Spring Budget 2024 Update

All headlines prior to the Spring budget were firmly placed on the predicted reduction in national insurance (NI) payments from workers but that wasn’t the only focus for the Chancellor.

Jeremy Hunt closed his statement to the house with the proclamation of “Growth up, jobs up, and taxes down.”, clearly looking to stimulate positive movement across the economy.

With the Office of Budget Responsibility (OBR) capping the spending headroom at £12.5bn per annum, it was forecast that any further ‘giveaways’ would be at the expense of heavier taxation or reduced funding in other areas.

It was noted that inflation is set to fall below 2% over the next quarter or so, which would beat the forecasts by nearly an entire calendar year.

Looking not just to boost the economy but also try to ease future tax burdens, Hunt set out his plans in full knowledge that a future election loomed. A note was made that since 2010, the UK had grown faster than Germany, France and Italy and would continue to do so until the end of the decade. He was also keen to drive home the equation that lower taxes enabled higher growth.

What were the changes and how might they affect you? We’ve summarised the main talking points for businesses below:

Private company exchanges

There were plans set out for public consultation rules to enable a Private Intermittent Securities and Capital Exchange System (PISCES).

This mirrors the NASDAQ exchange, which already has a private market offering for share auctions and the International Stock Exchange in Guernsey.

Investors will be “granted better access to exciting companies while also benefiting from greater transparency and efficiency than available in private markets.”

The hope is that this will provide a ‘pipeline’ for future IPOs and, alongside wide-ranging government reforms, boost the UK as a listing destination for companies.

David Schwimmer, CEO of the London Stock Exchange was quoted as saying “The introduction of a venue that provides private companies with choice in how and when they access liquidity, and gives shareholders opportunities to enter and exit investments, could be transformational for UK capital markets.”

The UK’s Silicon Valley

Positioning the UK as a global leader in technology has always been an aim of the current government. Hunt reiterated this as the government believes “the most powerful way to get investment is to support our most innovative industries.

The aim for long-term growth for technology is to retain entrepreneurs to not just be founded here but to stay here, including retaining their listing on the London Stock Exchange. To foster this, the Chancellor is looking to unlock more capital from pension funds in addition to the Edinburgh reforms to encourage larger tech investment and development.

Greater powers will be granted to the Pensions Regulator and Financial Conduct Authority to derive better value from defined contribution schemes.

Hunt referenced multi-billion-pound data centres set up by Google and Microsoft as proof the government has built “the most attractive investment tax regime of any large European or G7 country.”

Green technology

In another move to stimulate the fortunes of UK businesses, £120m was added to the Green Industries Growth accelerator to “build supply chains for new technology ranging from offshore wind to carbon capture and storage.”

British ISAs

The new £5,000 allowance, in addition to the existing allowances for ISAs, provides a tax-free savings opportunity for people to invest in UK assets. The reform is seen as a way to raise investment in UK companies and grant all the tax advantages an ISA brings to the investor. The announcement had an immediate effect on the market with the FTSE 250 rising by 1.1% after the announcement with backers saying it could reverse the London Stock Exchange’s fortunes.

Mike O’Shea, CEO of Premier Miton Investors stated “The GB ISA is a crucial step in starting to recapitalise British businesses and make the UK listing regime the global capital of capital. We look forward to further details on the new ISA wrapper in due course.”

There were notes of caution, however. AJ Bell’s Laith Kalaf, Head of Investor Analysis, warning “The UK stock market has fallen way behind the global stock market in the last ten years and so a Great British Isa would not have produced happy investors over this period…The performance of the next 10 years may not look like the last, but given that technological growth and investment indexing show no signs of abating, it wouldn’t be a total surprise to find investors continuing to find better returns across the pond.”

National Insurance reduction

The headline announcement for the Spring Budget was that, as expected, NI was reduced by two percentage-points, at a cost of £10bn a year to the UK economy.

The Institute for Fiscal Studies warned that the cut won’t staunch a slow march towards record levels of taxation by 2030. “Based on forecasts from last autumn, that tax cut would not – by itself – be enough to prevent taxes as a share of GDP from rising to record levels in 2028-29.”

The reduction was widely forecast when the OBR announcement ruled out a previously mooted cut to Income tax, meaning further ‘giveaways’ would mean cutting costs or taxing other areas.

Knock-on effects

As a result of the announced cut to national insurance it’s widely forecast that the Bank of England will slow interest rates cuts, keeping the cost of government borrowing high. This is not just potentially bad for overall economic growth, but it could signal increased taxation down the line. In addition, higher interest rates would reduce consumer spending, which will of course impact B2C organisations. Crucially, private sector investment could be reduced which will impact job creation and economic productivity.

Rises in taxation

The Chancellor did earmark where he can raise funds for the budget beyond his fiscal headroom.

• An extension of the Energy Profits levy: The Chancellor forecast an additional £1.5bn would be added to the treasury coffers by extended this measure until 2029.
• Reformation on tax laws for ‘Non-Doms’: The government plan to abolish the current system. From April 2025, new arrivals to the UK won’t be required to pay any tax on foreign income and gains for their first four years of residency. This would make it one of the most attractive offers in Europe and more generous than the current system in place. After four years, those continuing to live in the UK will pay the same tax as UK residents. The measure is set to raise £2.7bn a year by the end of the forecast period.

Freeports and investment zones

The government will push ahead with economic devolution on the back of creating 13 investment zones and 12 freeports. “I can announce the North-East trailblazer devolution deal, providing a package of support for the region potentially worth over £100m. I will devolve powers to Buckinghamshire, Warwickshire, and to the most beautiful county in England, Surrey.”

How the OBR have reacted

The outlook, in the eyes of the OBR, remains ‘challenging’. “Inflation has receded more quickly than we expected in November and markets now expect a sharper decline in interest rates. This strengthens near-term growth prospects and should enable a faster recovery in living standards from last financial year’s record decline…But the medium-term economic outlook remains challenging.”

Cytec Commentary

“It’s encouraging to see the government taking action to make the UK a more attractive option for companies looking to IPO in London and support further growth, expansion, and investment into the UK.

Based on available information, the British ISA is a first step towards stimulating more investment into UK companies, accelerating not just their own growth but that of the economy.

There is also an interesting opportunity with introduction of PISCES, which I hope will enable more private companies to consider providing greater liquidity to their shareholders, thereby increasing the perceived value of employee share incentives. We look forward to the imminent consultation with anticipation.”
Nick Chinn, Cytec Solutions

A summary of all the budget changes can be found on the government website.