On the 6th of March, the Chancellor of the Exchequer, Jeremy Hunt, unveiled the Spring Budget 2024 amid a backdrop of economic uncertainty. Inflation has eased to 4%, yet economic expansion remains sluggish, with a mere 0.8% forecast for 2024, hindered by persistently low productivity levels.
Despite this lacklustre growth outlook, the Chancellor conveyed a cautiously upbeat perspective. Projections indicate a decline in the government's deficit to 3.2% of GDP in 2024, alongside an anticipated reduction in total government debt to 94% by 2028, marking the second lowest among G7 nations. This favourable trajectory is credited to dwindling borrowing rates and expenses, coupled with increased tax revenues, and marks the UK out as an outlier among developed nations with strong fiscal discipline.
The spotlight of the budget was trained on investment reforms and tax adjustments. The Chancellor reaffirmed the enforcement of the Mansion House agreement with ten major UK pension funds, potentially driving £50 billion of investment into UK markets, nearly doubling the size of the smaller stock markets.
At the heart of the budget lies the introduction of the "British ISA," permitting individuals to save an extra £5,000 annually in a tax-exempt savings account exclusively dedicated to UK-listed assets. Given the existing £20,000 tax-free allowance for investors, and the limited number capable of saving £25,000 yearly, the precise impact of this move on driving capital into UK markets remains uncertain. Nevertheless, it signals the government's earnest intent to breathe life back into the UK equity market and stem the outflows.
On the tax front, a welcomed 2% reduction in employee and self-employed National Insurance (NI) contributions equates to an average tax relief of £450 per employee, a win for the British consumer, especially for those in the most precarious financial situations. Furthermore, the contentious non-domiciled tax scheme, enabling certain UK residents to evade UK taxes on overseas earnings, will be phased out by 2025, generating an estimated £2.7 billion annually.
Lastly, the budget proposes adjusting child benefit in accordance with household earnings, elevating the threshold to £60,000, alleviating a significant financial strain for an additional 170,000 families. This measure is intended to incentivise parents to re-enter the workforce, addressing the current 900,000 vacancies in the UK economy, which should go some way to cooling inflationary pressures in the labour market.
The budget commenced and concluded on an optimistic note, although some may perceive it as partisan. With GDP forecast to expand by 0.8% this year and 1.9% next year, potentially positioning the UK as the swiftest-growing major economy in Europe, coupled with reduced borrowing - prospects appear moderately brighter for the UK's fiscal well-being.
Whilst some may have anticipated a more robust effort to entice investors back into the UK market, the Mansion House agreement and the British ISA underscore the government's intent to reinvigorate domestic equity markets. Reduced taxes also bode well for consumers, enterprises, and investors, helping to address UK economic competitiveness.