Spring Budget 2024 - what it means for your clients' money

The Chancellor took no chances with the final Spring Budget before the general election. There was no risk of any of the announced measures backfiring for the simple reason that most of them were given a thorough airing in the weekend papers. 

British ISA confirmed 

The announced measures included a new British ISA, designed to support UK businesses, increase investment in UK-listed companies and so give a boost to our shrinking domestic stock market. As previously flagged, this will take the form of a new £5,000 allowance in addition to the existing £20,000, but restricted to UK-listed shares. 

Details remain thin on the ground and a short consultation is underway which means no change before the April 5 deadline for this year’s investments has passed. 

While we welcome the effective increase in the amount that investors can shelter from tax each year, there are many unanswered questions, such as how a UK investment will be defined. We also believe that investors will need to consider carefully how to use the new allowance without creating unhelpful, and possibly costly, ‘home bias’ in their portfolio. 

We continue to believe that further simplification is needed and could be achieved by combining Stocks and Shares and Cash ISA products as well as improving the ease of transfers.

One of the drivers behind the introduction of an allowance specifically for UK-listed companies is a desire to incentivise domestic investors to support their home-grown market. We believe there are additional ways in which the government could raise potential returns for investors and at the same time support companies that are considering listing in the UK. 

For example, the government should consider removing or reducing the burden of stamp duty for equity transactions, putting us on a level footing with other markets. It might also consider reducing the tax rate for UK dividends, simplify capital gains tax or reintroduce indexation to encourage longer-term investing. 

The FTSE 250 index was the main beneficiary of the ISA confirmation, rising more than 1% after the announcement. 

Other sweeteners 

There were some unexpected announcements that will interest investors. A reduction in the higher capital gains tax rate on property disposals from 28% to 24% will help second-home owners and buy-to-let investors. The move partially equalises the CGT payable on property and other assets, for which the higher rate remains 20%. 

One other surprise in today’s budget was the raising of the high-income child benefit charge threshold, which will affect people with children under the age of 16 on an annual salary of £60,000 and the extension of the taper to an annual salary of £80,000. 

Currently, if you earn £50,000 or more before tax a year, you can claim child benefit but have to pay a tax charge. The tax charge means that if you earn £60,000 or more the tax charge cancels out the impact of the child benefit you receive. The recipient does though benefit from national insurance credits that go towards their state pension entitlement.

What won’t change just yet is the administration of the threshold, which has attracted widespread criticism and will still mean that a single parent earning £60,000 will effectively lose their child benefit, while a couple both earning £59,000 each will keep theirs. This will likely be addressed by a household-based system that would be introduced by April 2026 following consultation. 

Small giveaway 

As would be expected in a pre-election fiscal statement, the Budget represented a modest giveaway overall. The £10bn cost of the headline measure - reducing National Insurance by a further 2p in the pound and so doubling the cut at the time of the Autumn Statement - was offset by a number of well-flagged revenue raising measures for a net handout of around £6.5bn. 

Non-doms, business class air travellers and vapes are in the Treasury’s sights, stealing some of Labour’s thunder. 

The Chancellor’s self-imposed fiscal rule - reducing government debt as a proportion of GDP at the end of the five-year forecasting period - was always going to tie his hands when it came to headline-grabbing white rabbits. He is anyway, a naturally prudent politician with an eye on his legacy. But the Office for Budget Responsibility did help out a bit, raising its growth forecast for the current year from 0.7% to 0.8% and for next year from 1.4% to 1.9%. 

In the end, Mr Hunt scraped by with just £8.9bn to spare, well below the £26.1bn cushion that Chancellors have left themselves on average since 2010. 

Although presented as a tax-cutting Budget - ‘the lowest effective tax rate since 1975’ the Chancellor said - today’s measures do need to be viewed in the context of a tax burden which is higher in overall terms than at any point in the past 70 years, thanks largely to the fiscal drag of frozen thresholds. 

Jeremy Hunt may believe that low-tax economies are high-growth economies, but the government’s tax take as a proportion of the overall economy has not been higher since the immediate post-war period. The OBR said that tax as a share of GDP would rise to 37.1% by 2028/9. That would be the highest level since 1948. 

The market reaction to the Budget was muted, again because little in it was unexpected. The FTSE 100 rose, the pound was steady and gilt yields hardly moved as investors gave the Chancellor a tacit nod of approval. There was never much risk that this key pre-election statement would repeat the fiasco of the 2022 mini-Budget that so spooked investors.