Chancellor Jeremy Hunt presented his much-anticipated Spring Budget today, likely the last fiscal event before the next general election, including further cuts to National Insurance, changes to Child Benefit, and a new British ISA. Head of Personal Finance, Brian Byrnes, lays out the changes and what they mean for you.

 

National Insurance cuts

The Chancellor has announced a second round of cuts to National Insurance, following a 2% reduction in the Autumn Statement. 

New plans will see National Insurance go down another 2% to 8%. This follows changes from the Autumn Statement which came into effect in January 2024 and took National Insurance from 12% to 10% for employed workers – saving the average employee around £450. The further cut to NI means workers will see even more in their take-home pay – saving them around £450 extra per tax year. Plus, the rate for self-employed workers is decreasing from 9% to 6%, saving them £350 on average. The new tax changes will take effect from 6th April 2024.

While it’s great that more people will see more of their earnings, it’s important to remember that tax thresholds are currently frozen. The tax threshold is the amount of money you can earn before you start paying tax or even qualify to pay high tax rates. Thresholds have not risen in line with inflation, which means that as wages increase, more people will end up paying more tax – this is called fiscal drag.

 

Child benefit

The Spring Budget laid out changes to Child Benefit. Previously, the threshold at which the High Income Child Benefit Charge kicks in sat at £50,000. A parent or guardian receiving Child Benefit would start to lose it when they earn £50,000 or more per year. For every £100 they earn over this threshold, they have to pay back 1% of the child benefit they receive. This system has been labelled as unfair, since a single parent earning £60,000 won’t get any child benefit, but a dual-income family where both parents earn £50,000 will receive the full amount.

The Chancellor announced plans to move to a household based system, with aims to launch April 2026. In the meantime, the government will raise the threshold to £60,000 from 6th April 2024. Hunt states that the threshold increase will amount to an average saving of £1,300 next year.

Many regard this welcome change as long overdue, as the threshold hasn’t risen in 11 years – despite significant increases in inflation and average income in that time.

 

Creation of a new UK ISA

Hunt also announced plans for a new British ISA, to give investors an extra £5,000 allowance every tax year, allowing them to invest in UK-listed companies, tax-free.

While it’s great to see measures being taken to encourage investing, the British ISA has been criticised by some as unlikely to deliver real benefit to the vast majority of investors in the UK. 

With a very small minority of investors currently able to max out the current £20,000 tax-free limit, the additional £5,000 allowance will likely solely benefit a small group of wealthier investors who are able to take advantage of it.

We won’t see the new ISA come into fruition until at least the 2025/26 tax year, as a government consultation will need to take place first.

 

Lifetime ISA left out of Spring Budget

As you may have seen, we’ve been campaigning to future-proof the Lifetime ISA (LISA), so that it continues to help future generations achieve their dreams of buying a home.

While there was lots of good news for UK households in today’s budget, it was also a missed opportunity to provide some much-needed support and reassurance to first-time buyers.

Without a doubt, getting that first foot on the property ladder has become increasingly difficult in recent years, with rising costs of living and increased affordability challenges. Throughout these challenges, the LISA has never been more popular and is an absolute lifeline for a whole generation of young savers who have been able to buy their first home far sooner than would otherwise have been possible, thanks to the fantastic 25% Government bonus the LISA offers.

However, LISA product rules have not been updated since it was first launched in 2017 and that’s why we have been campaigning for the government to future-proof this unique savings product, to ensure that it continues to meet the needs of the next generation of homeowners.

While the Chancellor didn’t deliver the changes we’d hoped for, we will continue to work closely with policymakers, campaigning to ensure LISA rules are urgently reviewed and the product continues to be fit for purpose for all those who need it most, into the future.