FTI Consulting UK Public Affairs Snapshot: What to expect from the Spring Budget 2024

As the Chancellor of the Exchequer, Jeremy Hunt, prepares for the Spring Budget, the challenges he must navigate are political as well as economic – and both are considerable.

In any circumstance, securing a path out of recession demands strategic and proactive economic planning, balancing the need for fiscal caution with the imperative to stimulate growth.

But with the 2024 General Election on the horizon and the Conservatives facing a significant electoral defeat, the upcoming Budget is much more than a fiscal statement, it has been designed to be a strategic electoral tool.

Politically, the Conservative Party’s signature branding of itself as the party of lower taxes is now juxtaposed against the stark realities of a faltering economy. Achieving a delicate balance between economic recovery and voter appeal is paramount as the party seeks to rejuvenate its electoral fortunes.

One bold political move, floated in recent days, is reforming non-domiciled status. This would be one way for the Chancellor to generate funding to support widespread tax reductions ahead of the General Election.

Hunt has previously voiced opposition to Labour’s plans to reforming this tax break, but taking Labour’s idea could serve the dual purpose of raising funds and stealing the wind from Labour’s sails. 

More conventionally, the Conservatives have been pushing the idea of using this Budget for significant tax cuts to attract voters. There are indications that the Chancellor has been contemplating bowing to the pressure from his party and decreasing the rate of income tax.

However, concerns about available headroom to enact such a measure have led to more recent speculation that Hunt may opt for decreasing National Insurance instead by 2p as a more cost-effective alternative.

Despite continued pressure from the right of his party to lower or eliminate inheritance tax, it is highly unlikely that the Chancellor will announce any changes here, instead prioritising areas that will affect the greatest number of voters.

Changes to the VAT threshold are also not anticipated. However, following lengthy campaigns, the Office for Budget Responsibility is in the process of reviewing the “tourist tax” which prevents overseas visitors from reclaiming VAT on their shopping purchases in Britain. It is possible that the Chancellor could reverse this in the Budget, though recent noises have not been positive.

Meanwhile, the taxes that the Chancellor is expected to raise include an introduction of a levy on vaping products. This measure would be accompanied by a one-time hike in tobacco duty to maintain vaping as a cost-effective alternative to smoking and is in line with the Prime Minister’s smoking reforms.

The Chancellor has been called upon by health bodies to increase alcohol duty by 2% above inflation but is reportedly under pressure from the pub sector to slash alcohol duty by 5%, which industry chiefs say could unlock 13,000 jobs in the trade. However, he is expected to extend a temporary 5p cut on fuel duty and scrap an inflationary rise to the levy.

The Budget is likely to include an update on the Government’s April 2023 initiative to impose an industry-wide levy on gambling companies that generate a gross gambling yield of over £500,000 from the year 2026/2027.

In recent days, speculation has been mounting over the potential for the Chancellor to adopt Labour’s proposal of expanding the windfall tax on the profit of oil and gas companies.

Reports suggest that this strategy ranks low on the Chancellor’s preferred methods for generating additional revenue, but it is nevertheless one to look out for if the Government is looking to reduce Labour’s room for manoeuvre.

Growth will be a top priority for the Budget. In line with the Chancellor’s focus on enhancing investment in Britain, the possibility of introducing a ‘British ISA’ or a dedicated tax-free allowance to invest in domestic stocks over and above the existing £20,000 annual allowance has been raised.

Hunt is also expected to set out plans for a new regime that would allow private companies to have their shares traded on exchanges. And building on last year’s Mansion House reforms, it is rumoured Hunt will require pension funds to report where investments are in order to drive greater investment in Britain.  At the same time, he is expected to crack down on under-performing funds.

To boost growth – and good news stories – regionally, the Chancellor may also announce further details about the locations of the twelve forthcoming investment zones, expanding on the locations that have already been announced.

Housing policy is also likely to feature in the Budget. Although Hunt was reportedly contemplating a reduction in stamp duty, recent intelligence indicate that this plan may have been set aside. There are reports that the Chancellor intends to introduce a 99% mortgage scheme for first-time buyers with the Government acting as a loan backer.

Hunt is also rumoured to be contemplating a change in Lifetime Allowance ISAs, raising the maximum property price limit from £450,000 so that first-time buyers can purchase using a LISA without incurring a 25% penalty.

Doubtless, any moves to increase demand will lead to questions from across the political spectrum of what is being done to increase housing supply.

All of these choices ultimately depend on a combination of what is affordable and what is politically expedient – that is, what will shore up the most support for the Conservative Party ahead of the election.

From potential tax cuts to housing market stimuli, each measure on the table will aim to boost the economy and secure voter confidence. And with a limited fiscal headroom to play with, this Budget presents a particular challenge.

The Chancellor may well find himself out of silver bullets – and it may be that the best he can hope for is a few green shoots.