implement tax cuts as the economy has gone into recession.
The latest ONS (Office for National Statistics) figures showed the economy has gone into recession, with GDP dropping 0.3 percent in the fourth quarter of 2023, after falling 0.1 percent in the previous quarter
Inflation also came in lower than expected this week and is expected to fall further over the coming months, which means Mr Hunt can argue that any tax cuts he has in mind do not present an inflationary risk.
The chancellor has been called to implement tax cuts as the economy has gone into recession (Image: Getty)
Sian Steele, Head of Tax at professional services and wealth management group Evelyn Partners said: “Budgets are inevitably political affairs but this one is more so than most as it’s seen as something of a last-chance saloon for the Chancellor and his colleagues in Government to start winning back the electorate.
“The Treasury was recently reported as suggesting Mr Hunt will have just £14billion to play with – and the Chancellor himself has played down the prospect of tax cuts.
“But thanks in part to wavering inflation, growth and interest rate forecasts, the final out-turn from the OBR will determine what sort of tax cuts we see – as there are sure to be some.
“Greater fiscal headroom will make an eye-catching cut to income tax or National Insurance more feasible and tempting, while if there’s less to play with, the Chancellor’s attention might turn to less expensive targets like stamp duty land tax and inheritance tax.”
Income tax and National Insurance
Mr Steele explained that a further National Insurance cut is emerging as the frontrunner for a big Budget tax announcement.
Inflation remained at four percent (Image: Getty)
This would enable the Government to again to present the tax cut as focused towards incentivising work, more so than a move on income tax which would benefit a wider range of the population, including pensioners.
Regarding income tax, he stated that the fairer and in many ways more logical move would be to raise the personal income tax allowance or the threshold for the higher rate band – even if a freeze was then reintroduced for subsequent years as planned until 2027/28.
Under current plans the personal income tax allowance – below which an earner pays not tax – will remain at £12,570 for the tax year that begins this April, and the higher rate tax threshold £50,270.
Mr Steele said: “This is drawing huge numbers of additional people into paying 40 percent tax on some of their earnings: the OBR estimates that between 2022-23 and 2028-29 the threshold freeze means 3million more earners will have moved to the higher rate.
“HMRC said in September that there are a projected 5.6 million higher rate taxpayers in this tax year (2023/24), which is a 40.7 percent increase compared to 2020/21.
“It is possible that, if there is going to be a big tax reveal, the Chancellor will make a direct appeal to voters by raising the higher-rate threshold.
“Not least because this could be presented as correcting the aberration of a threshold that has been kept artificially low, rather than an arbitrary giveaway.”
Inheritance tax
A move to reduce inheritance tax could be on the cards at the spring Budget, having failed to materialise at the Autumn Statement. However many families with more modest estates that are being drawn into the IHT net would probably rather see the nil-rate band raised, Mr Steele explained.
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The £325,000 allowance has been frozen since April 2009 and would now stand at nearly £500,000 had it risen with inflation.
Stamp duty land tax and first-time buyer help
Changes to stamp duty land tax relief are still due to be reversed from 31 March 2025, and pressure on the Government to make the changes permanent has grown.
Mr Steele said: “A flagging housing market and a sluggish electorate could well prompt the Chancellor to look at extending stamp duty reliefs at the Budget.
“At a minimum, that’s likely to mean making the current extensions permanent – but could also take the form of further extensions to reliefs or a reduction in the rates of SDLT.
“However, the property market is holding up rather better than expected in the face of raised interest rates, so that might lessen the likelihood of an SDLT cut.”
IFS chief Paul Johnson has stated quite boldly that he thinks SDLT is in dire need of reform and that abolishing it in part or in whole – at a cost of between roughly £4.5billion and £9.0billion – could mobilise the housing market and help to revive the UK economy.
Housing secretary Michael Gove has said he is pressing hard for measures on housing affordability to be in the Budget – including a cut to stamp duty, state-backed 99 percent mortgages and an extension of a discount scheme for first-time buyers.
Mr Steele concluded: “The perception in some quarters that SDLT has become a rather troublesome ‘stealth tax’ has made it unpopular among both potential and actual homebuyers. Also, it has come under increasing criticism for congesting the property market and even damaging UK business by restricting labour market mobility.”
