Market Musings -

Understanding the impact of the Spring Budget 2024

Chancellor Jeremy Hunt presented his Spring Budget, revealing a set of tax cuts designed to benefit workers and stimulate economic growth. UK economic growth remains subdued and national debt levels remain high, providing little fiscal headroom for the Treasury to boost the economy.

After a turbulent 2023, the Spring Budget builds on the Autumn Statement in stabilising the nation’s finances while also attempting to reduce the tax burden on millions of working people across the UK.  


Our key takeaways  

National Insurance cuts  

As expected, the main rate of National Insurance (NI) was cut from 10% to 8%. This will primarily benefit the working population. When combined with the Autumn Statement reduction, it means 27 million employees will get an average tax cut of £900 a-year and 2 million self-employed people will receive a tax cut averaging £650.


Duty freeze  

The Chancellor has extended the freeze on alcohol duty until February 2025, providing a welcomed benefit to 38,000 pubs across the UK. This comes in addition to the £13,000 savings a typical pub is set to gain from the previously announced 75% business rates discount in the Autumn Statement.

The Chancellor also decided to freeze fuel duty for the next 12 months. He anticipates that this decision will contribute to a 0.2% reduction in headline inflation during the 2024-25 period. This move is expected to result in an average savings of £50 for car drivers in the next year, contributing to an overall savings estimate of around £250.


Abolishment of non-domicile tax regime 

A key revenue-raising measure was to reform the non-domicile tax regime. The initial plan is for new UK arrivals to forego tax on foreign income and gains for their first four years of residency starting April 2025, but thereafter will pay the same tax as other UK residents. There will be a transitional period for those benefiting from the regime. The measure is expected to raise an average of £3.1 billion per year between 2026 and 2029.


British ISA reforms  

The Budget also saw the introduction of ISA (Individual Savings Account) reforms to encourage more people to invest in UK assets. After a consultation on its implementation, a new British ISA will be launched, allowing an additional £5,000 annual investment for investments in UK assets, with all the tax advantages of ISAs. The impact of this on the UK market will be limited. If every ISA holder used the £5,000 maximum allowance it amounts to just 0.2% of the UK market’s aggregate value.


Pension Fund Reforms  

To stimulate investment in UK stock markets, Defined Contribution and local government pension funds will be required to disclose their international and UK investment levels publicly. The Pensions Regulator and Financial Conduct Authority (FCA) will receive expanded authority to ensure better value from Defined Contribution pension schemes by assessing performance based on overall return rather than costs.


What will the impact be on the UK economy and markets? 

The Spring Budget was muted in terms of both tax cuts and revenue raising measures. NI cuts were flagged ahead of the Budget and should be marginally additive to economic growth in the year ahead. Limited fiscal headroom and the market reaction to unfunded tax cuts in the 2022 Mini-Budget has curtailed the degree to which the Treasury can stimulate economic growth.

Slightly positive news emerged for the short-term economic outlook, as the Office for Budget Responsibility (OBR) now forecast Gross Domestic Product (GDP) growth at 0.8% for 2024 (previously 0.7%) and 1.9% for 2025 (previously 1.4%). This is consistent with the stronger economic data we have seen since the Autumn Statement.

The OBR has slightly raised its borrowing forecast with debt expected to increase 91.7% of GDP in 2024-25 (change from 91.6% previously), 92.8% (92.7% previously) in 2025-26. Encouragingly, the OBR sees inflation coming in below central bank target rates of 2% within "months".

With limited fiscal overruns, sharp bond movements should be contained.


How does this impact investors? 

The cuts to NI will be the biggest direct benefit to the economy. The reform of the non-domicile tax regime, the British ISA and Pension Fund reforms are significant changes for UK investors, and we will study the detail.

We continue to keep our clients abreast of the changing economic landscape, keeping an eye on potential challenges and opportunities that may arise. You can find more detail in our latest Investment Committee Series Q1 2024 Update, where we share our views and decisions we have implemented in our portfolios.

If you have any questions or would like to discuss how particular aspects of the Spring Budget may impact your personal circumstances, please reach out to your relationship manager.


Investment Committee Series

Our Investment Committee share their key decisions and outlook for Q1 2024 here

Investment Committee Series Q1 2024 brochure

Author -

Jason da Silva

Jason Da Silva

Director, Global Investment Strategy

Jason Da Silva joined Arbuthnot Latham in 2022, as a senior research analyst and in 2023 he was promoted to Director, Global Investment Strategy. He most recently spent four years at boutique asset manager Obsidian Capital focused on direct equities, fixed income, commodities, and currencies. Previously, he worked at EY, where he became a Chartered Accountant before rotating into the EY corporate finance division. Jason holds both a CA(SA) and a CFA.


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