Vote winner or vote loser for the Conservatives?
With this being the last budget before the next general election, I was expecting the Chancellor to announce changes aimed at winning votes rather than tackling the fiscal issues that we currently have. Overall, I feel this is what has been delivered by Hunt.
Changes for the individual – lots of small changes
National Insurance cuts seem to be the new tax cut regime with a further cut of 2p in the rate of NI contributions paid by employees and the self-employed. Making a 4p cut overall in the last year and possibly the Conservative’s way of stating they have achieved the tax cuts they promised to deliver in their previous election manifesto.
Capital Gains Tax reduced from 28% to 24% on residential property – this is to try to stimulate the housing market and generate more tax for the government. Many property owners with rental properties have seen significant reductions in rental income due to the increases in the mortgage rates and this may be seen as a light at the end of the tunnel to help them offload these properties. However, with the reduction in the annual CGT allowance being restricted to £3,000 from 5 April 2024 and potentially more properties being available for sale which will then drive down the value of properties, this may not be as attractive as it first appears.
Child benefit changes include a threshold increase from £50k to £60k and a taper system from £60k to £80k. There is going to be a consultation to look at collective household income but not likely to be introduced until April 2026. Why the delay? This has never been a fair system or a logical one in my opinion. I have many clients and friends where one of the parents earns £55k and the other doesn’t work as looking after young children and sadly due to the current system, don’t qualify for child benefit. However, you can have two parents both earning £50k each – £100k combined income – that do qualify. How has it ever been logical that a household earning £45k more than another qualifies for a benefit that the lower-earning household doesn’t?
Changes for businesses – not a lot to report really
VAT registration limit increases from £85k to £90k – this will be welcomed by many small businesses, especially those dealing with the general public as this has been a barrier to growth for some. The VAT threshold used to be predictable with year on year increases of £1k – the last was on 1 April 2017 when it went to £85k and has remained since. In reality, you could say that actually £5k was not enough. If the regular £1k increases had continued, we would be looking at a VAT limit now of £92k, so we are in fact still behind.
National Minimum Wage and National Living Wage avoided a mention and April 2024 sees not only a 9.8% increase at the highest level taking the hourly rate from £10.42 to £11.44, but sees a reduction in the age of qualifying individuals reducing from 22 to 21 and this is combined with the reduction in the qualifying age to join auto enrolment pension falling to 21. Whilst welcome to those in lower earning positions, this impact will surely outweigh any advantages gained from a 2p cut in NIC. Any business hoping to recover the NLW increase and the associated costs with it such as pension and employers NIC, is likely to have to put their prices up by 15% to stand still – this means services like hairdressers/beauty therapists/carers etc are all very likely to be affected and this therefore makes the cost of the those services more expensive. As a guide, this now sees the total cost of employing a 21 year old on a 35 hour week increase from £20,326 per year to £22,871 (12.5% increase).
As any readers of my previous budget comments will know, I am always keen to see if I can continue to enjoy my favourite tipple of G&T without changing brands to a cheaper version and it seems yet again, I am saved. Alcohol duty continues to be frozen until February 2025, a little surprising as with taxes on tobacco and now vaping being increased to encourage a healthier lifestyle and reduce strain on the NHS, I can only draw the conclusion that the Chancellor enjoys the odd glass or two to get through his stressful day job.
As always, I am happy to answer any questions that you may have.
LISA GREENWOOD – PARTNER