Investment - Articles - Spring Budget 2024 predictions


EY’s predictions and commentary ahead of the Chancellor’s Spring Budget on 6th March, with comments relating to financial services

 Paul Kitson, EY’s UK Pensions Consulting Leader, comments: “Pensions reform was high on the agenda in 2023 with the launch of the Mansion House Compact and a number of consultations announced in the Autumn Statement, and we expect momentum to continue in this Spring Budget.

 “It wouldn't be surprising if the Chancellor called on the pensions industry to follow the example of the Mansion House Compact signatories to increase their allocations to unlisted equities. This would generate better outcomes for both pensions savers and growing UK companies.

 “Building on the intention set in the 2023 Autumn Statement to review how defined benefit (DB) pension surplus could be used by corporate sponsors, the industry would now benefit from concrete 'next steps' to drive this forward. It is possible – although probably unlikely ahead of a general election – that the Chancellor announces a progressive proposal to allow surplus to be returned to corporate sponsors. If this were announced in March, it could potentially unlock a quarter of a trillion (£250bn) for UK companies to invest as needed.”
 
 Axe Ali, EMEIA Financial Services Private Equity & Venture Capital Leader, comments: “The Chancellor has set a clear intention to boost investment in new and innovative UK companies, and initiatives including the Mansion House Reforms, the proposed British Business Bank growth fund, and the recently announced Private Intermittent Securities and Capital Exchange System (PISCES) trading venue are clear indicators of this ambition. In the Spring Budget, industry will be looking for the Chancellor to detail concrete next steps to drive these initiatives forward.

 “In particular, following the announcement the British Business Bank growth fund in the Autumn Statement, the industry will be hoping the Chancellor uses this pre-election Budget to indicate when this highly anticipated investment vehicle will launch.

 "The Chancellor is also expected to provide further detail on the recently announced PISCES trading venue. Intended to bridge private and public markets, PISCES should deliver a key focus of the broader change agenda to boost the UK’s capital markets.

 However, the complexity involved in establishing such a platform may mean that an official launch date for the intermittent trading venue won’t be announced on Budget Day.

 “Continuing the theme of strengthening the UK’s capital markets, the Chancellor has hinted that he may announce a tax-free British ISA. Long called for by industry, it will be universally welcomed if it is announced in the Spring Budget, incentivising more individuals to invest in UK company shares."

 Chris Sanger, EY Tax Policy Leader, comments on the possible direction the Chancellor might take at the 2024 Spring Budget: “In choosing which of his “starters” make it over the finishing line and into the Spring Budget, the fact that this isn’t just a Budget, but a pre-election Budget, is likely to be front of mind for the Chancellor. This will be his Shop Window Budget and he’ll likely be focused not only on funding the Government’s programme for the next five years, but also on which policies will entice voters at the General Election.

 “History shows us that pre-election Budgets tend to bring out the generous side in Chancellors and this one will likely focus more on handouts than hair shirts, with tax cuts and extra spending featuring heavily. However, the extent of the Chancellor’s largesse will heavily depend on the final forecast from the Office for Budget Responsibility.”
 
 Chris Sanger, EY Tax Policy Leader, comments: “The Chancellor’s Autumn Statement delivered on his promise to make the cash-flow benefit of full expensing permanent, ironically reducing the urgency of businesses to invest before the relief was gone.  The question therefore remains whether the Chancellor will go further to attract additional investment and jobs to the UK. Having only recently increased the corporation tax rate to 25% and reformed the research and development tax regime, the obvious levers have either been pulled or seem out of reach.

 "One area of unfinished business is the potential to boost the impact of full expensing even further, by allowing this to apply to leased assets. The Treasury has previously been wary of this, due to the risk of leakage, but may now feel that it can safely extend the provisions to liberate additional finance and drive a welcome boost in investment.

 “In order to accelerate investment even further, the Chancellor may examine current UK restrictions on how businesses can use tax losses, as current rules may limit the cash flow benefit full expensing is intended to provide. To address this, the Chancellor could exclude any losses generated by full expensing from these restrictions, which would simplify the process and provide even more incentive for companies to invest, bolstering the effectiveness of the original full expensing policy.

 “Now that much of the world is, or will soon be, operating under a global minimum tax rate of 15%, the UK has the chance to enhance its attractiveness to global investors by offering targeted incentives. Given the tax rate of 25%, and established investors, the UK could offer low marginal rates to attract investment without lowering the average rate below 15%. Combining such an incentive with the use of enterprise zones, the Chancellor could deliver a boost to the Government’s industrial strategy and direct investment into particular priority locations and sectors, such as life sciences or advanced manufacturing.

 “Businesses want clarity over the taxation regime for the next parliament, but that is likely going to have to wait to the manifestos, the election result and potentially the first Budget of the new government. Ahead of that, the Chancellor might focus on attracting additional cash investment, such as through ISAs and other reforms affecting personal investment.”
 
 Tom Evennett, EY UK&I Private Client Services Leader, comments: “A headline grabbing potential change would be an outright income tax cut at the Spring Budget, as this would encompass all forms of income, from earned salary or self-employed income but also unearned income including rental profits and dividends. However, cutting taxes on this broad range would be expensive, and every 1p reduction in the basic rate of income tax would cost around £6.3bn in the 2024/25 tax year, rising to nearly £7.5bn in future years.

 “The Chancellor may be more tempted to make changes that can be swiftly felt in household budgets ahead of a general election but are potentially less expensive for the Exchequer. This could include increasing the personal allowance and the threshold at which the higher 40% income tax rate becomes payable. While frozen thresholds have raised significant funds for the Chancellor as inflation has driven up pay, a rise in the personal allowance and the threshold at which people pay the 40% rate from the current £12,570 and £50,270 point could provide a tangible boost to household finances.

 “Another option would be to raise the child benefit cliff edge, which sees the benefit diminish for families where the highest earner has an income of over £50,000. Raising the individual earnings threshold to £75,000 or capping at a household income of £100,000 would bolster family finances. It would also address a long running issue where families with one main earner on a £60,000 salary may consider it unfair that their child benefit is tapered off while a household with two parents earning £49,999 each receives the full child benefit entitlement.”

 Chris Sanger, EY Tax Policy Leader, added: “The Chancellor might also use this Spring Budget to deliver on his promise of simplification. The current income tax system includes an effective 60% rate for those earning from £100,000 to £125,140, as the personal allowance is gradually removed.

 "The Chancellor could remove this 60% band by changing the personal allowance from a tax-free income allowance to a tax credit of £2,514, being 20% of the personal allowance of £12,570. Those with tax bills under this amount would pay no tax, and those over would reduce their tax bill by this credit. This would simplify the system and mean that the credit was worth the same amount to all, regardless of tax bracket. By combining this change with increases in the thresholds, the Chancellor could deliver both simplification and some respite to many taxpayers.”
  

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