By: Elliot Keck, head of campaigns
Budget day has rarely delivered good news for taxpayers in recent years. Understandably, many probably view it with trepidation - after all, things can always get worse. This week was a damp squib - things certainly didn’t get worse, but they can hardly be said to have got much better. There were wins that should be acknowledged, but they were accompanied by a range of spending pledges and tax rises.
The good bits
National insurance
The big piece of news from the budget and the one that will be most pored over will be the cut in national insurance. From April, there will be a 2p cut in employees' national insurance contributions. The rate will see a drop from 10 to 8 per cent. 27 million working taxpayers are expected to see a cut in their contributions as a result. Similarly, self-employed national insurance rates will drop two per cent from 8 to 6 per cent. This is on top of a 2p cut at the autumn statement. And it might get even better. In what would be a significant win for the TPA, there is talk about potential abolition of national insurance, as we’ve been calling for in our Single Income Tax report.
Alcohol duty
Drinkers will raise a glass to the alcohol duty freeze. Anyone that has been to the pub in recent months will know that the price of a pint (or any other tipple) is out of control. And that’s by no means just in London. The British Beer and Pub Association had the average price of a pint at over £4 in 2022, a cost that has no doubt climbed. It’s vital then that the government didn’t add to the growing pressure on our pubs.
Fuel duty frozen
Pundits often joke about the permanent nature of the temporary fuel duty freeze, which has been renewed every year since 2011. It’s a rare example of tax that hasn’t simply gone up and up. But while some may get frustrated by the constant focus on fuel duty at the expense of other taxes, the UK still has one of the highest rates in Europe. And that doesn’t consider the introduction of low emission zones, congestion charges, low traffic neighbourhoods and other costly schemes that hit motorists.
VAT threshold increase
In a helping hand to small businesses, the chancellor announced an increase in the VAT registration threshold from £85,000 to £90,000. The threshold actively prevents businesses from expanding. Businesses seek to remain below the threshold to ensure that they avoid paying VAT thereby preventing growth. The rise in the threshold will mean businesses will have more room to grow. Although the increase in the threshold is small, it is nonetheless welcome.
Child benefit cap lifted
The withdrawal of child benefit creates truly eye-watering marginal tax rates between £50,000 and £60,000. A parent with three children earning in this salary range would pay a marginal tax rate of over 70 per cent, a shocking disincentive to work. Lifting the point at which child benefit is withdrawn and lengthening the period over which it is tapered off is a sensible reform.
The bad bits
No movement on thresholds
The biggest loss taxpayers will face as a result of this budget is that thresholds will remain frozen. This means that despite the national insurance cut, the tax burden will continue to climb to new records. By 2028-29, tax as a share of GDP is expected to rise to 37.1. This is the highest it has been since 1948. Our very own Rory Meakin compared the impact of the two national insurance cuts with frozen thresholds, to see how people would fare. For people on the living wage (£20,375 per annum), they would have been £636 better off in 2024-25 if thresholds had risen with inflation from 2019-20 compared to the two per cent cut in national insurance. For people earning £50,000, they would be better off. Of course, if the government got a grip on spending, there wouldn’t be this trade off.
Income tax untouched
We campaigned hard on an income tax cut, with hard-hitting research, videos, op-eds and broadcast appearances. As welcome as a national insurance cut is, many will miss out on its benefits. Pensioners in particular will see no change in their pay packets. And with 2.5 million more people now paying income tax compared to 2021-22, the need for a cut is critical.
Vaping duty
Jeremy Hunt has been on the airwaves since he sat down talking about his dream of a simpler tax system. Yet in the same breath he has announced yet another tax. No surprise it’s another sin tax. A new duty on vaping will come into effect in 2026. This is yet another example of a government which seems to be addicted to nannying its citizens. And of course the fear is that this will discourage those seeking to switch to smoke-free products.
Extension of the windfall tax
The windfall tax extension is no surprise, but is disappointing nonetheless. The government has already had to announce a scaling back of windfall taxes due to their destructive nature. The government knows that it harms investment, but is too unwilling to admit its mistake.
The tax burden is going up
Budgets are always filled with tweaks and adjustments. Some good, some bad. But ultimately what matters is what happens to the tax burden. Abolishing the non-dom status, extending the windfall tax, hiking air passenger duty on business class flights can be justifiably criticised. But if the overall budget reduces the tax burden, that’s a win for taxpayers. Likewise, freezing alcohol and fuel duty and cutting national insurance is great, but if taxpayers are still paying more, then that’s what ultimately matters. It’s a horrible cliche, but on this point this week’s budget was surely a missed opportunity.