The Chancellor of the Exchequer delivered a Spring Budget that built on measures set out in the last Autumn Statement without any drastic or surprising announcements. 

The most welcome news for businesses in the Chancellor’s announcement was the permanent full expensing on leased assets “as soon as affordable”; the extension of the recovery loan scheme as it transitions into the growth guarantee scheme; and the increase in the VAT registration threshold from £85,000 to £90,000.

The 2% cuts to employees’ national insurance and self-employed national insurance will likely dominate the headlines, though they will do little to reduce the overall tax burden on individuals. The Chancellor looked to offset these cuts by abolishing the non-domiciled tax status.

The Office for Budget Responsibility (OBR) delivered a marginally rosier picture of the UK’s near-term growth prospects than expected; more positive than forecasts from organisations such as the Bank of England. The OBR expects the economy to grow by 0.8% this year and 1.9% next year, 0.5% higher than that Autumn forecast. 

“With little new action to address the supply-side constraints weighing on economic activity, the recovery from recession may be more muted than the OBR is forecasting,” said Suren Thiru, Economies Director at ICAEW, responding to the Chancellor’s Budget today. “While the Chancellor is right to say that stimulating investment is key to lifting productivity, the litmus test of these interventions will be whether they provide businesses with the headroom to kickstart new projects despite the broader economic and political uncertainty they are currently operating in.”

The Budget leaves policymakers with little fiscal wiggle room to safeguard the UK against future shocks and leaves significant questions over the realism of future spending plans, he added.

Investment

Outside of the permanent full expensing for leased assets, the extension of the recovery loan scheme and the raised VAT registration threshold, the Chancellor announced various small investments for regional projects, such as £15m in new funding for the West Midlands Combined Authority to support culture and heritage investment projects, and £5m to renovate hundreds of local village halls across England. This adds up to about £500 per village hall. 

The Chancellor announced £242m of investments in Barking Riverside and Canary Wharf, for nearly 8,000 new houses and a new Canary Wharf hub for life science companies.

“An extensive list of spending announcements, including £5m for the 10,000 village halls in England – equivalent to £500 per hall – contained only a handful large enough to have an impact on the £1.2trn budget for the coming year,” said Alison Ring, ICAEW’s Director for Public Sector and Taxation. 

Talking up his desire for the UK technology sector to lead the world, the Chancellor announced that he would build on the Edinburgh and Mansion House reforms to unlock more pension fund capital. “We’ll give new powers to the Pensions Regulator and Financial Conduct Authority to ensure better value from defined contribution schemes,” the Chancellor continued. “By judging performance on overall returns, not cost, we’ll make sure there are vehicles to make it easier for pension funds to invest in UK growth opportunities.” 

The Chancellor pledged to reform the ISA system to encourage more people to invest in UK assets, announcing the introduction of a brand new British ISA, which will allow an additional £5,000 allowance on top of the usual £20,000 for existing allowances. The government will be consulting on the details of this new ISA, the timetable for which is not yet announced. 

Up to £120m will be added to the green industries growth accelerator to build supply chains for new technology, such as offshore wind and carbon capture and storage, by January of next year. A further £270, will go into automotive and aerospace R&D projects, to build UK capabilities in zero emission vehicles and clean aviation.

A UK independent film tax credit of 53% on qualifying film production expenditure will be introduced for films with budgets under £15m that meet the requirements of a new British Film Institute test. Productions will be able to make claims from 1 April 2025 for expenditure incurred from 1 April 2024 onwards, provided that films started principal photography from 1 April 2024.

The Chancellor also made Theatre Tax Relief (TTR), Orchestra Tax Relief (OTR) and Museums and Galleries Exhibitions Tax Relief (MGETR) permanent, with rates set at 45% for touring and orchestral productions, and 40% for non-touring productions, from 1 April 2025. The credit rate for visual effects costs in film and high-end TV will be increased to 39% from April 2025, and the 80% cap will be removed for qualifying expenditure for visual effects costs. 

Public spending

The Chancellor kept increases in planned departmental day-to-day spending at 1% a year on average in real terms, “but we are going to spend it better”. He announced “a landmark public sector productivity plan that restarts Public Service Reform and changes the Treasury's traditional approach to public spending”.

He announced £3.4bn to fund an NHS productivity plan in full, pledging to overhaul its IT systems. “We will cut down and potentially half form filling by doctors using AI. We will digitise operating theatre processes, allowing the same number of consultants to do an extra 200,000 operations a year. We'll fund improvements to help doctors read MRI and CT scans more accurately and quickly, speeding up results for 130,000 patients every year and saving 1,000s of lives,” he said. 

Violence Reduction units and hotspot policing will be rolled out across England and Wales, at a cost of £75m. The Chancellor committed £105m over the next four years to build 15 new special free schools. The government will also put a plan in place to realise the billions of savings recommended by the head of the National Audit Office. 

The £4bn investment in efficiency improvements was “one positive measure” in a Budget that left public finances relatively unchanged, said ICAEW’s Alison Ring. “The public finances remain on an unsustainable path in the long term, with public debt expected to be higher in five years’ time than it is today.”

The Chancellor has pushed back difficult decisions on public spending until after the general election, including dealing with unrealistic cuts in non-protected departmental budgets that are unlikely to be deliverable in practice. “Tax rises after the general election are therefore likely, irrespective of who wins power,” said Ring.

Tax

Alongside a new excise duty on vape products, the Chancellor announced a one-off adjustment to air passenger duty on non-economy flights. He abolished the furnished holiday lettings regime and multiple dwellings relief. 

The higher rate of property capital gains tax will reduce, from 28% to 24%. The freeport tax reliefs sunset date was extended from five to 10 years. 

Among the bigger announcements was the abolition of the non-domicile tax status. Instead, new arrivals into the UK will not be required to pay any tax on foreign income and gains for their first four years of UK residency, after which time they will pay the same tax as other UK residents. 

The government will consult on moving the high income child benefit charge to a household based system to be introduced by April 2026.

These various measures introduced in today’s Spring Budget will be complex to implement, said Frank Haskew, ICAEW’s Head of Tax, with transitional arrangements needed. “This will increase the burden on HMRC resources. Although the replacement for the non-dom regime should be simpler in the long term, the transition period will create a lot of short-term complexity.”

From this April, the high income child benefit charge thresholds will rise from £50,000 to £60,000. The rate of the charge will also be halved, so that child benefit is not repaid in full until the taxpayer earns £80,000. 

“The changes to the high income child benefit charge are likely to entrench the regime and reduce the chance of the charge being abolished. HMRC will need significantly more resources if it is to collect information on household income,” said Haskew.

Finally, the Chancellor announced his cut in national insurance. Employee national insurance will be cut from 10% to 8%. Self-employed national insurance will be cut from 8% to 6%.

“While the national insurance cut is positive for millions of workers, employers and HMRC will struggle to implement the change in time for 6 April,” said Haskew in response to the measure. “This cut, while reducing the NIC burden for employees, does not address the impact of the employers’ NIC charge, which remains at 13.8%. It will do little to address the incentive to hire workers off-payroll, thus continuing to cause an administrative and enforcement burden.”

In the full Budget document, it was announced that the government is consulting on options to strengthen the regulatory framework in the tax advice market. It is also looking at introducing requirements for tax advisers to register with HMRC if they wish to interact with HMRC on a client’s behalf. The government will set out next steps for tackling non-compliance in the umbrella company market, following consultation last year.

Possible options include mandatory professional body membership, HMRC regulating the unaffiliated and a new oversight regulator. “Whatever option is adopted, it would result in profound changes arising in the tax services sector and on those who provide paid-for tax services,” said Haskew.

Overall, the Budget delivered little that would move the dial for the UK economy or the cost of living for taxpayers, given the limited fiscal room that the Chancellor had for manoeuvre within. Given the state of public finances, it seems that tax rises are inevitable in the near future to pay for some of the measures announced in the Budget, though that is likely to take place after the election. 

Long-term challenges, such as the weak economy, underperforming public services and unsustainable public finances and demographic changes, have been largely unaddressed. These are now perhaps issues for another government.