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UK Budget Day

Reaction to Chancellor Hunt’s pre-election Budget

6 March 2024

Budget Day in the UK and quite literally what was expected as the last roll of the dice from an embattled Tory party to reverse their polling fortunes ahead of a soon-to-be-announced election. Chancellor Hunt had very limited room for public largesse given the tight fiscal headroom he has at his disposal – giving away tax cuts with one hand inevitably would mean potentially cutting back funding to unprotected departments on the other when only £13 billion of headroom is available, according to Office of Budget Responsibility (OBR) estimates, with current national debt-to-GDP at very elevated levels.

As is often the case these days, much was over-speculated on, pre-written and leaked before today’s Budget and there were no real major surprises - apart from one. Growth forecasts from the OBR for next year shot up to 1.9%, way ahead of the Bank of England’s estimate of 0.8%. The main headline talking points of the Budget were:

  • Alcohol duty (and fuel duties) frozen until February 2025 – on the face of it, good news for pubs and brewers, although arguably this has become something of a tax-freeze given of late. However, it does not fully address help to the hospitality sector in general.
  • VAT threshold for small businesses moves up £5,000 to £90,000 – after being frozen for the last seven years, this is much less than the underlying rate of inflation over the same period and lower than many business owners would have wanted.
  • Establishing a new “British ISA” giving investors another £5,000 pa tax-free investment opportunity to buy solely UK stocks. Financial intermediaries might see increased client flows even if the potential returns might be less than going global.
  • NHS receives additional funding in an effort to boost productivity. No spending cuts from health as a protected department will inevitably mean that the other unprotected ones, such as prisons, justice, education and local authorities, will see them.
  • Tobacco duties increase, as does the introduction of duty on vaping products (although not immediately, slated for October 2026). Much of this has been telegraphed already and those tobacco companies in the sector have already reacted to it.
  • The Labour proposal for abolishing non-dom tax breaks is now a Tory pledge, with some tweaks - only after someone has lived in the UK for four years will they see the effect of paying proportionate taxes.
  • National Insurance cut by another 2% - following on from the Autumn Budget cut, this saves someone on £40,000 pa just under £1,000 a year. This was seen as the only available option of headline-grabbing tax giveaways as an income tax cut would cost much more. Is it enough to persuade undecided voters? It seems unlikely with taxes as a share of GDP rising to the highest level since WW2.

This was a tepid Budget of tweaks with very few election giveaways, and the conclusion might be that an election is not imminent. The Chancellor is a cautious man and seen as a safe pair of hands (certainly compared to his predecessor). Ultimately it was a Budget from a boxed-in government with nothing ground-breaking, so it would seem inconceivable that an early election is in the offing. Instead, this could be Chancellor Hunt’s penultimate fiscal event, with an Autumn one being his final “coup de grace” ahead of a November election. Not that we have anything else going on that month….

Important legal information
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is not an indicator for the current or future development.

Charles Hepworth

Investment Director
My Insights

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