Did we really need a Budget from the Chancellor today? Arguably ‘no’ as there was very little he had to tell the country.
Jeremy Hunt’s laboured Budget speech, lasting over an hour and double the length of his predecessor’s ill-fated Mini-Budget, told us nothing new – and that was before the various leaks over the last few days. In many ways, it was a Budget statement that characterised Jeremy Hunt himself – logical, solid but underwhelming in large parts.
Jeremy Hunt’s Budget can be broken down into three main areas of focus:
- addressing energy price inflation
- incentives for a return to work for the ‘economically inactive’ and
- enterprise (one of Hunt’s four ‘E’s).
Energy price inflation
The main announcement on energy was made over five hours before Hunt took to the Parliamentary lectern – that the Government, with the help of Martin Lewis, would extend the current energy support for domestic households for a further three months, saving a typical household £160 and at a fairly modest cost of £3 billion to the Treasury.
However, households will still be worse-off during that three month period as the £400 energy bills discount comes to end this month. In what is now the annual custom, fuel duty was frozen, when it could have risen by 23% – at a cost to the Treasury of £15 billion over the next five years; it would have been staggering if the Government had done anything different.
Return to work incentives
To encourage the ‘economically inactive’ back into work to address labour shortages, Jeremy Hunt offered two incentives.
Firstly, for working parents, a significantly enhanced and generous free childcare package which will benefit all children under-five by September 2025.
For the over 50s (which Hunt himself is one), the Chancellor surprisingly abolished the frustrating pensions lifetime allowance and increased the annual allowance to £60,000 (although it would be worth £8,000 more had it kept up with inflation). The pensions changes were targeted at senior doctors who are discouraged to work in the NHS because of the punitive tax charges they face because of pension accruals. Hidden away in the detail of the Budget documents, an increase to the minimum tapered allowance to £10,000 will be worth an additional £2,700 of tax relief to someone earning over £360,000 – quite perversely, a minority of very high earners will be some of the biggest winners from today’s Budget announcements.
And finally ‘enterprise’ – yet entrepreneurs will be left disappointed. The 6% increase to Corporation Tax to 25% was never going to be reversed today. Business owners taking money out of their companies as dividends will see combined rates of Corporation and Dividend Tax of up to 55% – a 10% hike since 2015. The fanfare around an unlimited deduction for capital expenditure for a three year period will only cushion the Corporation Tax hit slightly and benefit only 10% of the largest businesses. Hunt had already halved the dividend allowance to £1,000 from this April and will cut it again to £500 from April 2024. The days of the business owner paying themselves in dividends seem to be gone.
Back in 2020, Hunt’s now boss, Rishi Sunak, slammed through a £900,000 Capital Gains Tax hit on entrepreneurs in his first Budget as Chancellor, when he cut the £10 million Entrepreneurs’ Relief lifetime to just £1 million. The Capital Gains Tax exemptions will fall to £3,000 next year – a 75 per cent cut from its current level and increasing the annual tax burden by over £2,600. At least Capital Gains Tax rates remain at 20% … for now.
This Budget felt like a non-event – there was no change to Income Tax rates, tax bands or National Insurance contributions, for example. It was disappointing that the Government didn’t address any of the underlying problems of the personal tax system – the various spikes in marginal tax rates are a massive deterrent to work and progression, which if properly addressed, could have had a significant impact on the current workforce issues faced by the country.
We didn’t need a Budget today, but the Government will definitely need to show its hand at the next Budget, which could be their last opportunity before a General Election. Unfreezing the personal tax allowances, reforming the non-domicile regime and incentives for business and investment should all be on the agenda and the country will be expecting something more dramatic. For today’s Budget, it can be quickly commended to the archives.
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