Chancellor delivers ‘Budget for Long-Term Growth’ in Wales

12 Mar 2024 02:40 PM

More tax cuts for working people and more investment in high-potential industries headlined Chancellor Jeremy Hunt’s ‘Budget for Long-Term Growth’

• Economy turning a corner, with inflation expected to fall to target next quarter, wages consistently rising faster than prices and better growth than European neighbours. 
• Chancellor capitalises on progress with ‘Budget for Long Term Growth’, sticking to the plan by putting £640 a year back into the pocket of Welsh workers thanks to changes at Autumn Statement and a second National Insurance tax cut in April for over 1.2 million working people in Wales.
• High Income Child Benefit Charge to be assessed on a household-basis by April 2026, with immediate support for working families by increasing the threshold to £60,000 and halving the rate at which Child Benefit is repaid – representing a £1,260 boost on average for around half a million working families across the UK.
• The average car driver will save £50 this year as the 5p cut and freeze to fuel duty is maintained until March 2025, while pubs, breweries and distilleries in Wales will benefit from a further freeze to alcohol duty until February 2025 – also saving consumers money on their favourite tipple.
• New tax reliefs and investments will help establish the UK as a world leader in high-growth industries such as the creative sector, advanced manufacturing and life sciences, while the future of nuclear in Wales has been secured through a deal to acquire the Wylfa site in Anglesey.
• Welsh Government to receive around £170 million additional funding through the Barnett formula, on top of the additional £820 million it has received through its operation since its record £18 billion per year settlement at Spending Review 2021.
• ‘Budget for Long Term Growth’ sticks to the plan by delivering lower taxes and more investment, while increasing size of economy by 0.2% in 2028-29 and meeting fiscal rules – taking the long-term decisions needed to build a brighter future.

More tax cuts for working people and more investment in high-potential industries headlined Chancellor Jeremy Hunt’s ‘Budget for Long-Term Growth’ today, Wednesday 6 March. 

With the independent Office for Budget Responsibility (OBR) confirming inflation is set to fall to target a year earlier than previously expected, wages rising consistently and the economy outperforming European neighbours, the Chancellor said he would stick to the plan to improve living standards by rewarding work and growing the economy.

Welsh Secretary David TC Davies said:

This is a hugely significant Budget for Wales which signals this government’s continued ambition to deliver for people across the country.

The acquisition of Wylfa as a site for new nuclear development is fantastic news for Anglesey and the wider Welsh economy. It’s the next step on our path to an energy secure and net zero future, while also laying the foundations for a huge economic boost.

Over 1.2 million working people in Wales will benefit from today’s announcement of a National Insurance cut and families will be better off as we raise the threshold for claiming Child Benefit.

We are also continuing to invest directly in communities with £20 million for Rhyl, £5 million for Newport, £1.6 million in Theatr Clwyd and £10 million for Venue Cymru. And we have announced £5 million for an agri-food Launchpad which will support projects focused on issues like net zero farming across mid and north Wales.

There will also be around £170 million in Barnett consequentials for the Welsh Government, on top of its record block grant, to spend on devolved responsibilities like health and education.

This is a Budget that puts more money in the pockets of millions of people and shows that the UK Government continues to deliver for people across Wales.

Building on the 2 percentage point cut to Employee National Insurance at Autumn Statement, Mr Hunt announced a second 2p cut from 10% to 8% from April. The Chancellor also went further with tax cuts for the self-employed, having reduced Class 4 NICs from 9% to 8% and abolished the requirement to pay Class 2 NICs at Autumn Statement. Today he announced a further 2p cut to Class 4 NICs for the self-employed to 6%.

Combined with changes at Autumn Statement, today’s announcements represent a UK-wide tax cut of over £20 billion per year that amounts to a £640 average annual tax cut for over 1.2 million workers in Wales. They also chart a path towards continued cuts to National Insurance when doing so can be achieved without increasing borrowing or compromising high-quality public services. The OBR says these reductions will lead to the equivalent of around 200,000 extra full-time workers by 2028/29, as people increase their working hours and move into work. This boost is why the Chancellor has prioritised NICs cuts in his ‘Budget for Long Term Growth’, and why he will continue to do so when fiscally responsible. He set out that his long-term ambition is to end the unfairness of double taxation of work.

Mr Hunt also announced that the High Income Child Benefit Charge will be assessed on a household basis by April 2026, with a consultation to come on achieving this. 

To ensure working families benefit from increasing their earnings before this change is made, the threshold to start paying back Child Benefit will increase in April from £50,000 to £60,000 – a 20% increase which will take 170,000 families UK-wide out of paying the charge this year – while Child Benefit will no longer need to be repaid in full until earnings exceed £80,000. This represents a £1,260 boost on average for around half a million working families, rising to nearly £5,000 for some families when combined with tax cuts since Autumn Statement. This will put an end to the current unfairness, where two parents earning £49,000 a year receive the full Child Benefit while a household with a single earner on over £50,000 does not. The OBR says the immediate changes to the HICBC will lead to an increase in hours worked equivalent to around 10,000 more people entering the workforce on a full-time basis. 

New tax breaks and investments will help to establish the UK as a world-leader in high-growth industries. The UK’s creative industries will be backed by over £1 billion, including higher tax reliefs to lower the cost of producing visual effects in high-end TV and film, a 40% relief on gross business rates until 2034 will be introduced for eligible film studios, and a new tax credit for independent British films with a budget of less than £15 million. Orchestras, museums, galleries and theatres will also benefit from a permanent 45% tax relief for touring productions and 40% relief for non-touring productions. The UK Government will also provide £10 million for Venue Cymru, Conwy through the Levelling Up Fund and £1.6 million towards the redevelopment of Theatr Clwyd, helping to secure the future of the largest producing theatre in Wales, known for its world class theatre productions and support of the Welsh Language.

A £360 million package will support innovative R&D and manufacturing projects across the life sciences, automotive and aerospace sectors, with a further £45 million of funding to accelerate medical research into common diseases like cancer, dementia and epilepsy – while the Green Industries Growth Accelerator will be allocated an extra £120 million to build supply chains for offshore wind and carbon capture and storage.

Opportunity will be spread across Wales, with millions in funding for Rhyl through the Long-Term Plans for Towns and the vital rural economy across Mid and North Wales. The future of Welsh nuclear has also been secured after the UK Government came to an agreement with Hitachi to acquire the Wylfa site in Ynys Môn.  North Wales and Ynys Môn have a proud history in the nuclear industry, and the skills and expertise to support future projects with the potential to transform the local economy.

The Chancellor also took steps to make the tax system simpler and fairer. The ‘non-dom’ tax regime will be abolished and replaced with a fairer system from April 2025 where new arrivals to the UK pay the same tax as everyone else after four years – raising £2.7 billion a year by 2028/29. As the oil and gas sector’s windfall profits from higher prices are expected to last longer, the sunset clause on the Energy Profits Levy will be extended by a year to March 2029, raising £1.5 billion while encouraging investment in the UK’s energy security by promising to legislate for its abolition should market prices fall to their historic norm sooner than expected.

As a result of decisions at Spring Budget, the Welsh Government is receiving around £170 million in additional funding in 2024-25 through the Barnett formula. This comes on top of its record £15 billion per year settlement at Spending Review 2021 and the £820 million of additional funding it has received since then through the operation of the Barnett formula.

Accompanying forecasts by the OBR confirm that the combined impact of decisions taken at Spring Budget and the preceding two fiscal events will increase the size of the economy by 0.7% and increase total hours worked by the equivalent of 300,000 full-time workers by 2028-29 - with the combined impact of government policy since Autumn Statement 2022 reducing the tax burden in the final year of the forecast by 0.6%. Today’s announcements will reduce inflation in 2024/25, bring the equivalent of over 100,000 people into the workforce by 2028-29 and permanently grow the economy by 0.2% - with borrowing falling in every year of the forecast.

Lower taxes 

With the economy turning a corner and debt on track to fall as a share of GDP, the Chancellor delivered further tax cuts for working people – rewarding work, boosting growth and helping families with the cost of living. 

• Following a 2 percentage point cut in the Autumn Statement, the main rate of Employee National Insurance will be cut again by a further 2 percentage points from 10% to 8% in April – a one third reduction in the main rate of National Insurance which means the average Welsh worker on £30,100 will receive a tax cut of £700 compared to last year. 
• Following a 1 percentage point cut in the Autumn Statement, the main rate of Class 4 NICs for the self-employed will be cut by a further 2 percentage points from 8% to 6% from April.
• The average gain for over 1.2 million Welsh workers from personal tax cuts delivered by the UK Government since Autumn is £640.
• High Income Child Benefit Charge (HICBC) will be administered on a household rather than an individual basis by April 2026, with a consultation in due course, while around half a million working families will benefit from an increase in the threshold from £50,000 to £60,000 and raising the level at which Child Benefit is fully repaid to £80,000 – worth £1260 per family on average.   
• OBR says combined changes to NICs will lead to the equivalent of around 200,000 new full-time workers joining the labour market by 2028-29 as people increase working hours and move into work, while confirmed changes to the HICBC will bring in the equivalent of an additional 10,000 full-time workers. 
• The main rates of fuel duty will be frozen again until March 2025 with the temporary 5p cut also extended, saving car drivers in Wales around £50 this year and £250 since the 5p cut was introduced – a £5 billion tax cut.
• The six-month alcohol duty freeze announced at Autumn Statement will be extended until 1 February 2025, saving consumers 2p on a pint of beer, 1p on a pint of cider, 10p on a bottle of wine and 33p on a bottle of spirit compared to if the planned rise had gone ahead. This will benefit 38,000 pubs across the UK while reducing inflation this year.
• The £90 fee for Debt Relief Orders, which freeze debt payments for 12 months, will be abolished and eligibility criteria widened so that more households struggling with problem debts can get the help they need, while the maximum period for Universal Credit budgeting advances will be extended from 12 months to 24 months.  
• The higher rate of Capital Gains Tax (CGT) on property will be cut from 28% to 24% from April 2024, firing up the residential property market and supporting thousands of jobs that rely on it. 

Investment and levelling-up

Building on recent investments in the UK by Google, Nissan and Microsoft, Mr Hunt announced exciting new investments in key growth sectors and set out plans to support businesses of all sizes to grow.

• Significant package of support to establish the UK as a world leader in fast-growing industries over the next five years, including over £1 billion in new tax reliefs for creative industries, £270 million in automotive and aerospace R&D projects focusing, and a £120 million top up for the Green Industries Growth Accelerator to help build supply chains for offshore wind and carbon capture and storage.
• Draft legislation will be published within weeks to extend full expensing – an £11 billion tax cut for business every year to help them invest for less – to leased assets when affordable to do so, strengthening one of the most attractive capital allowance regimes of any major country. 
• The UK Government will extend the Investment Zones programme in Wales from five to 10 years, meaning Investment Zones in Wales will have access to a £160 million funding envelope per Investment Zone over 10 years. The UK and Welsh Governments are working together on proposals for the two selected Investment Zones in Wales, one located across Cardiff and Newport, delivered by the South East Wales Corporate Joint Committee and the other located across Wrexham and Flintshire, delivered by the North Wales Corporate Joint Committee. 
• The 10-year window to claim Freeport tax reliefs has also been agreed with the Welsh Governments, meaning tax reliefs will be available until September 2034 in tax sites in the Anglesey and Celtic Welsh Freeports – encouraging investment by providing certainty on government support over an extended timeframe, delivering growth and jobs, and levelling up the Welsh economy.
• The town of Rhyl will receive £20 million over ten years through the Long-Term Plan for Towns, giving it long term certainty to deliver projects based on local needs and priorities.
• The UK Government will support an agri-tech launchpad, in partnership with Ceredigion Council and Welsh Government, with £5 million to support business-led projects focused on vital issues like net zero farming. This will support the vital rural economy by delivering jobs, growth and higher productivity across Mid and North Wales.
• Small and medium sized businesses in Wales will be supported to invest and grow through a £200 million extension of the Growth Guarantee Scheme, helping 11,000 small businesses across the UK access the finance they need, and an increase in the VAT registration threshold from £85,000 to £90,000 which will take around 28,000 small businesses UK-wide out of paying VAT altogether.
• £45 million will fund medical research to develop new medicines for diseases like cancer, dementia and epilepsy.
• Pensions and savings reforms, including the introduction of a new UK ISA allowing an additional £5,000 annual investment in UK equities tax-free and new British Savings Bonds offering savers a guaranteed rate for 3 years, will deliver better returns for savers.

Sustainable public finances 

The ‘Budget for Long Term Growth’ delivers lower taxes and more investment in a responsible and affordable way, with steps taken to raise new revenues and the OBR confirming the Chancellor’s fiscal rules will be met. 

• Underlying debt will fall as a share of the economy to 92.9% in 2028/29 - meeting the debt rule with £8.9 billion headroom. Headline debt will fall as a percentage of GDP every year from 2024/25.
• Public sector borrowing falls in every year of the forecast. The deficit will be 2.7% of GDP in 2025-26 – meeting the second fiscal rule to get borrowing below 3% of GDP three years early - and by 2028-29 it falls to 1.2% of GDP, which is the lowest level since 2001-02.  
• Measures to tackle the tax gap will bring in an additional £4.5 billion a year by 2028/29, saving nearly £10 billion for the public purse when combined with policies announced at Autumn Statement.
• The ‘non-dom’ regime will be replaced by a simpler system where arrivals have access to a more generous scheme for their first four years of residency before paying the same as everyone else, raising £2.7 billion a year by 2028/29 without deterring investment.
• The Energy Profits Levy sunset clause will be extended from March 2028 to March 2029 to raise £1.5 billion a year, but legislation in the Finance Bill will abolish the Levy if market prices fall to their historic norm sooner than expected – maintaining investment in our energy security.
• A duty on vapes will be introduced from October 2026 to discourage non-smokers and young people from taking up vaping, alongside a one-off increase in tobacco duty to recognise the role vapes play in helping people to quit smoking. This will raise a combined £1.3 billion by 2028/29.
• The Furnished Holiday Lettings tax regime will be abolished from April 2025, raising £245 million a year while making it easier for people in Wales to find a home in their community.