UK businesses on tenterhooks ahead of UK Spring Budget 2024

UK businesses on tenterhooks ahead of UK Spring Budget 2024

As the UK braces for the Spring Budget 2024, businesses across the nation are keenly awaiting Chancellor Jeremy Hunt’s fiscal announcements. With the economic landscape marked by a technical recession and the shadow of a general election looming, the Chancellor’s decisions are more critical than ever.

This budget is anticipated to navigate the tightrope of stimulating economic growth while managing the UK’s fiscal constraints. Amidst speculation of tax adjustments and public spending shifts, the business community and industry leaders are voicing their concerns and expectations, hoping for measures that will bolster the economy and address pressing challenges.

The business community’s response to the Spring Budget 2024 predictions has been a mix of cautious optimism and pressing concerns. Industry leaders, particularly from the tech, media, and construction sectors, have lauded the government’s decision to make full expensing permanent, recognizing it as a significant tax relief that encourages investment.

““The budget next week will likely be the last major fiscal event before the next election. Therefore, this could be an opportunity for the Conservative government to take bold strides in order to try and win-over voters pre-election,” says Charlotte Sallabank, Tax partner at Katten Muchin Rosenman LLP.

However, there’s a consensus that more needs to be done to invigorate the UK’s economic landscape. Businesses are urging the government to expand the range of investments eligible for full expensing and to introduce greater incentives for loss-making businesses. Additionally, the call for more support to address staff shortages is loud and clear, with suggestions ranging from reforming the apprenticeship levy to introducing support for working parents.

The overarching sentiment is that while steps have been taken in the right direction, the upcoming budget presents a crucial opportunity for the government to implement targeted improvements that could catalyse business growth and development.

Tax in focus

Since 2021, the personal allowance threshold for income tax has remained frozen, with plans to continue this freeze until 2028. This strategy has led to a phenomenon known as ‘fiscal drag,’ where rising salaries push more people into the taxable income bracket, thereby contributing to an elevated tax burden. The Resolution Foundation estimates that ending this freeze in 2024/25 would incur a cost of approximately £7 billion.

In an effort to alleviate some financial pressures, the Autumn Statement saw  Hunt announce measures aimed at reducing National Insurance Contributions (NIC), with speculation around a possible 2% cut for employees. However, due to concerns about affordability, a more modest 1% reduction seems likely. Treasury analysis suggests that a 2% cut in the basic rate of income tax would result in a £13 billion loss, whereas a similar cut in employees’ NICs would cost £9 billion.

Another area of tax policy under review involves VAT-free shopping for tourists, which is currently available to visitors who ship their UK purchases directly overseas. Chancellor Rishi Sunak had previously restricted this benefit to combat fraudulent claims, sparking a debate over the potential economic benefits of reinstating the pre-2020 regulations. Critics argue that the UK is missing out on tourist spending as a result, with the Office for Budget Responsibility (OBR) set to publish findings that could influence future policy changes.

“The Chancellor needs to take bold action in the upcoming Spring Statement by reinstating VAT-free shopping for overseas visitors. With high streets across the UK grappling with challenges, including decreased footfall and increased operating costs, this review is long overdue,” says Gerry Myton, Head of Indirect Tax at HW Fischer.

Discussions are also ongoing about the introduction of a new tax on vaping products as a measure to address the UK’s vaping epidemic and offset revenue losses from other tax cuts. Should this new tax come into effect, it’s expected that tobacco duty would also increase to ensure that smoking remains a costlier habit.

Environmental taxes represent another lever for the government to address climate change, with potential increases in taxes on polluting activities or enhancements to environmentally-friendly incentives. Additionally, the government’s consultation last April on the taxation of cryptoasset loans and staking within decentralised finance indicates a possible new taxation framework, though the government’s response remains pending.

Finally, the issue of stamp duty land tax reflects broader concerns about housing market inequalities, particularly the challenges faced by younger generations in purchasing homes and the difficulties older generations encounter when downsizing. A targeted reduction in stamp duty could provide much-needed assistance to first-time buyers and those looking to downsize, reflecting the government’s ongoing efforts to address fiscal policies amidst evolving economic and societal challenges.

“While most businesses will be hoping for a reduction in Corporation Tax, the chances of that happening are slim. It’s been less than a year since the Chancellor went forward with the move to increase the rate to 25%, and so businesses should pin their hopes on other changes that will help boost growth,” says Toby Ryland, Corporate Tax Partner at HW Fischer,

“This could include the extension of Business Asset Disposal Relief, which reduces the Capital Gains Tax rate on the sale of a trading company to 10%. As it stands, this only applies to the first £1m of capital gains, and it represents a lifetime limit rather than a per transaction limit. Before March 2020, the limit was £10m. If the Chancellor were to increase the limit back to this number, it could become more attractive for owners to sell their business and pass it onto the next generation.

OBR Forecasts and Fiscal Implications

The Office for Budget Responsibility (OBR) is set to release its economic and fiscal forecasts alongside the Spring Budget 2024, offering a critical lens through which the UK’s economic trajectory can be assessed.

The backdrop is a UK economy that has entered a technical recession, with growth forecasts being a focal point of concern. The OBR’s previous forecasts have highlighted a challenging economic environment, with inflation expected to remain above target for an extended period. This has significant implications for public finances and the Chancellor’s fiscal headroom.

The anticipated OBR report will likely scrutinize the sustainability of public debt levels, the impact of proposed tax changes, and the feasibility of public spending plans. As the government aims to balance growth stimulation with fiscal prudence, the OBR’s insights will be pivotal in shaping the narrative around the UK’s economic health and the government’s fiscal strategy moving forward.

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