A recent improvement in the public finance figures appears to have given Chancellor Jeremy Hunt the headroom he needs to make tax cuts at the Spring Budget.
The latest data from the Office for National Statistics (ONS) suggests the Chancellor may have £20 billion of ‘wiggle room’ for tax cuts in the Spring Budget. This news followed heavy hints from Mr Hunt that he would be aiming to cut taxes on 6 March. This has fuelled lobbying from interested parties, with consumer champion Martin Lewis one of the first to bring issues to the Chancellor’s attention.
Fall in government borrowing
The ONS data revealed that government borrowing fell to £7.8 billion in December 2023. In addition, it showed that interest payments on government debt fell to £4 billion, down by £14.1 billion when compared to December 2022.
Commenting on the data, a spokesperson for the Treasury said:
We are focused on creating a more productive public sector, not a larger one, by reducing admin workloads, introducing early interventions and safely bringing in new tech like AI. This will stop the state growing ever larger and ensure taxpayers’ money is spent on the public’s priorities.
Key campaigning points
Following an appearance on ITV’s ‘The Martin Lewis Money Show’ the Chancellor asked the host to write to him outlining his key campaigning points. Mr Lewis has now sent a letter to Mr Hunt and made its contents public.
The letter’s headline request included Lifetime ISAs and the High Income Child Benefit Charge.
Cancel the Lifetime ISA (LISA) withdrawal penalty
A LISA is available for adults under the age of 40. Individuals are able to contribute up to £4,000 per year and receive a 25% bonus (up to £1,000) on the contributions from the government, up until the age of 50. Funds, including the government bonus, can be used to buy a first home at any time from 12 months after opening the account, and can be withdrawn from age 60 completely tax-free.
Mr Lewis says that ‘LISAs haven’t kept up with the times, and many young people, especially in South-East England, are now finding themselves fined when they use the money towards their first property’.
This is because you can only use a LISA on a qualifying property, which is one worth up to £450,000. That limit has been frozen since LISAs were launched in 2017 while average house prices have risen more than 30% in that time.
Mr Lewis says:
On £20,000 saved, the 25% bonus added is £5,000, but the withdrawal penalty is £6,250, so they end up with £1,250 LESS than what they put in. The penalty was imposed to stop LISAs being used for unintended reasons – people are now being fined for using those LISAs on exactly what they were intended for.
Mr Lewis says the £450,000 limit to house prices should be index-linked (backdated to 2018) and the withdrawal penalty reduced for those buying a first-time property above the limit to 20.
Unfairly penalising single-income families
Mr Lewis says the biggest single topic the public asked him to raise with the Chancellor was High Income Child Benefit Charge. This sees Child Benefit gains start being withdrawn depending solely on one parent/guardian’s income hitting £50,000 and lost completely at £60,000.
This means a couple jointly earning over £90,000 could receive the full Child Benefit but single-parent families, single-earner families, and families where there is one dominant earner could receive nothing despite having less income.
In his letter to the Chancellor, Mr Lewis said:
While I agree, as you pointed out, that there are many structural problems in the tax system, this one is exacerbated by the fact the £50,000 (and £60,000) thresholds have been frozen since 2013 – which fiscally-drags 100,000s more families into this situation each year. I’m sure it would be a very popular measure if it were addressed in the Budget.
Price hikes and rising debt
Mr Lewis addressed a number of other issues in his letter. These included broadband and mobile phone price hikes, the falling value of student loans, rising debt levels from buy now, pay later deals and mortgage prisoners.
Mr Hunt’s response to the letter will surely be key in shaping elements of his Spring Budget.
The Chancellor will deliver the Spring Budget, alongside a forecast from the independent Office for Budget Responsibility (OBR), on 6 March.
Mercia’s tax experts will be watching and will provide detailed analysis of the day’s announcements. Keep your clients up to date with our range of digital and printed products.