Autumn 2024 Budget Commentary

The long awaited and much speculated on first Budget of the new Labour government has finally been brought into the light.  Relief is my overriding emotion – on two levels – firstly to get it out of the way and secondly the sense that it wasn’t as bad as we were all fearing.

The Chancellor did a very good job of warming us up to hear bad news, such that when it eventually came to it, we were expecting worse than we received.  Having gone through many Budgets before, I suspected this might be her ploy, but I can’t deny that I was still very relieved to be proved right.

Of course, there was plenty of bad news, but probably nothing that will cause anyone to be weeping into their (1p cheaper) pint this evening.

By far and away the biggest revenue raising measure was a 1.2% increase in the rate of employer’s national insurance, combined with an acceleration of the level at which employer’s national insurance kicks in (reduced from £9,100 to £5,000).  These two changes alone are expected to generate extra annual taxes of £25bn.  True, the working person won’t be impacted directly by these tax rises, but their employer will, and how do we think those employers are going to react?  They are either going to employ less people or they are going to pass on the extra costs to their customers and so, ultimately, working people will suffer the consequences.  Still, at least the Labour party managed to honour their manifesto pledges, so that should make us happy!

Don’t get me wrong, I, like many people, have observed the reduction in the general standard of public services in recent years, so I recognise the need to raise more taxes to fund the spending that is so obviously needed. I just wish politicians would be honest with us for a change.

Speaking of honesty, you may remember that I questioned the honesty of some of the previous Chancellor’s statistics in the last Budget.  With that in mind, I was very interested to hear what the OBR had to say about the efficacy of the picture presented to them by the former Chancellor in advance of that Budget.  It turns out, they concluded they were lied to.  A very damning statement indeed!

Of course, the financial world is a very tightly woven mesh of computer algorithms these days, so any (sensible) Chancellor has to be very careful what they say for fear of spooking the markets.  Therefore, I understand the pressures to be creative with the figures, but I can’t condone it.  If I was equally creative, I could be drummed out of the brownies or even criminally prosecuted.

Credit where credit is due, I was very impressed with the Chancellor’s measured delivery of what was a very difficult and long Budget.  I was also pleased to see an increased level of fiscal responsibility and rigour within the Chancellor’s overall approach.  That can only bode well for the future as long as she maintains her standards.

As a tax adviser, I should be thanking the Chancellor really because there are a huge number of changes to the tax system included within this Budget, so there will be a significant need for people like me to help taxpayers navigate this new maze of tax regulations.  It was far from being all bad – yes, it was a tax raising Budget, so don’t expect any tax giveaways, but there were many changes tax and financial commentators were anticipating that didn’t materialise.

My colleagues will be discussing the new measures in other blogs, so It’s perhaps worth focusing on what didn’t happen.  It’s far from exhaustive, but here is a list of some of the tax rises that didn’t come to pass:

• Higher rate relief on pension contributions wasn’t removed
  
• Employer’s NI wasn’t added to employer pension contributions
  
• The pensions annual allowance wasn’t reduced
  
• The 25% tax free withdrawal from pension funds wasn’t restricted or removed
  
• There was no change to the rates of dividend tax
  
• The rates of capital gains tax weren’t aligned with the rates of income tax (sense prevailed here – such an alignment would have been very damaging to the UK economy).  In fact, the rate increases were quite modest
  
• Business asset disposal relief was not withdrawn, although the 10% rate will be going up to 14% from next April and then 18% the following April
  
• All of the various tax advantaged share schemes remain virtually unchanged
  
• The major corporation tax allowances and reliefs remain (AIAs, full expensing, R&D tax credits, patent box)
  
• The small company rate of corporation tax has not been increased
  
• The inheritance tax 7 year clock has not been removed or lengthened
  
• Business property relief and agricultural property relief are both still available, although restricted
  
• Business property relief on AIM listed shares is still available at a reduced rate of 50% – it wasn’t removed completely as many people (including me) were predicting
  
• The freeze in road fuel duty wasn’t removed (although I suspect we were being softened up for this to rise in the next Budget).

So, we can let out a collective sigh of relief and move on with certainty again (for a while at least!).  I, for one, will be very pleased to get back to some sort of normality.