As part of the Tax Talks in Five series from Primondell the UK specialists in tax training
Episode 4 in the series, Jeremy Mindell discusses the recent Autumn 2024 budget
You can also read the talk in the transcription below
Transcribed by TurboScribe.ai
Welcome to Tax Talks in 5, brought to you by Primondell, UK’s specialist firm in tax training. If there’s one thing Chancellor Rachel Reeves drilled into us in the months before delivering her first budget, is that any of her proposed tax rises would avoid targeting working people. So how have we ended up with a £40bn tax rise? The national insurance increase to employers will make it harder for them to hire, raise wages or expand businesses.
So how does that add up? It’s been a few days since the budget was announced, so there has been time to digest some of the key areas. But now we should dig deeper. I’m Sharon Portner, and in today’s post-budget episode, let’s hear from Jeremy Mindell, Primindell’s director and expert on tax training, on how Labour’s first budget in 14 years will impact the economy, businesses and the individual.
Welcome to Tax Talks, Jeremy, and let’s start by asking, what is your reaction to this budget? Well, I think that the general reaction, with the notable exception of the IMF, the International Monetary Fund, has been quite negative from most sectors. Indeed, we’re hearing reports from Labour MPs saying that they’re finding it difficult to sell this budget. It does have some elements which probably would be welcomed by most people, the corporation tax roadmap, which sets out the government’s strategy for the next five years in terms of encouraging investment.
There is also the pledge to keep corporation tax at no higher than 25%, which has been welcomed by big companies. I think the real problem with this budget is that I think that they decided there were various public services like the NHS, prisons, courts, defence, that needed a lot more money. And they weren’t going to get it by sort of scrabbling around with the minor taxes.
If you think about the big four, the big four taxes are income tax, VAT, national insurance, and to a lesser extent, corporation tax. And if you actually ruled out rises in all of them, you’re really scrabbling around the minor taxes, which are unlikely to raise that sort of money that you’re looking for. So 40 billion is a very big figure.
And there are arguments about whether actually the government broke its pledge over not raising national insurance. It certainly wasn’t clear to people that that only covered employee national insurance during the general election. So, you know, lots of arguments about that.
Are there any specific sectors, for example, GP practices and care homes, that will suffer from the changes to employers’ national insurance contributions? Well, there are two elements to the rise in employer NIC. One of them is 1.2% on employer NIC, which is actually 0.05% less than conservatives did for that very brief period when they were looking to fund social care through national insurance rises. But the other big element is the reduction in the threshold at which you start paying or employers start paying national insurance, which goes down from £9,100 to £5,000.
And I think that is going to be absolutely a major issue for anyone who’s employing people in what I call entry-level jobs, where it’s their first job, not necessarily well-paid, where the industry itself, let’s say hospitality, leisure, care homes, is operating on very small margins. That, I think, is going to have a major effect on the way that those companies will operate. And they will either end up with squeezed profit margins, which are also heavily squeezed at the moment.
There isn’t that much more they can probably do there in the short term. It will affect future pay rises and I think will lead to less hiring of people and possibly people being made redundant. I think the other element to be aware of is that the business rates relief given to small companies was higher than is being given now.
And, of course, they’re facing a very large increase, more than 6% increase, in the national living wage. And, indeed, for younger employees, it goes up somewhere like 18%. So the squeeze, if you’re employing younger people on relatively lower wages and you’re in a sector with tight margins and may have suffered real disruption due to COVID and other elements like hospitality and retail, then this budget is not good news.
What are your views on the proposed changes in inheritance tax, pensions and passing on family farms? Well, it’s interesting. The last one, which doesn’t raise a great deal of money, could be the equivalent of George Osborne’s pasty tax and caravans, raising a lot of heat but not a lot of tax. And I know that there are protests already planned for later this month.
There’s been a lot of adverse comment by even celebrity farmers like Jeremy Clarkson. So I wonder whether there might be some rowing back on that particular issue. For the first time in many years, there are quite a lot of Labour MPs with rural constituencies and you do wonder what sort of message they might get.
In terms of other IHT planning, I think the other big issue is the double hit on pensions. So if you die before the age of 75, your pension would pass free of income tax and IHT. If you die after 75, the undrawn pension would have been subject to income tax in the hands of the recipients, but not inheritance tax.
And I think the exemption was there pretty much to ensure that you didn’t get tax on tax. Now you could be faced with both income tax and IHT. And you’re talking about a rate north of 67%.
And I’m not sure that that is particularly sustainable. But again, I would want, if I was planning anything, I’d want to see how the finance bill enacts this and indeed whether it goes through Parliament unamended. Will the changes introduced by Rachel Reeves be inflationary? Well, according to the Office for Budget Responsibility, there will be a slight tick up in inflation, a slight reduction in growth and interest rates will remain higher for longer.
It’s noticeable that bond yields on guilds are actually at the moment higher than they were after Liz Truss’s ill-fated budget two years ago. So there is some concern about the pledges in terms of extra spending. And it will be interesting to see how the market reacts over the next couple of weeks.
Has the budget changed the outlook on inflation, growth and interest rates? Well, as I said, I think certainly in the short term you’ll see a tick up. I think you’ll see a tick up in the longer term because this 1.2% increase in national insurance will leave many employers no option but to pass this on to customers. Well, it’s still early days and the devil is in the detail with more to come out.
And no doubt Jeremy will talk again with your in-depth knowledge and see how this budget will affect the economy and public services. In the meantime, if you have any questions or comments on today’s episode or any tax matter, please visit the website www.primondell.co.uk or email Jeremy directly at jpmind20@gmail.com.
Thank you, Jeremy.
The full budget can be read or downloaded here
https://www.gov.uk/government/publications/autumn-budget-2024
Transcribed by TurboScribe.ai
