What Should We Expect from the Budget on March 6?

The Treasury has announced March 6 as the date for the Spring Budget and Chancellor Jeremy Hunt has commissioned the Office for Budget Responsibility to prepare an economic and fiscal forecast.

This is what business consultancy Hargreaves Lansdown anticipates may be in Hunt’s speech in just nine weeks time.

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While reams of discarded festive paper are heading for the recycling bins, Jeremy Hunt will be preparing to wrap up his own pre-election giveaways in the Spring Budget. The date has been set for March 6, an earlier date in the month than usual - and that’s fuelling speculation that a General Election could come as soon as May. 

Although the latest snapshot of the public finances showed that government borrowing was higher than expected in November, it’s unlikely to stop the Chancellor pulling a colony of rabbits from his hat. The trend of bumper tax receipts continued during the month, and although debt interest payments jumped again, it’s now expected that interest rates will be lower next year than previously forecast due to the struggling economy. 

So, the Chancellor for now is set to seize on this window of wiggle room to bestow some sweeteners, designed to shore up conservative support and tempt floating voters.

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What we are likely to expect from the Spring Budget

Inheritance tax - Inheritance tax cuts now look set to be firmly back on the table, with reports now suggesting the charge could be axed. This will again draw criticism that this will favour those who are better off at a time when people continue to struggle through the cost-of-living crisis. However, it is certainly a tax in need of reform, and it is highly likely to be targeted for upheaval in March.

Nil rate bands and gifting thresholds have remained untouched for years. At the same time, there’s been a rapid growth in house prices which has meant that many people who may not have expected to be liable for IHT now are. This year, we’re expected to pay £7.6 billion in IHT, but with the same thresholds and rate in place, by the end of the 2028/29 tax year, it’s forecast to be £9.8 billion. 

While the government is mulling axing the duty, it’s worth bearing in mind that even increasing nil rate bands and revisiting gifting allowances would play a major part in freeing many caught in the tax net and would enable more people to pass money down the generations, supporting their family members when they need it most.

Help for first time buyers - With more and more younger buyers being priced out of the market, as borrowing costs have soared and house prices have remained high, the number of first-time mortgages is set to hit a ten-year low next year. It’s little surprise that help for those people who are unable to get onto the first rung of the housing ladder is reported to be on the government’s wish list. New offers for prospective homebuyers will be aimed at boosting Conservative support among younger voters. A new version of the Help to Buy scheme may be resurrected or efforts made to enable more potential buyers to access long term mortgages with low deposits, similar to initiatives in the US.

Income tax cut - A potential cut in the rate of income tax was widely trailed ahead of the Autumn Statement, but didn’t happen. It’s very possible the Chancellor is keeping this up his sleeve as a late present in March. This is an approach that previous Chancellors from Nigel Lawson to Ken Clarke have used in the run up to an election, so it wouldn’t be a big surprise. A cut in basic rate income tax - say from 20% to 19% - would put more money in people’s pockets. It would also have a knock-on impact for pension tax relief. 

Fuel duty cut - Another nugget from the OBR report in November was the fact that staying within fiscal rules means fuel duty will need to rise next year, and the ‘temporary’ 5p cut in fuel duty will need to be reversed. This would be a blow for motorists, who have seen prices come down from the peak in summer 2022, but are still paying significantly more to power their cars than before the pandemic. 

It would also be a difficult measure to wear politically, because fuel duty has been frozen since 2011, and motorists have come to feel the Treasury is already taking enough of their money at the pumps. The budget coming earlier may mean that the government takes the opportunity to prevent fuel duty from rising.

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What we want to see

Lifetime ISA reform - The Lifetime ISA has the potential to boost the retirement prospects of many people, particularly the self-employed, so we were disappointed not to see it mentioned as part of the wider ISA reforms in the Autumn Statement. Jeremy Hunt emphasised the key role that self-employed people have played in the economy, and he has a real opportunity to support their planning in the Budget.

Reducing the early access penalty from 25% to 20% would mean people aren’t penalised for accessing their money during difficult times, which would offer real peace of mind to self-employed people worried about tying their money up. Increasing the age at which you can open a LISA from 40 to 55 would help those people who become self-employed later in life. 

Data from the HL Savings and Resilience Barometer shows expanding access to households aged between 40 and 55 could help 680,000 households with a self-employed worker who pays the basic rate of tax. The reduction of the penalty could also help 540,000 households aged between 18 and 39 with a self-employed worker who pays the basic rate of tax. 

We would also like to see the Lifetime ISA allowance of £4,000 to be separate, and in addition to, the £20,000 for ISAs. This would help separate these products and clear up the single biggest misunderstanding about LISAs. It would also boost incentives to invest, including for those who are struggling to save up for a deposit to get onto the housing ladder.

A bigger ISA allowance - It’s disappointing that Jeremy Hunt didn’t take the opportunity to increase the overall ISA allowance in the Autumn Statement. However, it remains a contender for the Budget. It was last raised way back in 2017, so would need to rise to more than £25,000 just to keep pace with inflation. It would be a real opportunity to take the sting out of serious cuts to the dividend tax and capital gains tax allowances and protect savers from the horrors of income tax bills.

Dividend Tax and Capital Gains Tax threshold cuts halted - Halting plans to slash the thresholds for dividend tax and capital gains tax again would relieve pressure on both investors and entrepreneurs. These thresholds were already cut significantly in April 2023, and are set to be halved again in April 2024, meaning higher tax bills for investors and people who run their own business and pay themselves in dividends. Given the government’s growth agenda, and drive to encourage investment into UK companies, halting the planned threshold cuts could help promote this agenda and help the London Stock Exchange retain its lustre.

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