Budget 2024 in review – Nick Forsyth

Hanging on in quiet desperation is the English way

Desperation is a worrying concept.

The desperation to stay in office led to two unwarranted cuts in employee National Insurance in an effort to win votes by Jeremy Hunt for the Conservative party.

The desperation to get into office led to a promise not to increase personal taxes – whatever the consequences – in an effort to win votes and get Labour elected.

And so having audited the books, the discovery of a £22bn ‘black hole’ left the new Government with a mighty problem and 100 days to find a solution. Recent weeks have seen a series of desperate suggestions being spun out in the press to see how the British public react. National Insurance on Corporate Pension contributions, reducing the 25% tax-free pot to £100,000, putting up Capital Gains Tax to the equivalent of higher rates of income tax, removing the reliefs available to private business owners when selling their shares and changing the rules for Inheritance Tax.

The last month has been pretty turgid for accountancy and legal professionals trying to deal with some or all of the above suggestions with their clients, in case some or all of the above measures were introduced. I can therefore imagine stress turning to desperation within the confines of 11 Downing Street whilst the occupants decided which of these measures they would be willing to implement.

Quite how a Government can go from Heros to Zeros in 100 days is astonishing, but withdrawing the winter fuel payments had the same effect as the Liz Truss premiership did for the Conservatives. So the real question today is will Rachel Reeves’s budget have improved things for Keir Starmer’s cabinet or made some of them even more twitchy?

The starting point has been bleak. No more room in our prisons, leading to early releases and agreeing wage settlements showing us the desperation within Tory cabinets knowing the lack of investment over the years and the lack of money to make the settlements Labour immediately agreed to. As a result, there is a need to collect additional funds if we want to continue with the society we have grown to expect.

We all want these things as long as someone else pays for it, and the realisation that this can’t happen or continue has been faced by Ms Reeves. It is always easier for a new Government to take this action and fair play to our first female Chancellor for being brave enough to do so. But will it work and deliver the much needed growth in the economy?

I’ve got to be honest, I’m too punch drunk at this moment to decide and there is a lot of detail to understand before being able to make a balanced judgement but initial thoughts are as follows:

Building business?

Recent days have led us to accept that businesses would be hit in order to honour promises to the individual voter. In my mind that’s inappropriate. My big employers will now be faced with huge cost increases at a time when they might be in the middle of fixed-price contracts and struggling to deliver the workforce sizes required following Brexit.

If the last employee NI reduction had been reversed, taking the rate back to 10% with the balance being collected from businesses, that might be more appropriate. Would voters have objected to this – of course – but pushing it all onto businesses is also wrong, leaving those who she will need onside to get the growth needed to get us out of the current quagmire immediately offside.

With extra NI, businesses will have less money for wage increases or additional employees and so it is likely that prices will have to rise which might increase inflation once more. But then the minimum wage increases make holding down wages difficult and put greater pressure on costs.   

Our post demonstrates each day that the debt burden to the exchequer continues to grow, and this indicates that business currently isn’t in the best of shape – so how does this help? Certainly collecting this money would be a help – if it can be paid – and so getting the tax collectors out of their houses and back to work would be a great start in backfilling the black hole.

We may see more desperation, firstly from the business owners to understand how to deal with this new problem and later from the Government to get us back onside.

Helping the high streets

The local town centre economy is of interest to Firms trading in that environment. Essentially it’s a struggling sector and lives on a knife edge. The drop in the starting sum for Employers NI will cause problems, but the smallest businesses might escape via the increase in the Employment Allowance to £10,500. Whilst that might help, the minimum wage increases will lead to higher costs and increased prices which often works against the high street.

Community is important to us all but is often not recognised till the point that it is nearly gone. Let’s hope that the review of business rates works favourably and helps maintain and hopefully reinvigorate high streets. 

Fears for our farmers

The changes to IHT firstly bringing pensions into the estate is a dramatic and draconian action. However, this pales into insignificance when considering the changes to Business Property and Agricultural Property Relief. These changes see the first £1m remaining exempt and then charges on higher values.

Again my large employers – often companies with value – will see owners now be subject to IHT on their share values with the money to pay locked within the company and then land – particularly agricultural land – becoming subject to the tax. Our farmers already question why they continue when their customers continually object to the prices they need to break even and this will not cheer them up.

Without food, nothing else matters, but this seems irrelevant to policy setters and we may end up with people who have no idea trying to replace existing landowners or much smaller farms to avoid the value. Clarkson’s Farm might be terrific entertainment, but if it becomes real life, heaven help us.

Immediate changes to CGT

The capital gains increases started yesterday on budget day so it might be possible for a deal to be signed before 12.30pm – when the Chancellor began speaking – and taxed at the new rates announced! Thankfully, the new rates are not as high as feared two weeks ago and in truth, as they had not been talked about in the interim, it was unlikely they would be as high as initially feared.

Time to invest

The tenor of the message is invest, invest, invest to secure the growth we need, but what does this really mean? In 43 years of work, Government after Government have reported poor productivity in the UK, but nobody has grappled with it and achieved significant improvements. Likewise the term invest; does this mean actually investing or just spending more money in an area?

I hope that it is actually the real definition of the word rather than a reckless statement to justify throwing money at a problem, as previous Governments have done. Only time will tell and in truth, I’m desperate to find out!

 I would be happy to discuss any of the points raised in more detail. You can contact me in the usual ways.