The Office for Budget Responsibility (OBR) forecasts meant that the Chancellor didn’t have as much headroom as he would have wished for.
Thus, this was a Budget that had to compromise by finding tax revenues in areas such as vapes, tobacco, and holiday rentals, to fund the eye-catching 2p cut in National Insurance.
The OBR now predicts the economy will grow by 0.8% in 2024, and by 1.9% in 2025. While the UK's inflation rate is forecast to fall below the 2% target by the end of June 2024, falling to 1.5% next year. This should be good news for businesses that have been struggling with rising input costs.
Did businesses get what they were hoping for?
Ahead of the Spring Budget, businesses told us in our latest Business Outlook Tracker that they were hoping for measures focused on:
- Greater access to/investment in skills and training
- Measures to improve infrastructure, such as transport and broadband
- Incentives for employers to invest in R&D
The biggest announcement was a 2p cut to National Insurance for employees. Each 1p cut in National Insurance for the employed and self-employed is estimated to cost £5 billion a year. This will please employees, however it’s less generous than it may appear.
Rising inflation has created fiscal drag, and this has seen employees being taxed more on income as personal allowances have been frozen. So even though the Chancellor announced cuts to headline rates of National Insurance, these will be partially offset by more people paying tax and being dragged into higher tax bands over time.
The National Insurance cut was to employee contributions and not employer contributions which many businesses had been hoping for. However, by increasing workforce numbers, this will have an indirect benefit on businesses who told us in the Business Outlook Tracker that access to sufficient skills was one of their key concerns. However, in comparison to the Autumn Statement, this Spring Budget included far fewer new measures for businesses.
Ongoing stability and resilience
While this may be the Budget that we might expect close to an election – albeit one where the Government no doubt wishes the OBR had provided more headroom for a household giveaway – it’s likely to have only marginal benefit to business. It’s also unlikely to lead to a significant reduction in the UK’s widening productivity gap.
Looking beyond the Budget's immediate impact, it's crucial to consider the importance of political stability and global resilience. The upcoming election may introduce some uncertainty, but the alignment of political agendas towards fiscal prudence is a positive sign. Continuity and coherence in policymaking are indispensable for nurturing economic optimism.
Despite the limited scope for business support in the Budget, it’s therefore crucial that policymakers remain focused on delivering policies that foster growth and stability while also prioritising political stability and global resilience.
Our teams have analysed key areas of the announcement, including tax and the public sector. Find out from them what the announcements could mean for you and your business.
