Three key points from the Chancellor’s Spring Budget

Jeremy Hunt says he wants to keep taxes low and boost investment in British business. So what will his latest plans mean for your finances? We’ve picked out some highlights for you to consider from the latest Spring Budget.

No big surprises, no rabbits produced from hats. But that’s not to say there wasn’t anything of note in the latest Budget that won’t impact your short-term financial planning. We’ve taken a look at the main points below:

1. Cutting National Insurance – will it make a difference?

Having already announced reductions in his autumn statement, Jeremy Hunt announced a further cut in NI contributions. From 6 April, the main rate falls to 8%, while self-employed NI contributions drop to 6%. Looking further to the future, Jeremy Hunt wants to scrap NI contributions altogether, claiming they penalise those who work with double taxation. This cut is funded, in part, by phasing out the ‘non-domiciled’ tax status.

Will this make a difference?

While NI cuts are welcome, income tax bands are still frozen, so many could still end up paying more tax. The total tax take (including income tax, NI, VAT, and other areas such as property sales) is at a post-war high. It’s also worth bearing in mind that, if the ultimate plan is to abolish NI altogether, then it’s likely income tax would go up (a fact the Chancellor has acknowledged following his budget announcement).

2. Buy British– big plans to boost UK equities

There were several measures aimed at reinvigorating investment within the UK. The Chancellor wants to create a ‘new generation of retail investors’, selling off the government’s remaining NatWest shares this summer, and creating a new British Savings Bond, offering savers a guaranteed fixed rate over three years,

The biggest announcement was plans to create a new British ISA, which will focus solely on UK equities. This will offer investors an additional £5,000 on top of their other ISA entitlements (currently £20,000 for adult ISAs and £9,000 for Junior ISAs) with the same tax advantages.

Mr Hunt hopes this will lead to more UK investment into domestic growth stocks (the proportion of UK shares held by UK-resident individuals has fallen to just above 10%)[1]. He also wants defined contribution pension schemes and local authorities to declare how much of their holdings are in UK equities.

Diversification is better

We’ve highlighted before the advantages of seeking a balance of sectors, regions, and avoiding a home bias in investment portfolios, most recently here. Staying disciplined and diversified in stock selection protects your investments when markets are volatile and allows you to make gains when different sectors are doing well.

Therefore, an ISA that’s only focused on UK equities could be risky if that’s an investor’s only exposure to the market. As we highlighted here, being too focused on your home market means missing out on potentially key sectors. Another potential side effect could be that investors simply reallocate existing UK exposure held elsewhere to the new wrapper, meaning the overall investment into UK stocks doesn’t increase.

Consultation on the scope of the new British ISA runs until 6 June, so we will have to wait and see if it sees the light of day.

3. Could property reforms see more sales?

The Chancellor also announced changes that could affect whether some property owners decide to sell.

He’s put an end to stamp duty relief for people buying more than one property in a single transaction (Multiple Dwellings Relief). While intended to support investment into the private rental sector, Mr Hunt said there was ‘no strong evidence’ this had happened and added the system was regularly abused. He’s also abolished special tax rules for furnished holiday lets, which means that income from these will no longer be relevant UK earnings for pension purposes.

The government also cut Capital Gains Tax on some properties, reducing the higher rate from selling a residential property from 28% to 24% (the lower rate stays at 18%). This move is designed to generate more transactions in the property market. It could mean that if you own a second home, it might make more financial sense to sell it. However that 4% difference would have to be offset against other considerations.

What next?

With a general election due by January 2025 (at the very latest), this year’s Budget speech was all about this government showing voters it wants to cut taxes, while others want to put them up. Jeremy Hunt painted a positive picture for the economy: inflation down from 11% to 4% and could go below 2% in the next few months. GDP is growing again, albeit slowly, and debt is predicted to start falling too.

All this is potentially good news. However, despite Mr Hunt’s references in his budget speech to ‘permanent’ cuts in taxation, nothing is written in stone – particularly with a potential election on the horizon. When it comes to looking at your financial plans, it’s important to take note when changes occur – but make sure that short-term changes don’t steal focus from your long-term plans.

Speak to us today about your financial planning.

[1] Office for National Statistics. Ownership of UK quoted shares: 2022