Spring Budget – PLMR Analysis 2024

PLMR are delighted to announce the appointment of John Cope as Senior Counsel. John is a former adviser to Education Secretary Nicky Morgan; an expert in schools, FE, HE and the labour market; and the Conservative parliamentary candidate for Esher and Walton. You can read the Spring Budget here and you can read the transcript of The Chancellor’s speech here.

 

Read John Cope’s analysis of today’s budget:

Budgets don’t win elections, but they can certainly lose them or, as Kwasi Kwarteng found out very abruptly, cost Chancellors their jobs. Long-term Budget watchers will also remember the omnishambles Budget lauded by former Lib Dem leader Nick Clegg as something “every Liberal can be proud of” before being derailed by pasties, caravans and church repairs.

I don’t think anyone in the Conservative Party seriously thinks one Budget can undo the frustration after a half decade lost to a pandemic, a global energy crisis, and war in Europe and the Middle East. No one sensible at least. Incumbent governments are struggling around the world, and the UK is no different.

Therefore, the Chancellor’s job today was to present himself as the adult in the room: “stick to the plan” was the motif, and the plan we saw today was creating enough fiscal head room from higher earners to give tax cuts to lower and middle earning workers that don’t require extra borrowing or cuts to public spending.

 

“Prudent and sensible”

It may not be what the backbenchers and journalists wanted, but “prudent and sensible” is the vibe we got. And I think the Chancellor will be pleased by that. As will the public and markets. Don’t think it wasn’t a highly political Budget, however. The Conservatives smell blood: a few weeks ago Labour were forced into a humiliating retreat on £28billion extra borrowing – today they lost their non-dom tax raid, leaving nearly all the Labour spending pledges balanced on hitting independent and specialist schools with VAT. Expect “how are you going to fund it, tax rises or borrowing?” to hit Labour over and over again in the coming months.

The Labour fiscal bind was tightened, and with no Spending Review until immediately after the election with little fiscal headroom in it, Labour has almost no room to manoeuvre that won’t land them in hot electoral water.

 

As well as squeezing Labour, the Conservatives’ manifesto is slowly emerging. 

There weren’t too many rabbits out of the hat. The second NI cut (together worth £900) was expected, as was the High Income Child Benefit Charge that has been unfair for years. And no Budget isn’t complete without a performative freezing of fuel duty and alcohol duties.

More interesting was the £2.45 billion extra NHS spending next year and a new £3.4 billion NHS productivity plan. A reminder of the Chancellor’s time as Health Secretary left him convinced that just pouring more and more money into the NHS isn’t working. It wasn’t just the NHS that got this treatment, a “public sector productivity drive” was announced. Perhaps a sign that the Conservative manifesto will tackle a white elephant in the UK’s room: how can taxes be high, public spending be high, but services still not be able to meet the public’s demand. Expect public service reform and productivity to be a strong narrative in the manifesto.

Finally, a couple of markers have been laid down. The VAT threshold increase was very modest indeed and I suspect the Chancellor would have wanted to go further here. The days are numbered too for NI – while hard to abolish, running it down at each fiscal event as the Chancellor hinted will finally write it out of the UK tax system entirely.

 

Don’t expect the polls to move. Or a May election on a “budget bounce”.

The polls will almost certainly not shift, or at least not by more than a few per cent. But will the Chancellor be happy? I think so. He’s exposed further the Labour Party’s lack of a plan and inability to say how they’ll fund any of their plans. And he managed to cut taxes enough to keep his backbenches on side and the public more confident the Conservative Party is committed to public services and lower taxes.

 

Labour response to the Spring Statement

PLMR consultant and Labour’s Parliamentary candidate for Ipswich, Jack Abbott provides an overview of Labour’s response to today. You can read Keir Starmer’s full speech in response here and watch the party’s Budget reaction campaign ad here.

Much of the lead up to the Budget became a debate about how much headroom the Chancellor, Jeremy Hunt, had for pre-election giveaways. Yet this was also an exercise in managing the warring factions within the Conservative Party. The result was a Budget that looked inwards rather than addressing the deep and wide-ranging challenges facing the country.

Conservative backbench MPs had been baying for tax cuts after the tax burden rose to its highest level in 70 years, the Chancellor looked to placate them by shaving a couple of pennies off National Insurance and freezing fuel tax.

There had been some speculation that the Prime Minister, Rishi Sunak, would call a General Election if the Conservatives received a bounce in the polls. That bounce might come, and the polls are expected to narrow, but this was a limp affair, hardly a catalyst for a political recovery.

The contrast with the Labour Party is quite stark. Last week, I hosted a Business Leaders’ event in Ipswich – sponsored by PLMR – with Rachel Reeves, the Shadow Chancellor our special guest. It was striking how at ease and confident Rachel was, as she spent more than an hour meeting a whole range of business and community leaders from across the region. This is someone who is laser focused on bringing back stability to our economy, but also absolutely determined to push through the reforms needed to kick start investment and growth again.

Keir Starmer’s speech today stressed how Labour has changed to become the party of fiscal responsibility and how a potential Labour Government will build on the Plan for Business to achieve his number one priority: to grow the economy.

Much like Rishi Sunak’s multiple resets, I don’t expect this Budget will ‘shift the dial’. No rabbits were pulled out of the hat and there remain significant questions for the future of our finances and public services that will need addressing.

All eyes are now on when a General Election will be called. While a Labour victory is by no means guaranteed, they will not fear this iteration of the Conservative Party which has run out of ideas and energy.

 

The full list of announcements

  • The Chancellor’s speech can be found here.
  • Other documents published alongside the Spring Budget today can be found here.
  • National insurance: The national insurance contribution rate will be cut from 10% to 8% of pay in April, impacting about 27 million workers. The self-employed national insurance rate will also drop by two percentage points.
  • Non-domiciled tax: The ‘non-dom’ tax status will be abolished and replaced by a different system by April 2025.
  • Businesses: VAT threshold for businesses to be increased from £85,000 to £90,000 from the start of April. Full expensing for businesses will also apply to leased assets in future.
  • Alcohol and fuel duty: Alcohol duty due to be frozen until 1 February 2025, and the 5p cut to fuel duty, introduced in 2022, will be maintained for a further 12 months.
  • Vaping and tobacco duty: Introduction of a vaping products levy on vaping liquids – to be paid on imports by manufacturers – in October 2026. A one-off increase in tobacco duty will be made at the same time.
  • Savings: Introduction of a new ‘British ISA’ that will give investors an extra £5,000 tax-free allowance to invest in UK businesses. A new British Savings Bond will also be delivered, offering a guaranteed savings rate over three years.
  • Property capital gains tax: Reduction in the higher rate of property capital gains tax from 28% to 24%.
  • London regeneration schemes: £242m investment in Barking Riverside and Canary Wharf to deliver nearly 8,000 homes, as well as to ‘transform’ Canary Wharf into “a new hub for life science companies”.
  • Stamp duty: Relief for people who purchase more than one dwelling in a single transaction – the Multiple Dwellings Relief – will be abolished.
  • Second homes: Tax breaks for second homeowners that make money from holiday lets have been scrapped.
  • Household Support Fund: Extended for a further six months.
  • Devolution deals: “North-East trailblazer devolution deal” worth £100m. Devolution of more powers to Buckinghamshire, Warwickshire and Surrey announced.
  • Childcare: Threshold of parents paying the high-income child benefit charge raised from £50,000 to £60,000. Offer of 30 hours of free childcare for the parents of children aged more than nine months to continue for the next two years.
  • SEND Schools: £105m over 5 years to build 15 new, free SEND schools. The locations of the schools will be announced by May 2024.
  • Public services: Spending will rise by 1 percent in real terms over the next Parliament. A Public Sector Productivity Plan, backed by £4.2 billion, was also announced. It is anticipated to increase public sector productivity back to pre-pandemic levels by investing in new technologies like AI and replacing outdated IT systems to help reduce the burden of admin. The NHS will receive £3.4 billion as part of this.
  • Military: Defence spending will rise to 2.5% of GDP and £26m will be given to the Office for Veterans’ Affairs to support Birmingham’s bid to host the Invictus Games in 2027.
  • The Arts: Announcement of £26.4m spend on National Theatre to upgrade its stages. Low budget independent film tax credit. Eligible film studios to receive 40% relief on their gross business rates until 2034. Tax reliefs will be made permanent at 45% for touring and orchestral productions and 40% for non-touring productions.
  • Manufacturing and R&D: £200m investment in zero-carbon aircraft technology and £73m in automotive technology. A further £45 million to accelerate medical research into common diseases like cancer, dementia and epilepsy, and £92m for investment to expand facilities that manufacture medicines and diagnostics.
  • Air Passenger Duty: One-off adjustment to air passenger duty on business class fares.
  • Nuclear energy: £160m pledged on the development of two nuclear sites.
  • Windfall Tax: Extension of the energy profits levy on energy companies extended until 2029.
  • Green industries: £120m allocated for green industries to develop technologies including offshore wind farms and carbon capture and storage projects.

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