HMG BUDGET SPECIAL - Letter from Great Britain - [03-08-24]

Britain is at a low for living standards as yesterday’s budget shows; taxation a 70-year high by 2028-29, and pensioners are fleeing the Tories in droves - [Torsten Bell, CEO Resolution Foundation]

BUDGET SPECIAL -  “Not Even a Brighter Shade of Fail!” Britain is the sixth biggest economy in the world yet over 14 million people are living in poverty; it’s an absolute scandal.  It’s always worth looking back to 2022; the Brits have had enough.

George Galloway (British Workers Party), who won a major victory in Rochdale last week, has taken a swipe at Labour leader Sir Keir Starmer, accusing him of "double-dealing" in last month's vote on a ceasefire in Gaza.

BUDGET 2024 - KEY POINTS AT A GLANCE

National Insurance & Wages

• Hunt confirmed that the National Insurance Contribution (NIC) rate will be cut from 10% to 8% of pay from April 2024.

• This is in addition to a 2p reduction in the November autumn statement, which reduced the rate from 12% to 10%.

• It is estimated that this 2p reduction would be worth about £450 a year for someone on a £35,000 full-time salary.  According to the ONS, the mean average salary in the UK (2023) for all employees was £29,669, a 6.8% increase from 2022.

• Despite the OBR reducing its forecast for inflation, real average wages will not regain their 2008 levels until 2026, a staggering nearly two lost decades of pay growth. Had pay instead continued along its pre-financial crisis path over this period, the average worker in 2023 would have been £14,000 better off!

• Across this parliament (2019 to 2025), real household disposable income is set to fall by 0.9%; the first parliament in modern history to see a fall in living standards.

Economy – Crystal Ball Gazing -

• Hunt said the economy is expected to grow by 0.8% this year and 1.9% in 2025. That is slightly stronger than the 0.7% and 1.4% growth rate expected by the Office for Budget Responsibility (OBR) in the November autumn statement.  The OBR doesn’t have a good forecasting track – it has never yet been right!

• Hunt said growth is forecast to be 2% in 2026 before dipping to 1.8% and 1.7% in 2027 and 2028. What do readers think:

Inflation – [See ‘Inflation Monitor’ in the regular Letter tomorrow]

• Inflation is expected to fall below the government’s 2% target in “just a few months”, Hunt says, down from 4% in January. “Nearly a whole year earlier than forecast in the autumn statement,” What has he been smoking – confusing ‘target’ with ‘forecast’?

• The Bank of England’s long-term target is to keep inflation at a “low and stable 2%”.

• The figure is down from a peak of 11.1% in October 2022, as food and energy prices have eased […a bit but not enough by any measure].

Government Borrowing – [It has been ‘jam tomorrow’ throughout my lifetime]

• Hunt says underlying debt, which excludes Bank of England debt, will be 91.7% of GDP in 2024-25 according to the OBR, then 92.8%, 93.2%, and 93.2% before falling to 92.9% in 2028-29. “We continue to have the second lowest level of government debt in the G7, lower than Japan, France or the US,” he adds.

• Hunt says borrowing falls from 4.2% of GDP in 2023-24, to 3.1%, 2.7%, 2.3%, 1.6% and 1.2% in 2028-29. “By the end of the forecast, borrowing is at its lowest level of GDP since 2001,” he adds.

Public Services are collapsing

• The chancellor has kept a 1% increase in day-to-day public spending above inflation, despite speculation it would be cut to just 0.75%.

• Military spending will rise to 2.5% of GDP “as soon as economic conditions allow”, Hunt says. It is now at 2% of GDP.

NHS – [It’s well on the way to full ‘Big Pharma Privatisation’ – a 50-year project]

• Hunt announced a “landmark public sector productivity plan” that will be published, including reducing form filling by doctors by using AI, digitising hospital processes, and improving the NHS App.  He adds: “We need a more productive state, not a bigger state.”

• “I want this ground-breaking agreement with the NHS to be a model for all our public services” including education, the police, courts, and public government, Hunt said.  In the next spending review, the Treasury will prioritise applications for money from departments that show potential savings for the public purse in the long term.

Child benefit

• Hunt announced a consultation on child benefit rules, applying it to collective household incomes rather than to individuals, from April 2026.  He said the threshold will be for a high-income tax charge on the benefit and will be raised from £50,000 to £60,000. The top of a taper to withdraw the benefit will be raised to £80,000 from £60,000 at the moment.

• The ‘Household Support Fund’, introduced by the government in 2021 to help
  families struggling with the cost of living has been extended by six months.

Childcare

• Hunt said rates paid to nurseries to fund free childcare hours for parents of children aged more than nine months will continue for the next two years. The payments have become less profitable for nurseries in recent years as inflation has risen, impacting childcare providers’ budgets.  Hunt says the move will allow an extra 60,000 parents to join the workforce in the next four years.

Non-dom Tax Status

• The chancellor confirmed that Non-Dom tax status will be “abolished” and replaced by a “modern, simpler, and fairer” system from April 2025.  The status is relished by people who live in Britain, but who have certain overseas links, and are often determined by whether their father was born abroad. The status means they pay UK tax on money earned here, but not on their worldwide income unlike the USA and South Africa (SARS).  After four years, those coming to Britain will pay the same tax as other British residents.

Property Taxes

• Hunt said the government will reduce the higher rate of property capital gains tax from 28% to 24%.

• He also announced the abolition of stamp duty relief for those buying more than one dwelling.

Holiday Lets

• Hunt confirmed plans to scrap the ‘furnished holiday-lets’ regime. The former initiative gave tax reliefs, on properties being rented out to holidaymakers, and made renting out to holidaymakers more profitable than to regular tenants. The move is expected to raise £300m a year for the Treasury.

Vaping Tax

• Hunt confirmed widely expected plans for a “vaping products levy” to be paid on imports by manufacturers, specifically on liquid in vapes. It will be introduced in October 2026.

• This move is an attempt to discourage children from buying these products. It is expected to raise £500m by 2028/29.  A one-off increase in tobacco duty was also announced.

Alcohol and fuel duty

• Alcohol duty was due to rise by 3% from August but Hunt said it will be frozen until February 2025, benefiting 38,000 pubs across the UK. The government is “backing the great British pub”, Hunt said.

• Hunt said he would freeze fuel duty at its current level for another year, as expected. The levy should rise in line with inflation but this has not happened since 2011.

• A 5p cut to fuel duty, which was introduced in 2022 and is due to expire this month, has been extended.

Savings

• Hunt announced a new “British Isa”, giving investors a £5,000 extra tax-free allowance to “encourage more people to invest in UK assets”.

• Hunt says a new ‘British Savings Bond’ will be launched in April, delivered by the state-owned ‘National Savings and Investments’ organisation. It will offer a guaranteed rate, fixed for three years.

Windfall Tax and Energy

• Hunt extended the windfall tax on the profits of North Sea oil and gas companies by a year, raising an expected £1.5bn.  It was introduced in May 2022 after Russia’s SMO in Ukraine caused gas prices to soar and impacted producers’ profits. It was due to end in March 2028, but will now conclude in 2029.

• The chancellor confirms the government will spend £160m on two nuclear sites. The first, on the island of Anglesey or Ynys Môn, is the Wylfa facility in North Wales. It is owned by Japan’s Hitachi and HMG plans to secure a partner to develop the nuclear power station. The Oldbury site in South Gloucestershire is also part of the agreement.

• He allocated £120m for green industries to develop technologies including offshore windfarms, carbon capture, and energy storage projects.

Notably, Hunt announced a tax-break for small businesses (SMEs) to address what he called “historic underinvestment” but many voters believe that Britain’s infrastructure is irreversibly crumbling.  The roads have deteriorated so much that to repair the potholes alone will require £19bn.

“Speaking to GB News, the campaigner, known as ‘Mr Pothole’ said the government must focus on fixing Britain’s roads rather than undertaking the more laborious task of filling in each pothole.  He told GB News, Patrick Christys: “Repairing our potholes is a waste of money and time".  We need to REPAIR our roads.”   

There is even a slightly retro shout-out for the obscure term of “levelling up”, however, the truth is that many British counties have been “levelling down” for decades.

In short, this pathetic budget will do nothing to counter Britain’s slow descent into obscurity.

The bad news follows tomorrow!

REFERENCES  

My Book: “The Financial Jigsaw” Parts 1 & 2 Scroll:   https://www.researchgate.net/publication/358117070_THE_FINANCIAL_JIGSAW_-_PART_1_-_4th_Edition_2020   including regular updates.

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