Key highlights of the spring Budget for business

The government said it recognised that SMEs are key to the UK economy. Measures were announced with the aim of supporting SME leaders to gain important skills, take opportunities to increase productivity and grow their businesses.
 

These measures included:

• National Insurance cut by 2p for the self-employed. This is on top of the 1p cut announced in the autumn Statement. This means that from April 2024 the main rate of class 4 National Insurance contributions (NICs) will go from 9% to 6%. This, with the removal of the need to pay Class 2 NICs, means the average self-employed person earning £28,000 will save £650 a year.
• VAT registration threshold increased from £85,000 to £90,000. This will take effect from 1 April 2024. It's expected that, across the next year, over 28,000 businesses will benefit from not being VAT registered.
• Recovery Loan Scheme extended to support SMEs. The scheme helps SMEs to get the money they need. It's also being renamed as the 'Growth Guarantee Scheme'.
• Updated HMRC guidance to be published. This will give guidance on training costs that might be tax deductible for sole traders and the self-employed. It will also give certainty to those wanting to boost their productivity.

What is the spring Budget?

In each financial year, the UK government provides 2 updates on the UK's finances - the autumn Statement and spring Budget. Both updates are delivered by the Chancellor of the Exchequer to Members of Parliament (MPs) in the House of Commons.

The spring Budget gives an update on the overall health of the UK economy and any progress made since the autumn Statement. It also confirms the government’s plans for the economy, including any changes to taxation and spending. This can also be referred to as 'fiscal policy'.

On the same day, the independent Office for Budget Responsibility (OBR) publishes its own report on the nation’s finances and the state of the economy. It also looks at the impact of any changes in the government’s spending and taxation plans. The Chancellor responds to the OBRs report as part of his statement.

Taxation – government receipts and spending

Money is spent on a wide range of areas, including day-to-day spending and the cost of running government departments.  Typically, most of the government’s spending goes on health, education and welfare. This is either directly through government departments, such as the Department of Health and Social Care, or public bodies, such as NHS England. 

To pay for this the government can borrow or raise money through taxation, which are called ‘government receipts’. In the current financial year, around 60% of tax revenue came from income tax, National Insurance contributions and VAT. While the UK has a high tax burden by historical standards, it’s as high compared to other advanced economies.

What are deficits, surpluses and debt?

The money the public sector makes must equal the money it spends for the government’s budget to balance. When spending is higher than the money it’s getting, the government has to borrow money to cover the gap.  This gap is known as the ‘budget deficit’ or public sector net borrowing (PSNB). The only way for the government to reduce the gap is to cut spending, increase taxes, or use a combination of both.  If the government spends less than it receives, it would be running a ‘budget surplus’. This has only been achieved on 11 occasions since 1948.  As governments run deficits more often than surpluses, debt is built up over time.  The most widely quoted measure of debt in the UK is ‘public sector net debt’. This is often referred to by commentators as ‘the national debt’.

What are the current fiscal rules that the government needs to meet?

The government determines a set of fiscal rules that are designed to keep control of the nation’s finances in the medium-term. 

The current fiscal rules are:

1. Government debt is the amount of past government borrowing. This should be falling as a share of Gross Domestic Product (GDP) within 5 years of the Budget.
2. Public sector borrowing happens when earnings aren’t enough to balance out spending. This shouldn’t exceed 3% of GDP in 5 years’ time.
3. Welfare spending must remain below a predefined cap.

The OBR looks at the impact that any announced fiscal policy changes would have on the nation's finances. It also looks at whether the government will meet the fiscal rules shown above.