7 March 2024 – The spring budget 2024 promises an economy on the rise, recovery from inflation, tax cuts, and other policies to drive SME growth.
Yesterday, the Chancellor delivered his Spring Budget speech to the House of Commons. In over an hour, he painted a picture of an economy that’s on track to grow, supported by the Office for Budget Responsibility’s (OBR) forecast.
For an election year, it wasn’t the dramatic give-away budget that many expected, not at least many Tory backbenchers. Rather it was a budget that is aimed at signalling to the electorate that this government is behaving sensibly and responsibly.
If this will pay off, remains to be seen. For now, the polls suggest that the budget hasn’t made much difference to the gap between the Conversatives and Labour, with Labour still around 20 points ahead.
But what does the Spring Budget 2024 mean for small businesses? Will 2024 really be the year of the SME, as the Chancellor promised?
Spring Budget 2024 optimistic for economic boom
The economy is slowly getting back on track. Jeremy Hunt announced an expected 0.8% growth this year, followed by 1.9% next year. It’s a confident departure from the autumn statement’s 0.7% and 1.4% estimates for 2024 and 2025, respectively.
The Office for Budget Responsibility forecasts a 2% growth rate for 2026. There is an expected average rate of 1.8% for 2027 and 2028.
Inflation has also dropped from a peak of 11.1% down to 4.0%. The OBR believes it will dip to the 2% target by the second quarter. Inflation has definitely fallen faster, a year earlier than anticipated in the November 2023 forecast.
Another likely result of the rapid inflation drop is lower debt costs and decreased borrowing. At £96.6 billion by the end of January, the public sector net borrowing (PSNB) is lower than the November 2023 forecast—a £9.2 billion difference.
The unemployment rate is likely to reach its peak of 4.4% in 2024 and 2025, in contrast to the 4.6% rate in the November forecast. It is presumed to fall steadily to 4.1% in 2028.
However, despite this more positive outlook, British people will still be worse off this year than at the start of this parliament, according to think tank The Institute For Fiscal Studies (IFS). The tax burden is still the heaviest in over 70 years.
And let’s not forget, the UK is currently in a recession, which is hardly anything to celebrate.
Changes to tax cuts and stealth taxes
The spring budget 2024 included a new wave of National Insurance cuts totalling over £10 billion for the main rates of employee and self-employed NICs. Starting 6 April, the government will reduce the Class 1 main rate to 8% from 10% and the Class 4 main rate of self-employed NICs to 6%.
An average worker with a salary of £35,400 should expect a total annual tax cut of over £900.
However, the income tax threshold freeze is still in effect until April 2028. It’s also dubbed a stealth tax because it raises overall tax revenue without technically increasing taxes.
In other words, as wages rise, more Brits will have an increase in taxable income. This severely reduces consumers’ spending power in a high-inflation environment.
Speaking of stealth tax, 75% of councils are poised to enforce the 4.99% maximum increase for council taxes in April. With government tax cuts and rising costs, local authorities rely solely on council tax to protect essential services. For reference, an average D council tax hike of £99 or 5.1% would result in a £2,065 annual bill.
New SME policies for business development
2024 is the year of the SMEs, the Chancellor said, and the spring budget highlights various measures to support small business growth.
First, the VAT registration threshold is bumped up to £90,000. This will alleviate some financial burden for over 28,000 small businesses.
The Recovery Loan Scheme will also be extended. Renamed as the ‘Growth Guarantee Scheme’, it will allow SMEs to access more financing options to fund growth strategies.
HMRC released new guidelines on allowable costs when calculating taxable profits to address the skills crisis. The updated guidance includes upskilling costs, industry technology upgrades, and changes in industry practices for the self-employed and sole traders.
AI development is taking businesses further than ever. A new £7.4 million upskilling fund pilot will help SMEs gain AI skills. This program will supplement the promising SME Digital Adoption Taskforce. The Taskforce will determine how various forms of digital technology can best support SME productivity.
Other measures for labour and industry-specific duty rates
Hunt also mentioned reforms for a fairer High Income Child Benefit Charge (HICBC). The threshold will be hiked from £50,000 to £60,000, which means savings for 170,000 families.
The HICBC withdrawal rate will be halved and not fully withdrawn until an individual earns £80,000 or more. Working parents will have more incentives to take up more hours.
On the other hand, the dining and hospitality sector is in for a treat due to an extension of the alcohol duty freeze. For example, there will be a 2p less duty on an average pint of beer until 1 February 2025.
Expect travel cost savings! The government will also retain fuel duty rates for another twelve months. A temporary 5p duty cut and a cancellation of the inflation-linked price hike will be implemented to help motorists and related industries. Drivers should expect fuel savings of around £50 for the year.
Our Opinion
If the Spring Budget 2024 was meant to tell small and medium-sized businesses in the UK that this is their year, it failed. The few measures that were announced aren’t addressing the pressing issues that SMEs are facing.
Like in the Autumn Budget, the Chancellor didn’t reduce NICs for employers, leaving many small businesses with high labour costs. With the increase in the National Living Wage announced in the last budget, this means already high labour costs will increase again from April.
The increased VAT threshold is good news, it’s now only £5,000 higher. While this will be helpful for some small businesses, for many it just won’t be enough.
Looking at the measures impacting on businesses as a whole, there isn’t really much there that will make a big difference. If 2024 is to be the year of SMEs, it will be on the small businesses themselves to make that happen.
Because the Chancellor doesn’t seem to want to support them with measures that will allow them to grow and thrive. All in all, this spring statement was a disappointment for small businesses around the country that were hoping for more.
