The Social Market Foundation's response to the Spring Budget 2024 follows below.
Considering the Budget overall, SMF Director Aveek Bhattacharya said:
“Today’s Budget was a relatively low key affair, with the notable exception of the national insurance cut. If anything, it demonstrated the case for reducing the number of annual fiscal events from two to one – having made a number of big consequential announcements in last year’s Spring Budget and autumn statement, and presumably wanting to keep some powder dry before the election, there didn’t seem to be very much to say. The two costliest announcements – cutting national insurance and freezing fuel duty – reflect questionable priorities, and the pressure such events generate to produce gimmicky ‘rabbits out of hats’ rather than that doing the responsible thing.
Much of the rest of the Budget was worthy and unobjectionable in its rhetoric – the apparent embrace of a preventative state is particularly encouraging. But initiatives like digitising the NHS, modernising the courts and improving police methods will depend more on the execution than the planning. Moreover, if the Government is to raise public service productivity, it would do well to remember that the public sector is fundamentally driven by its people, and as such, improving leadership and management should be a central priority to raise efficiency”.
On the cut to rate of National Insurance, SMF Senior Researcher Sam Robinson said:
“Today’s cut in National Insurance is the right move in the wrong context. Reducing the tax burden on workers is a welcome step, but in the UK’s parlous fiscal situation this had to be offset by ambitious reforms to taxes on wealth, property and consumption. The cut to NI could have been the start of a sound strategy to rebalance the tax system and make it work better for the economy. Instead, it looks more like a symbolic gesture.”
On the latest fuel duty freeze, SMF Senior Researcher Gideon Salutin said:
“The only thing this freeze will fuel is more inequality. From today’s fuel duty freeze alone, the richest tenth of households in the UK will save an extra £60 a year, while the poorest receive only £22. The rhetoric around fuel duty focuses on the “families and sole traders” it supposedly protects from poverty. But after spending £130 billion on cuts and freezes over the past thirteen years, the policy has only decreased the average household’s motoring costs by £13 a month. Achieving a more meaningful reduction in transport expenses requires the government to invest in cheaper, greener alternatives like public transport and electric vehicles, but today’s Budget did little to enhance those options for low income households.”
On the introduction of the British ISA, SMF Researcher John Asthana Gibson said:
“Whilst the Chancellor’s aim to channel more investment into UK equities should be applauded, the introduction of a UK ISA is the wrong way to do it. Extending the ISA allowance will largely help older and wealthier people. 29% of ISA savings are held by the richest 10% of working-age adults, 74% by those in the top half. At the same time, the measure will cost the Treasury considerable sums in forgone revenue. Government support for savers should instead be targeted towards younger people on low incomes, many of whom have little or no financial savings to fall back on.”
On changes to alcohol and tobacco duties, SMF Director Aveek Bhattacharya said:
“The Chancellor chose today to freeze all alcohol taxes yet again in the name of ‘backing the Great British pub’. If that was his objective, he could have focused his attentions on draught beer and cider duty. Instead, by reducing taxes indiscriminately across the board, he will make it easier for supermarkets and off-licences to continue to undercut pubs. Worse, by continuing to enable the sale of cheap drink, he has chosen to fuel the spike in harmful drinking since the pandemic – an irresponsible course of action with alcohol-specific deaths at record highs.
“The decision to levy tax on vape products was more understandable, and wisely came with additional tobacco tax to maintain the price differential to cigarettes. Those moves will raise an extra £550 million by 2028. Yet if the Chancellor wanted to raise money from the tobacco industry, he would have been better served to go after producer profits: it has been estimated that capping profits at 10% and introducing a health promotion levy to capture the surplus would raise as much as £700 million far more quickly”.
On changes to improve public sector productivity, SMF Researcher Niamh O Regan said:
“Today’s announcements on investment in technology to help modernise public services and improve delivery are welcome and necessary. Executed well, they could reduce the administrative burden on public sector staff and help to rebalance workloads. However, it is the quality of public sector leaders and managers that will decide how much is actually delivered. There is a growing body of evidence showing the importance of good leadership and management to public sector productivity, but it remains neglected in policy circles. Technological improvements will only achieve their potential if the people using the new kit are well managed and effectively deployed”
On the abolition of the holiday lettings tax regime, SMF Senior Researcher Sam Robinson said:
“Action on holiday lets is welcome, but it is a tweak to a property tax system in need of overhaul. Addressing the market-chilling effects of Stamp Duty and the iniquitous impacts of Council Tax are the real challenges and will go much further to improving the housing market in the long term.”
On SME investment, SMF Senior Researcher Richard Hyde, said:
“The Budget today provided thin gruel for the bulk of the UK’s small and medium-sized enterprises (SMEs) that have ambitions to invest and to grow. The extension of the new capital allowances regime to include the leasing of plant and machinery will not tackle the biggest obstacles to owner-managers making the investments that they would like to make.
If the UK wants to close the £100 billion investment gap to the OECD average, more dramatic changes will be needed. A stronger focus upon tackling the factors that constrict cash-flow for small businesses, such as late payment by customers, will make a more substantive difference – for example, giving Small Business Commissioner powers to bring actions on behalf of small businesses against late paying larger businesses.
Similarly, encouraging SMEs to build up their reserves, which is how the majority of SMEs fund their investments, would be a better focus for policy. For instance, retained earnings allowance in corporation tax would help businesses save for the future.