On the 6th of March 2024, UK Chancellor Jeremy Hunt is set to give an announcement regarding the UK’s financial plans and changes. After looking through various verified sources, finding the most common predictions for what Jeremy will announce, and making sure other sources also corroborate their claims, here is a summary of what we can expect Hunt will and won’t announce. It is also important to note that this announcement is not far behind the next general election, and some announcements may feel better than expected to repopularise conservative methods.
1. LISA Changes
Many people are frustrated with current LISA rules. If you are between 18 and 39, you can open a lifetime individual savings account, or LISA. Unlike simply opening a general savings account, LISAs allow you to receive a 25% bonus (up to £1000) from the government. However, the catch is that you can only save up to £4000 in a tax year in your LISA, however for different types of ISAs (cash ISAs and share ISAs), that number can rise to around £20,000. Furthermore, any interest earned by an ISA is not taxable.
LISAs are meant for first-time property buyers to save up money for retirement or buying a house. However, the maximum house price LISA funds can be used on is £450,000. When that price is exceeded the government can issue up to a 25% withdrawal penalty for your LISA savings. This not only eats up into your government top-ups over the years but also your hard-earned savings. You may very well lose money. This penalty also applies if you attempt to use LISA savings on retirement after already using them to buy a house.
With rising house prices, Hunt needs to look to raise the £450,000 threshold to keep up with the rising prices and continue to make LISAs useful. We also speculate that he might cut the 25% penalty to 20% to reduce the chance of losing money with ISAs.
2.Tax Cuts?
While most of the media speculates about tax cuts, many experts and organisations think in the long-term tax cuts which have not been thought through can hinder the economy. The International Monetary Fund (IMF) has severely warned the chancellor against tax cuts. The most obvious taxes such as income tax cuts and VAT have been put off by the government for many months due to the fear that it will feed the fire of inflation. Tax cuts mean that more money is put into people’s pockets, causing an increase in spending. Companies may not be able to meet the manufacturing needs of this increase in spending and will raise prices instead. This increases inflation.
Less taxes also means less government revenue to fund public services, especially the NHS, as well as council funds and programs. The UK also has an ageing population, meaning there will also be an increase in money spent on state pension funds. It wouldn’t be wise to cut the most lucrative taxes just yet.
However, it has been revealed that the Conservatives could do so anyway, against IMF warnings. Rishi Sunak, along with other conservative MPs feels that other taxes like Inheritance tax cuts are more lenient to the rich, and despite warnings of the Office for Budget Responsibility (OBR), whose forecasts stated that Hunt has little fiscal breathing space for significant tax cuts, Hunt and the Tories are leaning towards going through with it anyway. Once again, preceding the general election in November, many feel that the Conservatives simply want to make a splash.
3. Child Benefit Changes
If you are a working parent with a child under the age of 18, you are eligible to claim Child Benefit. This is a monthly allowance to take care of your child. However, when your income crosses £50,000, you are still eligible for child benefits, but you must also pay a Child Benefit charge. This slowly eats away at your benefits, and when your income reaches £60,000 the benefit is effectively nullified by the tax.
However, with inflation causing people’s income to rise above the threshold, it is high time Hunt raised the threshold, which has been static since 2013. This would also provide an incentive for more people to start working, which has been a long-term government goal.
4. Other Things
The Times speculate that Hunt will ban mid-contract price hikes for broadband and mobile service companies. Many companies, such as Vodaphone and TalkTalk, have already announced an 8% price increase in April.
Labour has envisioned a new non-domiciled regime for those who want to live in the UK for shorter periods. The non-domicile status is for foreigners who live in the UK but are domiciled in another country. This lets them avoid paying UK taxes on capital gained in another country, but only if they promise to live here for 15-20 years. The conservatives now have a chance to reform/review this program in the announcement.
Bank of England – Business Insider – https://www.businessinsider.com
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