Budget 2024: What are the possible changes and what do they mean for Wales?

The UK Government Budget to be set out by Jeremy Hunt on Wednesday will be one of the most politically important in recent years: it could be the last before the next UK General Election and will certainly set out dividing lines for that election whenever it comes.

For months the Chancellor of the Exchequer and other senior figures have hinted that voters can expect tax cuts; Jeremy Hunt has repeatedly said that his preference is to “lighten the tax burden” rather than increase spending.

It's widely reported that he is looking at cutting income tax or national insurance but that rising debt levels are making that difficult.

So what sort of changes might we see on Wednesday and how might those changes affect people living and working here in Wales?

Income tax cut for low or middle earners

A 1 or 2% cut to the basic, or 20% rate, of income tax or a similar cut to national insurance contributions seems almost certain.

Newspaper reports at the weekend suggested that the Treasury is still aiming for a 2p cut but may have to settle for a 1p cut or a change to national insurance instead.

A 1 percentage point cut in the basic rate from 20 to 19 per cent would mean someone earning an average salary of around £35,000 would see their annual income tax contribution go from £4,486 to £4,261.70 – a saving of around £225. A 2 percentage point cut would see this reduced to £4,037.40.

According to analysts a 2p cut to income tax for someone earning £35,000 would leave them £448 better off a year while someone earning £60,000 would have an extra £948.

In November’s Autumn Statement, Jeremy Hunt announced a cut to the employment-based tax, National Insurance beginning in January which the UK Government said would leave 1.2 million workers in Wales will be £324 better off each year.

Corporation tax cut

Corporation tax, paid by businesses who make more than £250,000 in profits, went up from 19% to 25% in 2023. The Chancellor could look to cut that this year.

He could also introduce other measures that help businesses such as cutting employer national insurance or introducing tax breaks for investing.

Unlike business rates, corporation tax is not devolved, so any change would directly affect businesses here in Wales.

Unfreezing income tax thresholds

Income tax thresholds - the amount of income you have to earn before you begin paying different rates of tax - have been frozen since the Spring Budget of 2021, when Rishi Sunak was Chancellor, to save money.

But inflation means that many more people are finding themselves in higher tax brackets with experts estimating that the effect of frozen thresholds is the equivalent of an increase in basic rate income tax of 6%.

The respected Institute for Fiscal Studies (IFS) said that last year it took the overall tax burden to the highest level since records began.

Currently, you pay 20% if you earn between £12,571 and £50,270, 40% on what you earn between £50,271 and £125,140, and 45 per cent on whatever you earn over £125,140.

Inheritance tax

Jeremy Hunt considered cutting it in the Autumn statement but decided against it. It would be popular with many Conservative voters but could leave him facing accusations of favouring the better-off.

As things stand, inheritance tax is charged at 40% on estates worth more than £325,000. However there are a number of allowances for property being passed onto children or grandchildren, allowances that can be doubled by married couples so that a £1m estate can be passed on tax-free.

In Wales there are far fewer estates of that value: 790 paid inheritance tax in 2020/21. That shouldn’t be a surprise - after all the average property value here is below £190,000.

Stamp Duty

The Chancellor is said to have been considering increasing the thresholds for paying stamp duty land tax for first time buyers. This move would only directly affect buyers in England because Wales has its own version, Land Transaction Tax (LTT) and it’s up to the Welsh Government whether or not to alter thresholds.

Here in Wales you currently don’t pay LTT if the property you’re buying is worth less than £225,000 (and you don’t own any others.)

After that you pay LTT at the following rates:

• 6% on the portion of value between £225,000 and £400,00_

• 7.5% on the portion between £400,000 and £750,00

• 10% on the portion between £750,000 and £1.5m

• 12% on the portion over £1.5m

As noted above, in relation to inheritance tax, property prices are much lower here in Wales than in parts of England.

Vape Tax

A new tax is expected on the import and manufacture of vape products to be known as a “vaping products levy.”

As well as raising £500m a year it would be part of attempts to crack down the growing use of vapes amongst children and young people.

According to reports the tax will be based on the liquid in the vapes, with higher levels for those with more nicotine.

There’s also expected to be a one-off increase in tobacco duty to keep vaping cheaper than smoking.

It was announced last year that vapes will be banned across the UK, to protect the increasing number of children using them. The Welsh Government is introducing the same ban as in the other nations of the UK. It’s also supporting the UK Government plan to increase the legal age for smoking and vaping every year until eventually both will be illegal.

Fuel Duty

Tax on fuel has been frozen since 2011 but is due to go up by 5p at the end of this month.

Successive Chancellors have decided against putting up planned increases and that seems likely again, given that Rishi Sunak's government is portraying itself as being on the side of drivers while attacking Labour as waging a "war on motorists."

Second homes

The Chancellor is said to be cutting a tax relief scheme for owners of properties that are rented out to holidaymakers. Under the Furnished Holiday Lets regime, there are tax reliefs for furnishing holiday properties and reductions in capital gains tax on properties that are available for holiday letting for at least 210 days a year.

According to the Sunday Times, scrapping these tax reliefs could bring the Treasury around £300m a year.

Second home owners here in Wales already face higher bills as part of efforts by the Welsh Government, supported by Plaid Cymru, to prevent people living in popular coastal and countryside areas.

Holiday let owners now have to pay council tax instead of business rates unless they fill the property for 182 days instead of the previous 70 days. At the same time, councils here in Wales can charge up to 300% council tax for second or empty homes. Most local authorities are imposing the council tax premium.

Have you heard our new podcast Talking Politics? Every week Tom, Robert and Anushka dig into the biggest issues dominating the political agenda…

Non-doms

The Chancellor is said to be considering scrapping the non-dom tax status that can be claimed by anyone who was born abroad or whose father was and who has lived in the UK for less than 15 years.

This has been a long-standing Labour pledge which has been criticised by the Conservatives in the past, but it’s though the Chancellor is looking at it because it could raise an estimated £3.6bn a year.

Other changes

There have been reports that Jeremy Hunt plans to launch a tax-free “British Isa” which would invest in UK company shares.

It would allow investors to buy shares in UK companies without paying tax, currently charged at 0.5%.

He could also announce plans to sell shares in NatWest bank, 38.6% of which is still owned by the UK Government after being bailed out in 2008.

Child benefit

It’s reported that the chancellor is considering raising the threshold after which claimants begin to lose their child benefit. It’s currently at £50,000. This is expected to help households who’ve seen incomes rise because of inflation.

Currently if a parent starts earning £50,000 or more they start to lose some of it, 1% for every £100 they earn over the threshold. If their income reaches £60,000 they cannot claim child benefit.

Will it convince voters?

A poll for Channel 4 found that most people would prefer investment in public services rather than tax cuts. It showed that 75% of the public wants to see taxes kept the same or increased.

It’s been reported that the Chancellor is considering spending cuts, reducing a planned real-terms rise in public spending of 1% to around 0.75%.

Mr Hunt is thought to be considering lowering his planned 1% real terms rise for public spending to around 0.75% post-2025, which could give him up to £6bn to spend on tax cuts.

The influential Institute for Fiscal Studies think-tank has called for more honesty from both Conservatives and Labour about both the level of taxes we all pay and the spending cuts that will still have to take place.

Whichever party forms the next UK Government, they will face one of the bleakest financial situations since the 1950s according to the IFS.

Under reasonable assumptions for day-to-day spending on areas that the current government has ring fenced - the NHS, schools, defence, international aid and childcare - the UK is on course for a £20 billion reduction in funding for other services, the IFS said.

The IFS says both the Conservatives and Labour should be honest about the trade-offs which will have to be made. Director Paul Johnson said, “if they are promising tax cuts, let’s hear where the spending cuts will fall.”

Want a quick and expert briefing on the biggest news stories? Listen to our latest podcasts to find out What You Need To Know…