Spring Budget 2024 – a tightrope of expectations for personal and business taxes

Jeremy Hunt is walking a tightrope of satisfying MPs in his own party, whilst heeding warnings from leading economists about the danger of unfunded tax cuts.

The International Monetary Fund (IMF) recently gave the Chancellor a stern warning to use his budget to focus on repairing public finances that are still reeling from the pandemic response and costs of the war in Ukraine. It says extra borrowing or post-election spending cuts would be needed to fund any tax cuts.

What scope is there for budget 2024 tax cuts?

For his part, Mr Hunt has already acknowledged there isn’t “the same scope for cutting taxes” as in the Autumn Statement and that any tax cuts would need to be done in “a responsible and sensible way.” However, this is the Conservative Party’s last big chance before the election to create an ideological difference between itself and the other parties on tax policy. Would the Chancellor really waste such an opportunity?

What will happen to personal tax rates in the Spring Budget?

Previously, the potential for inheritance tax to be reduced or even scrapped altogether has looked possible, and whilst that still could be, the Chancellor is likely to keep his focus on reducing the headline personal tax rates.

A 2p cut to income tax, similar to the one made to National Insurance in the Autumn Statement, is one of the changes the Chancellor is rumoured to be considering. It would leave someone earning £35,000 a year with roughly £450 of extra income.

There are many other areas of personal tax where the Chancellor is thought to be considering changes, such as raising the level at which people lose access to child benefits or removing limits on Lifetime ISAs. However, it can be hard for people to visualise just how these changes to marginal taxes and benefits will help them. Instead, a cut to the headline rate of income tax is easier for people (and voters) to understand, hence making them more likely.

However, as the IMF has warned, such cuts would need to be funded somehow. We’ll need to see the detail after the budget speech to understand how those costs would be met and whether it will really make us better off.

What will the Spring Budget mean for businesses?

Following the decision in the Autumn Statement to make ‘full expensing’ on capital spending a permanent fixture, businesses will be watching closely to see what the Chancellor does next.

We already know that a single research and development tax relief regime comes in from April 2024, so we’re unlikely to see further changes there. Corporation Tax was raised to 25% last April for businesses with profits above £250,000, therefore further changes here are not foreseen, except potentially the introduction of some specific reliefs.

One area where we may see action is VAT, where there continues to be more scope for changes following Brexit. Could we see simplification and easing of some VAT restrictions for businesses in certain sectors?

Raising the VAT registration threshold from its current £85,000 is potentially an easy win for the Chancellor, as it will encourage small businesses not to put the brakes on growth to avoid registering for VAT.

For more insights on potential measures from the Chancellor in his Spring Budget, view our full Wishlist article.