The UK government’s 2024 budget introduces a significant £40bn tax increase, anticipated to affect economic growth.
- The Office for Budget Responsibility (OBR) forecasts limited economic expansion, with real growth peaking at 2% by 2025.
- A substantial rise in National Insurance contributions for employers is central to these fiscal measures, raising concerns among business leaders.
- Changes to Capital Gains Tax are particularly worrying for the technology sector, impacting high-risk investment essential for innovation.
- Long-term effects on investment and the business landscape remain uncertain, as the budget aims to address public finance gaps.
The UK government’s 2024 budget outlines a £40bn tax hike, anticipated to slow economic growth, as warned by the Office for Budget Responsibility (OBR). The OBR forecasts an economic expansion of just over 1% this year, peaking at 2% in 2025, but remaining below its potential growth rate thereafter. The largest fiscal measure involves a 1.2 percentage point increase in National Insurance contributions (NICs) for employers, expected to generate £25bn from April. Business leaders have expressed concern, noting the financial strain this will place on companies. Rain Newton-Smith of the Confederation of British Industry emphasised that while the Corporation Tax Roadmap provides stability, the NICs increase will make it more challenging for businesses to hire or increase wages.
The budget also sees an increase in Capital Gains Tax (CGT), with rates rising significantly. Muj Choudhury, CEO of RocketPhone, highlighted the detrimental impact of these changes on the UK’s tech and AI sectors. These industries rely on high-risk capital for early-stage growth and could face increased barriers due to the CGT reform. The government risks sending the wrong message as it strives to position the UK as a leading global hub for AI.
For small businesses, the rise in NICs poses further challenges. Todd Davison of Purbeck Personal Guarantee Insurance warned that this increase might be detrimental to many enterprises still recovering from the pandemic. Labour-intensive sectors, such as hospitality and retail, could face heightened operational costs, potentially limiting hiring or forcing closures. Despite these challenges, the budget offers some relief through the Employment Allowance increase, which alleviates the NIC burden for smaller payroll companies.
While the budget aims to address public finance issues, including funding necessary for critical sectors and compensation for historical injustices, its reception is mixed. Stephen Phipson from Make UK noted that although measures could disrupt small to medium enterprises, initiatives like the Industrial Strategy offer pathways for growth in manufacturing. Critics, however, argue the £40bn tax increase could undermine the UK’s competitiveness and stifle necessary private sector investment, risking sustained growth.
The long-term impact of the budget’s measures on investment, hiring, and overall economic stability remains uncertain. Business leaders and analysts continue to voice their concerns, highlighting the delicate balance the government must strike between fiscal responsibility and economic vitality.
The 2024 budget’s tax hikes aim to stabilise public finances but face criticism for potentially hindering economic growth and investment.
