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In what is likely to be his last Budget before a general election later this year, Chancellor Jeremy Hunt revealed the Treasury's plans to boost the UK economy, featuring another cut to National Insurance and the creation of a UK ISA to encourage domestic investment.

In the House of Commons yesterday afternoon (6 March), the Chancellor delivered his Spring Budget, and his audience were notably rowdier and more raucous than in recent times. It comes as no surprise: it is election year, and Labour and the Conservatives are vying to tell two very different stories about the state of the UK economy. 

Economic outlook

The Chancellor began his statement by unveiling the latest UK economic predictions from the Office for Budget Responsibility (OBR), including updating the quarterly inflation forecast to meet the Government’s 2% target in the second quarter of this year, a year earlier than previously expected. 

The UK Consumer Prices Index (CPI) came in at 4% in January, having peaked at a high of 11.1% in October 2022. 

At the time of the Autumn Statement in November 2023, the predicted headline measure of price rises was forecast to fall to 2.8% by the final three months of 2024. Inflation is now expected to average 2.2% over 2024, then slow to 1.5% in 2025 before rising to the target rate of 2% in 2028.

CPI was 4.2% in the final quarter of 2023, 0.6% lower than was forecast in November, and the OBR expects this to come down further partly due to anticipated falls in global energy prices and domestically driven inflation. 

Turning to the outlook for UK output, the Chancellor said: “We have turned the corner on inflation, we will soon turn the corner on growth”. 

With the UK economy currently in technical recession, the OBR now predicts growth for this year at 0.8%. Growth is forecast to rise to 1.9% next year, with 2% in 2026, 1.8% in 2027, and 1.7% in 2028.  

In its statement, the OBR acknowledges that the UK’s fiscal position remains very challenging due to high debt, subdued economic growth, and the highest interest rates for over a decade. 

However, public sector borrowing is expected to be £10.1bn lower this year and around £10bn lower in each of the next two years. In its central forecast, the OBR forecasts that borrowing as a share of GDP is expected to fall steadily from 4.2% this year to 1.2% of GDP in 2028-29.

Tax, saving, and investing

The Chancellor also cut taxes and introduced measures encouraging people to invest.

The main rate of employee National Insurance will be cut from 10% to 8%, effective 6th April 2024. 

The Government will also cut 2p from the main rate of self-employed National Insurance, taking the main rate of Class 4 NICs to 6%. 

Here's what you could save based on your annual income for the tax year 2024/25. 

Table explaining the impact of the National Insurance cut on different earnings brackets

Source: Metro

The Government also announced proposals for a new UK ISA, which it hopes to launch following consultation with the industry. 

It’s designed to allow individuals to invest up to £5,000 a year in UK equities, in addition to their £20,000 annual ISA allowance. 

From Nutmeg's perspective as an advocate for globally diversified portfolios, the initial outline for a UK ISA requires some close consideration, and we look forward to consulting with the Government on its proposals.

Remember, several changes to Individual Savings Accounts were announced in last year's Autumn Statement, and they come into effect soon.

From the 6th of April 2024, savers and investors will be able to open more than one of each type of ISA in any tax year, those being cash, stocks and shares, and Innovative Finance ISAs. 

The Government also announced a relaxation of rules to allow partial transfers of ISA funds in-year between providers, also from April 2024. This grants savers and investors greater flexibility to move between products in any given tax year.

In the 2024/25 tax year, the annual allowances will stay the same for ISAs (£20,000), Junior ISAs (£9,000), Lifetime ISAs (£4,000) and Child Trust Funds (£9,000). These reset on the 6th of April, and can't be carried over, so leave yourself plenty of time to make any final contributions before the 5th of April deadline.

If you'd like to speak with someone about the changes announced in the Budget or the upcoming ISA changes, we're here to help. Click here to book a free call with a friendly member of our wealth services team. 

Source: HM Treasury

Risk warning 

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Tax treatment depends on your individual circumstances and may change. If you are unsure if an ISA is the right choice for you, please seek financial advice.