The Chancellor, Jeremy Hunt MP, has announced today (Wednesday 6th March) a range of new tax, benefits and savings measures in the Spring Budget.
More tax cuts for working people, more investment and a plan for better public services headlined the Government's Budget for Long Term Growth. This comes as the independent Office for Budget Responsibility (OBR) has confirmed that inflation is set to fall to target levels a year earlier than previously forecast, as the Government is growing the economy and sticking to the Conservative's plan to improve living standards.
In the Autumn Statement last year, the Chancellor cut Employee National Insurance contributions by 2%, in today's Budget, Jeremy announced a second cut from 10% to 8% from April. These tax cuts slash the main rate of Employee NICs by a third, resulting in the average worker earning £35,400 a year being over £900 better off this year.
Building on this, the Budget went further with tax cuts for the self-employed, having previously reduced Class 4 NICs from 9% to 8% and abolished the requirement to pay Class 2 NICs, a further 2p cut to Class 4 NICs for the self-employed to 6% was announced today, meaning the average self-employed worker earning £28,000 will be £650 better off compared with last year.
These reductions, combined with the changes implemented in the Autumn Statement, deliver personal tax cuts worth £20 billion, reducing the effective personal tax rate for a median earner to its lowest level since 1975.
The OBR has said these reductions will lead to the equivalent of around 200,000 extra full-time workers by 2028/2029, as people increase their working hours and move into work. This boost in the number of people working allows the Chancellor to prioritise NICs cuts in the Budget, and why the Government will continue to cut tax for ordinary working people, when fiscally responsible. Jeremy set out that his and the Government's long-term ambition is to end the unfairness of double taxation of work.
Within the statement, the Chancellor also announced that the High Income Child Benefit Charge will be assessed on a household basis by April 2026, with a consultation to come on achieving this. This will help to ensure working families benefit from increasing their earnings before this change is made, the threshold to start paying back Child Benefit will increase in April from £50,000 to £60,000 – a 20% increase which will take 170,000 families out of paying the charge this year – while Child Benefit will no longer need to be repaid in full until earnings exceed £80,000. This represents a £1,260 boost on average for around half a million working families, rising to nearly £5,000 for some families when combined with tax cuts since Autumn Statement. This will put an end to the current unfairness, where two parents earning £49,000 a year receive the full Child Benefit while a household with a single earner on over £50,000 does not. The OBR says the immediate changes to the HICBC will lead to an increase in hours worked equivalent to around 10,000 more people entering the workforce on a full-time basis.
The Chancellor also announced a landmark Public Sector Productivity Plan which marks the first step towards returning public sector productivity back to pre-pandemic levels and will ensure taxpayers’ money is spent as efficiently as possible. OBR analysis suggests that raising public sector productivity by just 5% would deliver up to £20 billion of benefits a year.
Backed by £4.2 billion in funding, the plan will allow public services to invest in new technologies like AI, replace outdated IT systems, free up frontline workers from time-consuming admin tasks and take action to reduce costs down the line. The NHS will receive £3.4 billion as part of this over the forecast period - doubling investment in digital transformation, significantly reducing the 13 million hours lost by doctors every year because of old IT and delivering test results faster for 130,000 patients a year thanks to AI-fitted MRI scanners that help doctors read results more quickly and accurately. This investment, which comes alongside an extra £2.5 billion cash injection for 2024/25 to support the NHS improve performance and reduce waiting times, means the NHS can commit to delivering £35 billion in productivity savings over the next Parliament, while the £800 million to boost productivity across other public services will deliver an extra £1.8 billion in productivity benefits by 2029.
New tax breaks and investments will help to establish the UK as a world-leader in high-growth industries. The UK’s creative industries will be backed by over £1 billion, including higher tax reliefs to lower the cost of producing visual effects in high-end TV and film, a 40% relief on gross business rates until 2034 will be introduced for eligible film studios, and a new tax credit for independent British films with a budget of less than £15 million. Orchestras, museums, galleries and theatres will also benefit from a permanent 45% tax relief for touring productions and 40% relief for non-touring productions, while £26 million will fund maintenance and repairs at the National Theatre.
A £360 million package will support innovative R&D and manufacturing projects across the life sciences, automotive and aerospace sectors – with a further £45 million funding to accelerate medical research into common diseases like cancer, dementia and epilepsy – while the Green Industries Growth Accelerator will be allocated an extra £120 million to build supply chains for offshore wind and carbon capture and storage.
Opportunity will be spread across the country with hundreds of millions in funding to extend the Long Term Plans for Towns to 20 new places and a swathe of cultural projects, while local leaders will also be empowered to improve their communities through more devolved powers and a new North-East trailblazer devolution deal which comes with a funding package potentially worth over £100 million to support the region’s growth ambitions.
The Chancellor also took steps to make the tax system simpler and fairer. The ‘non-dom’ tax regime will be abolished and replaced with a fairer system from April 2025 where new arrivals to the UK pay the same tax as everyone else after four years – raising £2.7 billion a year by 2028/29. As the oil and gas sector’s windfall profits from higher prices are expected to last longer, the sunset clause on the Energy Profits Levy will be extended by a year to March 2029, raising £1.5 billion while encouraging investment in the UK’s energy security by promising to legislate for its abolition should market prices fall to their historic norm sooner than expected.
Accompanying forecasts by the OBR confirm that the combined impact of decisions taken at Spring Budget and the preceding two fiscal events will increase the size of the economy by 0.7% and increase total hours worked by the equivalent of 300,000 full-time workers by 2028-29 - with the combined impact of government policy since Autumn Statement 2022 reducing the tax burden in the final year of the forecast by 0.6%. Today’s announcements will reduce inflation in 2024/25, bring the equivalent of over 100,000 people into the workforce by 2028-29 and permanently grow the economy by 0.2% - with borrowing falling in every year of the forecast.
