As anticipation builds ahead of Chancellor Jeremy Hunt’s Spring Budget on Wednesday (6th March 2024), financial experts have shared their hopes and predictions for the fiscal announcement.
With the eyes of the nation fixed on Westminster, the stakes are high as policymakers strive to strike a balance between fiscal prudence and further support for economic growth.
Following on from changes – or the lack thereof – made by the Chancellor in his Autumn Statement last November, many predictions centred around alterations to Stamp Duty, cuts to income tax and ISA reform.
Stamp Duty
Despite much speculation, the Government made no mention of Stamp Duty Land Tax (SDLT) in its Autumn Statement in November 2023, much to the disappointment of many property professionals.
Hope remains high for reform within the Spring Budget, however, with many suggesting that the current system is outdated and unfit for purpose.
Alex Michelin, founder and CEO of Valouran, said: “In the budget, we would like to see a reform to the SDLT system in the UK.
“It is now abundantly clear that the present system is not working.
“It is gumming up the housing market, preventing people from moving, stopping first-time buyers getting on the housing ladder, affecting older generations because they cannot afford to move from their big old houses and is therefore reducing social mobility – the very bedrock of how society improves, and how the population moves forward.
“It is a massive problem, and the Government needs to act to free the market and allow transactions to proceed without so much friction and tax burden.”
Danni Hewson, head of financial analysis at AJ Bell, said: “It’s a well-worn phrase for a reason, an Englishman’s home is his castle, and there are plenty of younger voters desperate to pull up the drawbridge on a home of their own.
“But cutting Stamp Duty is only one way to stimulate the housing market and as a tool it’s a particularly blunt one that historically has come with the by-product of higher house prices.
“Reports that the chancellor is considering pulling 99% mortgages out of his bag of tricks have also been met with concern.
“Even if people will find it much easier to raise a 1% deposit, they’ll still have to meet monthly mortgage payments which will stretch many incomes to the limit and could result in those people getting trapped in negative equity if house prices fall quickly.
“A recent investigation by the Competition and Markets Authority (CMA) has revealed the scale of the issue surrounding housebuilding in the UK particularly when it comes to the kind of affordable homes many people, especially those on lower incomes, want to live in.
“This is an issue that needs a long-term solution which is unlikely to be delivered by a government which seems to be heading out the door.”
Support for SMEs
Against a backdrop of high interest rates, inflation that has only begun to stabilise.
In the aftermath of the Covid-19 pandemic, a number of experts have also called on the Chancellor to provide increased support for struggling business owners.
A number of suggestions put forward in order to further support small and medium enterprises (SMEs) have included further cuts to National Insurance (NI) following changes made last year.
However, pundits remained divided on whether this was likely to come to fruition.
Ed Rimmer, chief executive officer at Time Finance, said: “Aside from measures to directly impact businesses, many firms that trade directly to consumers will be looking to this year’s Spring Statement for key announcements that will stimulate spending.
“Interest rates, inflation and high fuel costs have deterred this. In fact, many attribute the dip in economic growth towards the end of 2023 to a reduction in household spending.
“The Government needs to act on this.
“In November, the Chancellor announced a reduction in the main rate of National Insurance, thereby increasing workers’ take-home pay.
“This measure was a move largely driven by the cost-of-living crisis, but it gave people marginally more disposable income.
“This is a potential boost to the revenue streams of some of the hardest hit SME industries in the UK, namely hospitality and retail.”
Jason Hollands, managing director of Bestinvest, said: “Another piecemeal trimming of National Insurance, following on from the cut announced in the Autumn Statement and implemented in January, is thin gruel for those whose tax burdens are growing heavier as a result of multi-year frozen thresholds for both the basic and higher rates of income tax, as well as the lowering of the threshold for paying the 45% additional rate of tax this tax-year.
“A penny off National Insurance is unlikely to life the public mood.”
Income tax
Income tax reform has been widely discussed by commentators ahead of the Budget.
With suggestions of a simplification of the tax process, along with an overall reduction on the cards, many expect the Chancellor to make changes this Wednesday.
Claire Trott, divisional director – retirement and holistic planning at St James’s Place, said: “The complexity of income tax calculations, with various bands and tapers, poses challenges for both professionals and individuals.
“Simplification is essential to ensure consistency across calculations for different allowances, making it more accessible for everyone.
“Reducing income tax will always be welcomed, but the impacts of these on things such as pension savings shouldn’t be dismissed.
“If there is a reduction in the basic rate of tax, as the tax relief granted stays at 20% for simplicity, those who pay contributions before tax is deducted will lose out and shouldn’t be forgotten as they have for many years.
“Only now are we seeing any kind of changes to address the disparity for lower earners in net pay schemes who haven’t had any tax relief in their pensions, whereas those in a relief-at-source scheme have always been able to claim the 20%.
“Fairness is key to ensure that our lowest earners are able to benefit the same, however, their employer decides to structure their auto-enrolment scheme.
“Maintaining salary sacrifice for pension contributions is crucial, as it provides an additional incentive for savers.
“However, regulations should be put in place to ensure that employers pass on savings to employees, rather than pocketing the benefits.”
Ed Rimmer added: “Now, our current situation differs greatly from the economic situation in 2008, but could the Government take some inspiration from its historic response to recession?
“Income tax reductions would be a bold and costly move, but putting money in the pockets of working people would have widespread benefits and ultimately support those small businesses that rely on consumer spending.”
ISA reform
The reform of Individual Savings Accounts (ISAs) has been a key debate ahead of the Budget, with experts urging the Chancellor to make further changes following his relative inaction on the subject in November’s Autumn Statement.
With many touting the current ISA system as unnecessarily complex, commentators have called for an overhaul of the system, as well further expansion of tax-free options and the introduction of the ‘British ISA’.
Tom Selby, director of public policy at AJ Bell, said: “Jeremy Hunt set out very modest reforms to ISAs in his Autumn Statement, none of which amount to the radical simplification savers and investors are crying out for.
“The Budget could be his final opportunity as chancellor to strip unnecessary complexity out of the ISA rules and demonstrate he is on the side of Brits who do the right thing and save for their financial future.
“Given the proximity of the general election, fundamental simplification may be off the table for now.
“Nonetheless, kicking off a full consultation on ISA simplification could pave the way for a much simpler savings and investing landscape in the future.
“In the meantime, there are also improvements that could be made to the existing ISA regime.
“Scrapping the Lifetime ISA age restrictions, for instance, would make the product more accessible to self-employed workers, many of whom are not saving anywhere near enough for retirement.
“The prospect of a ‘British ISA’ should be treated with caution.
“There is a danger that adding a new ISA confuses ordinary savers and leaves people unsure which ISA is right for them, leading to inertia.
“Given most investors have a natural bias towards UK companies and funds anyway, the most straightforward way to boost retail investment in UK companies would simply be to raise the £20,000 ISA allowance, which has remained unchanged since 2017.”
Jason Hollands added: “The increasingly adverse tax environment for savers and investors makes maximising tax-free Individual Savings Accounts more important than at any time since their inception, something to bear in mind with just weeks left until the end of the 2023/24 tax-year.
“In particular, those who own shares or funds in taxable environments (i.e. outside of ISAs and pensions) should give strong consideration to selling these within their current capital gains exemption (before it is halved) and then repurchasing them within ISAs (a process known as ‘Bed & ISA’), to protect future returns from tax.
“As the process can takes a few days, this should not be left until the eleventh hour of the tax year.
“There is hope of sorts that the Chancellor might increase the amount people can tuck away tax-free, with the launch of a new ‘British ISA’ restricted to UK equities – an idea being heavily lobbied for by City brokers amid a drought of UK IPOs and deals that earn them fees.
“The Chancellor might well go for it, given the worrying 20% decline in the number of companies listed on the UK market over the last five years as a number of businesses have moved their listings elsewhere are the volume of IPOs have crumbled.
“However, the assumption that such an idea would see an increase in tax-free saving options for the public could yet prove a misreading of the situation.
“It is within the realms of possibility that a new ‘British ISA’ allowance of, say, £5,000, could be offset by a reduction in the existing annual £20,000 ISA, to drive more of those currently maximising their ISAs into UK equities while being broadly neutral for the Treasury.
“Such a move might be welcomed by city brokers and UK equity fund managers’ but it would reduce investor choice and flexibility, turning the clock back to the days of Personal Equity Plans, the forerunner of ISAs, which restricted the amount people could invest outside of the UK market.
“We will just have to wait to see whether the ‘British ISA’ becomes a reality next week and, if it does, what shape or form it might take.”
Inheritance Tax
According to many commentators, changes to Inheritance Tax (IHT) may also be on the cards this Wednesday.
Many have cited the tax’s rigorous restrictions as outdated and in need of modernisation – others have called for its abolishment altogether.
With the latter unlikely, Claire Trott of St James’s Place said: “The relationship between Inheritance Tax (IHT) and pensions is significant, with any changes impacting on pensions advice.
“Abolishing IHT entirely might discourage pension savings if the added benefit of keeping substantial funds outside the estate is lost.
“Clarity is required for transfers in serious ill health, with outdated rules requiring revision.
“Testing for IHT purposes should focus on cases where deliberate and substantial additions to pensions during ill health are evident, relieving a burden on those seeking appropriate options for their beneficiaries.”
Support for the private rented sector
Finally, many property experts have called for increased support for the private rented sector (PRS), as many landlords and tenants continue to struggle within the current high mortgage rate environment.
The sector has seen much turmoil over the past few years following the Truss Government’s ill-fated mini-Budget, which sent mortgage rates skyward, along with lender stress tests and, as a result, average rental costs.
The Mortgage Works, the buy-to-let (BTL) arm of Nationwide, urged the Government to support landlords for a stronger private rental sector.
With increased regulation and taxation, many landlords have continued to struggle, limiting their ability to invest in properties.
The lender therefore called for a moratorium on all but essential new regulation in the private rented sector following the introduction of the Renters (Reform) Bill.
According to the lender, a moratorium would provide certainty for landlords following a period of change and allow Government to assess the impact of the Renters (Reform) Bill on improving the sector – allowing landlords to focus on providing quality homes for their tenants and fostering better landlord tenant relationships.
The Mortgage Works also called for further incentives for landlords to carry out energy efficiency work, and increase in funding for social housing and a review changes to mortgage interest relief and landlord taxes.
