Chancellor raises child benefit threshold from £50k – and confirms national insurance will be cut by 2p
The chancellor has confirmed a 2p cut to national insurance and increased child benefit thresholds.
In the budget, Jeremy Hunt said “permanent cuts in taxation” were possible because of the progress made in bringing down inflation – with forecasts suggesting it will fall to the target level of 2% within months.
More parents will be paid child benefit after the £60,000 threshold, beyond which no payment is currently made, will be extended to £80,000 from next month.
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At present if one parent earns £50,000 a year child benefit payments are reduced. Following Mr Hunt’s announcement such payments won’t be tapered off until a parent is paid £60,000 annually.
The policy change will help 170,000 families with children under 16, or under 20 if they are in full-time education or training, Mr Hunt said.
Qualifying parents receive £24 a week for their first child and £15.90 for other each of their other children. These sums will rise to £25.60 and £16.95 a week next month.
Also due to change is which families qualify for the benefit.
It will move away from the present system, where just one parent earning £50,000 means the entitlement is tapered off, to whole household eligibility, whereby the income of parents is looked at together.
But this new joint assessment won’t take effect until April 2026.
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Average savings of around £1,300 will be made by nearly half a million families next year as a result of the child benefit changes, Mr Hunt said.
He indicated plans to completely scrap national insurance contributions, branding it “double taxation”. National insurance brought in around £177bn in the 2022-23 period in tax.
Mr Hunt spoke about cutting taxes to increase growth, and the official Office for Budget Responsibility (OBR) forecast predicted that living standards will grow faster than expected.
But real disposable household income is not expected to recover to pre-pandemic levels until the 2025-26 period, after the next election.
And the tax burden is also set to continue to rise – albeit at a slightly reduced level when compared to last autumn’s forecast.
In total, the government will take £19.7bn more in tax by 2029 than forecasted in March 2021, even when the cuts to national insurance are included, due to fiscal drag.
Scrapping the “non-doms” regime, which allowed certain wealthy individuals to avoid paying tax on their foreign income, is expected to raise £2.7bn a year.
WHAT IS THE NON-DOM TAX STATUS
Removing the non-dom tax regime is a move that could be seen as being straight out of Labour’s playbook, although the chancellor suggested the Opposition got the idea from his predecessor Nigel Lawson in the late 1980s.
Potentially designed to take the wind out of Labour’s sails, it removes a clear dividing line between the parties’ policies.
A non-dom is someone who lives in the UK but whose permanent home is abroad.
The term is short for non-domiciled individual.
Under the UK’s current regime they only pay tax on money earned in the UK, their income and wealth from outside the UK isn’t taxed.
As a result, rich people make considerable savings if they choose to be tax domiciled abroad.
Non-doms can benefit from the tax arrangement for up to 15 years.
But that’s to change.
Labour wanted this to be cut just to four years. And that’s just what Chancellor Jeremy Hunt has done.
For those currently using the non-dom tax system “transitional arrangements” will be made, Mr Hunt said, including a two-year period in which individuals will be encouraged to bring wealth earned overseas to the UK.
This measure will attract an additional £15bn of foreign income and gains and generate more than £1bn of extra tax, he said.
Rishi Sunak was recused from the decision on non-dom tax to avoid any perceived or potential conflicts of interest.
In terms of spending, Mr Hunt earmarked almost £6bn for the NHS – with artificial intelligence set to be used to “cut form-filling for doctors” in a digitalisation drive.
A 5p cut to fuel duty will be extended for another 12 months – with the government “backing the Great British pub” by holding the price of beer, wine and spirits steady until February 2025.
Meanwhile, Britons will be able to invest up to £5,000 in UK companies tax-free – in addition to their current ISA allowance – through a new “British ISA”.
Chancellor cuts national insurance in budget
The chancellor’s announcements included:
• The High Income Child Benefit Charge threshold will increase from £50,000 to £60,000
• A new excise duty on vaping, as well as a one-off increase to tobacco duty
• The higher capital gains tax rate on property will fall from 28% to 24%
• The VAT registration threshold will rise from £85,000 to £90,000 from 1 April – the first increase in seven years
• A fund aimed at supporting vulnerable households with the cost of living will be extended by a further six months
• The UK economy is expected to grow by 0.8% this year – and 1.9% in 2025
• Hundreds of millions of pounds to tackle “historic underinvestment in our nations and regions”
The 2p cut to national insurance was widely trailed – and follows a previous 2p cut announced in the autumn statement. Combined, this could save the average worker up to £900 a year.
But the chancellor had faced calls from Tory MPs to cut income tax or unfreeze tax thresholds to prevent Britons from being dragged into higher bands when they get pay rises.
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Drab fiscal statement will cool May election rumours
We were promised a tax cutting budget, and we got a tax cutting budget.
The budget this year was a bit more straightforward than usual – with big announcements pre-briefed ahead of time, and no big standout measures held back to surprise voters with.
The chancellor cut national insurance by the expected two percentage points in a move that impacts 27 million people, worth £450 per year for the average person.
Capital gains tax will also be reduced, but the slightly more flamboyant move was stealing Labour’s proposals to scrap the non-dom tax status loophole and replace it with a new residency based system.
It means that an extra £2.7 billion a year will be used to fund tax breaks elsewhere in the budget.
There was a lot of pressure riding on Jeremy Hunt today among swirling chatter in Westminster of a May election, but this rather drab fiscal statement may have cooled those rumours.
But both parties could still be accused of electioneering today.
Mr Hunt thanked a list of Conservative MPs for their lobbying and campaigning as he announced certain measures, and even sometimes name checked the constituencies they represent.
Labour were much louder in their disagreement than usual, heckling the chancellor barely two minutes in.
The chancellor even started his speech at the despatch box with a bizarre, unrelated reference to Israel and Gaza, in a striking example of just how much the conflict has impacted UK politics since 7 October.
In terms of the immediate offerings, Jeremy Hunt confirmed the 5p fuel duty cut will continue, after it was due to expire at the end of March and confirmed a continuation of the alcohol duty freeze.
The Household Support Fund has also been extended for another six months.
There were elements in there for savers too, a new British ISA was announced allowing another £5,000 on top of existing ISA offerings and further tax relief for creative industries.
There was also a noticeable pivot back to more traditional Conservatism.
With the Conservatives 20 points behind in the polls, the chancellor must have been hoping that his budget can turn around Tory fortunes.
But today showed that for him this mission is clearly more of a marathon, not a sprint.
Mr Hunt is already facing anger from Scottish Conservatives, after he announced an extension of the windfall tax on profits made by energy companies in the North Sea.
The leader of the Scottish Tories, Douglas Ross, said he would not vote with the legislation – implying he would either oppose or abstain on the motion to introduce the measure.
Andrew Bowie, a Tory minister, said the will be “working with” Mr Ross to “resolve” the matter.
Labour leader Sir Keir Starmer said the budget was “bereft of ideas”.
This budget is set to be the last before the election – with Mr Hunt under pressure to revive economic growth and the government’s prospects at the ballot box.
The UK economy slipped into a technical recession at the end of last year, and the Tories are about 20 points behind in the opinion polls.
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Before the budget was announced, shadow chancellor Rachel Reeves said: “The Conservatives promised to fix the nation’s roof, but instead they have smashed the windows, kicked the door in and are now burning the house down.
“Taxes are rising, prices are still going up in the shops and we have been hit by recession. Nothing the chancellor says or does can undo the economic vandalism of the Conservatives over the past decade.”