Looking ahead to the next Budget Autumn 2024
The government has announced that an Autumn Budget will be held on 30 October 2024. The last Budget held under the previous government took place during the last Parliament, on 6 March 2024.
The Budget and the Finance Bill are usually annual events, in part because income tax and corporation tax are annual taxes which have to be renewed by legislation each year. In election years, after a change of Government, a Budget will also usually be introduced by the incoming Chancellor of the Exchequer, even if the outgoing Chancellor has already delivered one.
As the UK government prepares to unveil its next budget, anticipation is building around what new measures will be introduced to address the nation’s economic challenges and opportunities. With global uncertainties, a shifting political landscape, and domestic pressures from various sectors, the upcoming budget is poised to have significant implications for the country’s financial future. Here are some key predictions for the next UK budget.
1. Tax Reforms and Adjustments
Income Tax and National Insurance Contributions:
One of the major areas to watch is any potential changes to income tax and National Insurance Contributions (NICs). There have been calls from some quarters to increase taxes on higher earners to help balance the budget and reduce the national debt, which has ballooned due to pandemic-related spending. However, there is also pressure to keep taxes low to encourage economic growth and consumer spending. The government might opt for a middle path, such as adjusting tax thresholds to account for inflation without significantly altering the tax rates.
Capital Gains Tax (CGT):
Possible measures include aligning CGT rates more closely with income tax rates, reducing the annual exempt CGT amount, applying CGT on deemed disposal of assets at death, reforming Business Asset Disposal Relief or restricting principal private residence relief on homes. Some reform in this area could prove very unpopular with the general public.
Inheritance Tax (IHT):
As the IHT nil rate band has been frozen since 2009, an increase is significantly overdue. Given the government’s estimated spending black hole, it is unlikely a rise will be granted. Freezing, lowering or bringing in other IHT taxation methods are more likely than a nil rate band rise in the current climate.
Corporation Tax:
The rate of corporation tax has been a contentious issue, with debates around whether to increase it to fund public services or keep it low to attract business investment. Previously, the government announced an increase in corporation tax to 25% from April 2023 for businesses with profits over £250,000, while small businesses continue to benefit from a lower rate of 19%. There might be tweaks to this structure, potentially introducing more incentives for businesses investing in green technologies or research and development.
Windfall Taxes:
Given the substantial profits reported by energy companies amid the global energy crisis, there could be discussions around extending or expanding windfall taxes on these companies. Such a move would be controversial but could generate substantial revenue to support vulnerable households facing high energy costs.
Pensions:
Since the lifting of the pensions lifetime allowance, there have been noises made about further restricting tax free pension commencement lump sum withdrawals or restricting the amount of tax relief available to pension savers. Possible policy announcements include restricting everyone to basic rate tax relief, or more generously, restricting everyone to a flat rate of tax of perhaps 30%.
The Labour government has committed to a review of the pensions system, so it would be a bit odd if Rachel Reeves jumped the gun and axed higher rate tax relief before that was completed.
Stranger things have happened of course, and given the pressure on public finances, it’s within the bounds of possibility that pensions tax relief or restrictions might find itself in the Chancellor’s crosshairs come October.
2. Support for Households and Cost of Living
Energy Price Support:
With winter approaching, there may be further support for energy bills, especially for low-income households. This could take the form of direct payments, subsidies, or extended price caps to ensure that vulnerable groups are not disproportionately affected by rising energy costs.
Childcare Support:
There has been growing attention on the high costs of childcare in the UK, which is seen as a barrier to employment for many parents, particularly women. The government may announce increased funding or subsidies for childcare services to make it more affordable and encourage workforce participation.
3. Investment in Public Services
Healthcare:
The NHS is under immense strain due to backlogs from the pandemic and ongoing staffing shortages. The budget is expected to allocate more funding to address these challenges, with investments in recruitment, training, and infrastructure to improve healthcare delivery.
Education:
Education could also see increased funding, particularly for initiatives aimed at reducing the attainment gap exacerbated by the pandemic. There might be new schemes to support tutoring, extracurricular activities, and mental health services in schools.
Social Care:
The government has faced criticism for its handling of social care, a sector that has long needed reform and increased funding. The budget could include provisions to stabilize the sector, potentially through increased funding or new policies aimed at integrating health and social care services more effectively.
4. Economic Growth and Innovation
To foster long-term economic growth, the budget is likely to focus on innovation, infrastructure, and skills development.
Green Investment:
As part of its commitment to achieving net zero by 2050, the government is expected to introduce new measures to promote green investment. This could include grants, subsidies, or tax incentives for companies investing in renewable energy, electric vehicles, and other sustainable technologies.
Digital and Technological Innovation:
Investment in digital infrastructure, such as broadband expansion and 5G networks, could be a priority. The government may also look to boost funding for technological innovation and research and development to enhance the UK’s position as a leader in science and technology.
Skills and Training:
With ongoing changes in the global job market and advancements in technology, there is a pressing need for skills development. The budget may include new funding for vocational training, apprenticeships, and adult education to ensure that the workforce is equipped with the skills needed for the future.
5. Brexit and International Trade
Post-Brexit, the UK continues to navigate its new trade relationships. The budget could outline further support for businesses adjusting to new trade regulations and seeking opportunities in global markets. This might include enhanced trade facilitation measures, export support services, and investment in ports and customs infrastructure.
6. Public Borrowing and Debt Management
Given the significant levels of public borrowing incurred during the pandemic, the government faces the challenge of balancing the books without stifling economic recovery. It is anticipated that the budget will include measures aimed at gradually reducing the deficit while ensuring that public spending supports key priorities such as healthcare, education, and infrastructure.
Conclusion
The next UK budget comes at a critical juncture, as the government seeks to balance competing demands of fiscal responsibility, economic growth, and social support. While there are many uncertainties, the focus is likely to be on measures that can help ease the cost-of-living crisis, invest in public services, and promote sustainable economic growth. As always, the specific details will depend on the political priorities and economic conditions at the time of the budget announcement. Markland Hill Wealth will publish commentary to clients through newsletters and at regular client meetings.