Smith Allen Chartered Accountants

Jeremy Hunt has delivered his last budget before the election. The devil is in the small print, but here are the headlines until we dive into the details.

By way of an Economy update, the Office for Budget Responsibility (OBR) predicts a 0.8 percent expansion in the economy for 2024, a marginal change from the 0.7 percent forecasted in November. Notably, the 2025 forecast has been upgraded to 1.9 percent from the previous 1.4 percent, and for 2026, it stands at 2.2 percent, up from the earlier projection of 2 percent. This adjustment reflects an increase in population growth. However, the GDP per capita in five years is anticipated to be slightly lower than the previous expectations.

Price growth is anticipated to decelerate below the Bank of England’s 2 percent target in the coming months, according to Hunt. In 2024, inflation is projected to average 2.2 percent, a decrease from the previous forecast of 3.6 percent, and it is expected to further decline to 1.5 percent in 2025.

The fiscal year 2022-23 witnessed the largest year-on-year decline in living standards since the 1950s, as per ONS records. However, real household disposable income per person is poised to recover to its pre-pandemic peak by 2025-26, indicating a rebound two years earlier than the OBR’s November forecast.

• National Insurance
  Reducing the primary rate of employee and self-employed contributions by 2p is proposed for 27 million workers, with an estimated annual cost of approximately £10 billion. This adjustment follows previous reductions of 2p for employees and 1p for the self-employed in last year’s Autumn Statement.
• Non-dom Tax regime
  The elimination of the existing system that permits UK residents with a permanent “domicile” abroad to avoid paying UK tax on income or gains from overseas investments. Incoming residents will receive a tax-free period of four years for their foreign income. This modification is projected to yield an annual revenue of £2.7 billion in due course.
• Child Benefits
  The income threshold for the tapering of benefits will increase from £50,000 to £60,000.
• British ISA
  An extra £5,000 allowance is introduced for individual savings accounts, specifically designated for investments in UK equities. This supplementary allowance, on top of the existing annual £20,000 per person Isa allowance, aims to encourage increased investment in domestic businesses.
• Tax rises
  Commencing in 2026, there will be new or heightened taxes on vaping products, tobacco, and flights not categorized as economy class. Additionally, tax incentives for holiday letting owners will be eliminated, and the windfall levy on oil and gas producers is slated to be extended until 2029.

Despite the announcement of tax cuts, tax revenues, as a percentage of the economy, are projected to increase to 37.1 percent of GDP in 2028-29, marking the highest level since 1948. This is partially attributed to the freeze in personal tax thresholds.

The growth in day-to-day spending is capped at 1 percent in real terms, equating to £7,580 per person in 2026-27. This represents an 8 percent reduction compared to the policy’s launch in 2021.

To adhere to the Chancellor’s primary fiscal rule of reducing public sector debt as a percentage of GDP in the fifth year of a five-year forecast period, there is an expected £8.9 billion “headroom.” This figure is smaller than the average of £29.7 billion observed from 2010 to 2023.