Publication date: 08 November 2024
Reading time: Three minutes
- Economic growth forecast slows, while inflation outlook rises
- Taxes move to highest level ever (£40bn in overall tax rises), while borrowing increases
- Employers hit with steep increase in National Insurance Contributions (NICs), but some protection for SMEs
- Capital gains tax rates increase, but not on residential property
- Fiscal rule changes allow vast borrowing for investment
- £3bn of additional support for SMEs and the Build to Rent sector, in the form of housing guarantee schemes, to support the private housing market
The Budget brought to a close what could be the longest and trickiest lead-in time for a Budget ever. However, as expected, the Budget is set to raise £40bn from new tax measures – in fact the biggest tax increase in over 30 years — and in particular, measures that will negatively affect larger businesses through steep rises to NICs.
On the spend side, spending by government departments is expected to increase by £74bn by 2029. The difference between these figures is £32.5bn in increased borrowing.
The chancellor has revised her so-called fiscal rules to give her additional flexibility on capital expenditure. As before, the government will only borrow to invest; and secondly the aim is to have debt-to-GDP falling in five years.
Tax
With successive governments having benefitted from fiscal drag, where tax thresholds don’t keep pace with wage increases, it was positive news that the freezing of income tax and national insurance thresholds will end in 2028.
Wealthier individuals subject to capital gains tax (CGT), and who may benefit from the benefits of the non-domicile regime, were also impacted in much-anticipated measures.
Elsewhere, changes to inheritance tax mean that for higher value business assets and agricultural land, there will be a 20% inheritance tax which will raise £2bn by 2029.
Property market
For the market as a whole, the slower than expected fall to inflation will keep interest rates on a higher level compared to previous expectations and will undoubtably slow any growth that might have been forecast in the housing market.
The chancellor also announced that stamp duty surcharge on second homes, landlords and businesses purchasing residential property has increased from 3% to 5%.
Retrofitting and sustainability
The government has committed an initial £3.4bn over three years towards heat decarbonisation and household energy efficiency. £1.8bn of this will be targeted towards fuel poverty schemes.
Phase 2 of the funding regime will consider increases for the Boiler Upgrade Scheme and funding to grow the heat pump manufacturing supply chain.
There was also £2.4bn over two years for flood resilience.
Growth forecast and inflation
In response to the Budget, the Office for Budget Responsibility (OBR) has downgraded the UK’s growth forecast in the short term. On inflation, the OBR is expecting decisions made in the Budget to increase inflation from 2024’s 2.5% rising to 2.6% in 2025, 2.3% in 2026 and 2.1% in 2027 and 2028, with inflation now only expected to meet its 2% target by 2029.
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For a more detailed breakdown of the measures please view Handelsbanken Wealth and Asset Managements analysis via the link below.
