Spring Budget 2024 - IFS Analysis - 90 Minutes

7th March 2024

Chancellor Jeremy Hunt will present his Spring Budget on Wednesday 6th March, in what could be the last fiscal set-piece before the next general election.

IFS researchers will present their initial analysis of the Chancellor's announcements on the following day, Thursday 7th March, at an online webinar. Following the presentations, there will be plenty of time for your questions.

Paul Johnson, Director of IFS, said:
"We've learned to expect some degree of smoke and mirrors in the Budget. Today was no different, only on this occasion Mr Hunt decided to tax the smoke and to mirror the Labour party's tax pledges on non-doms and North Sea oil. Alongside a new tax on vaping and an increase in tobacco duty, this was enough to allow Mr Hunt to announce another, well-trailed cut to National Insurance.

"This £10 billion tax cut will benefit millions of workers. Put it together with the 2p cut from November’s Autumn Statement, and those on just above average earnings will gain around £1,000 a year. Focusing tax cuts on National Insurance, rather than income tax, is to be welcomed: doing so reduces the tax wedge between different sorts of income, benefits those of working age in work, and should have marginally more positive work incentive effects. On the back of similar cuts in November, it marks a clear break with the trend of the past half-century, during which headline income tax rates have come down and National Insurance rates have, until now, inched up.

“Changing the basis of non-dom taxation to residency, rather than the out-of-date concept of domicile, is a big and welcome move. The rather bizarre method of withdrawing child benefit from high-income families is in need of reform, and the changes coming into effect in April mitigate some of the worst features of the current system.

“Some bright spots, then, though the big picture on tax remains much the same. Come the election, tax revenues will be 3.9% of national income, or around £100 billion, higher than at the time of the last election. This remains a parliament of record tax rises.

“While the OBR got a little more positive in its projections, the picture on living standards also remains dismal. On average, households will be worse off at the time of the next election than they were at the last, following nugatory real earnings growth.

“The OBR marginally increased its forecasts for economic growth, but the overall public finance picture remains largely unchanged from the autumn. The Chancellor is still on track to stabilise debt as a fraction of national income in five years’ time, just about, but only on the basis of a pie-in-the-sky promise to increase fuel duties (this time we mean it - promise!) and a set of post-election spending plans that still imply substantial cuts to funding of many public services which are clearly struggling with their current level of funding. While his ambition to improve public sector efficiency and productivity is the right one, and his injection of capital funding into the NHS is a sensible way of doing so, delivering on such plans and securing cash savings will be very tough indeed. That capital funding won’t arrive until 2025-26 in any case.

“We should at least be grateful that Mr Hunt didn’t pencil in even larger cuts to as-yet-unspecified public services. Nonetheless, actually implementing his plans would require cutting unprotected services – including councils, courts, further education colleges aand prisons – at around half the pace that George Osborne did between 2010 and 2015. Within the realms of possibility, perhaps, but there will be far less in the way of low-hanging fruit this time around, and banking on big improvements in public sector productivity is a risky business. Whoever is Chancellor at the time of the next Spending Review – which the Chancellor confirmed will not take place until after the election – might wish they’d chosen a different line of work."

See more at https://ifs.org.uk/articles/spring-budget-2024-initial-ifs-response