A bitty Spring Budget 2024 that won’t please everyone, let alone contractors? Inevitably

It does seem that chancellors’ Budgets or ‘Spring Statements’ come around far more often than they used to.

So for me this article feels a bit like ‘here I go again,’ as I strive to predict the outcome of a Budget -- another ‘fiscal event’ we’ll submit our own wishes for to HM Treasury, writes Chris Bryce, CEO of the Freelancer & Contractor Services Association (FCSA).

If you ask, you won't get...

Rather inevitably, we ALL have our own wishlist of measures we’d like to see Mr Hunt announce but, equally inevitably, we ALL won’t get everything we ask for. That’s even though many, many, of us will express those wishes with the betterment of the UK’s contractor sector in mind.

In the 2023 Autumn Statement, the chancellor delivered a few measures that brought a small measure of cheer to contractors, namely the reduction in National Insurance contributions. This reduction (to Class 4, and Class 2 axed; both from 06.04.24) was especially welcome by those who are self-employed, as opposed to running their own limited company or working through an umbrella company. For these two contractor groups, he didn’t go that far although it should be said ‘brolly’ contractors benefited more than their ‘LTD’ counterparts thanks to a Class 1 shaving by 2 pence (effective since 06.01.24).

Will Spring Budget 2024 start to see PSCs brought in from the cold?

So what might we see on March 6th 2024? Will HM Treasury’s boss go further to help workers in conventional employment, or might he start the process of bringing Personal Service Company contractors in from the cold? Relevant to such PSCs, one could argue that any impact of the off-payroll rules looks to have petered out. Yesterday, the ONS said “early estimates” for December 2023 indicate that the number of payrolled employees rose by a miniscule 1.0% compared with December 2022.

Well, Spring Budget 2024 by my own early estimate might very well come across as a bit bitty. Despite some economic progress with growth slightly ahead of what was predicted and tax receipts slightly up, Mr Hunt has only a little room for manoeuvre.

Yes, it’s an election year and his Conservative party is well behind in the polls (a hefty 120-seat majority is tipped for Labour leader Keir Starmer if we all voted tomorrow, meaning his party would win twice as many Commons seats as the Conservatives).

Little wiggle room = bitty Budget

But can the chancellor really afford a ‘giveaway’ Budget,’ offering tax treats if not cuts, to attract voters? Much as he might like to do this, I’m not sure he has enough wiggle room.

Having said that, this is a Tory pre-election Budget and Mr Hunt will be aware that both Ken Clarke and Nigel Lawson, during their chancellorships, tried to sweeten the electoral pot with income tax cuts.

The current chancellor may therefore choose the same headline-grabbing path with a cut in basic rate from 20% to 19%, which would put more money in voters’ pockets -- but with a concomitant drop in tax relief on pension contributions.

There’s a remote possibility that we might even see further measures on NICs, perhaps even a cut in the Employer’s rate. It’s hard not to support such a cut, as it would surely help stimulate economic growth.

IHT reform on March 6th? It's a stronger possibility

But there’s a much stronger possibility at Spring Budget 2024 that the chancellor will have a pop at Inheritance Tax. Although most people aren’t actually affected by IHT, it’s another newspaper headline-winner, which will make voters feel good. Fuel duty and taxes on alcohol may see the same treatment -- for the same reason.

What would be even more welcome but currently looks pretty unlikely is the lifting of the freeze on tax thresholds. This freeze was first announced by chancellor Rishi Sunak in March 2021 but it got extended in 2022 from April 2026 to April 2028.

The ‘additional rate’ tax threshold was also dropped from £150,000 to £125,000. A significant raising of the higher rate tax thresholds on March 6th would positively affect hundreds of thousands of middle-income voters, such as nurses and teachers, who have been dragged into the upper tax rates by stealth over the past few years. This would therefore be a popular step with them, if not the opposition.

The extortionate, effective, esoteric, 60% tax rate

One measure I’m sure many ContractorUK readers would like Mr Hunt to announce, is to sort out the real mess between earnings of £100,000 and earnings of £125,000. The loss of the personal allowance here puts affected individuals on an effective, extortionate tax rate of 60%! It makes sense to fix this, but it’s pretty esoteric for most voters, so it’s probably not near top of the chancellor’s agenda.

The government, albeit not this one, have had a go here before, The short-serving prime minister Liz Truss, and her chancellor Kwasi Kwarteng, tried to do away with the 45% additional rate above £125,000. With enough time elapsed from their misfires, Mr Hunt might have another try. But the messaging will be important here. If he doesn’t pay attention to how such a move might be ‘sold,’ the howls of a Tory chancellor ‘making the rich richer’ are guaranteed. And that criticism, alone, might be enough to deter him from intervening.

IR35 and umbrella company regulation

But what measures might we see at Spring Budget 2024 concerning the vitally important contractor sector? Well, I think it’s entirely unlikely we’ll see any substantial reform of the off-payroll working rules or IR35. We’ve seen calls for reform and also calls for outright repeal of the April 6th 2017/2021 frameworks. But with Mr Hunt actually going on TV to take back what Truss and Kwarteng tried (but failed), perhaps because they didn’t get onboard a certain government department which clearly wants OPW to stay, I think it’s only a slim possibility that Budget 2024 will even address IR35.

Unfortunately, I’m also pessimistic about Wednesday March 6th being used as a vehicle to introduce much-needed regulation of the UK’s contractor umbrella market. Despite many years lobbying for regulation and many responses to various government consultations, I think we’re still some way from seeing regulation. And, although tax is in part a driver for regulation of the sector, employment matters are also key, so I think simple fiscal measures wouldn’t, on their own, be enough. It’s a shame this is the case, and I say this having contributed to the umbrella company regulation consultation, a bit like we’re going to contribute to the Spring Budget 2024’s official call for submissions, too.

Whatever happens on March 6th, there is regretfully only one thing I can absolutely guarantee: not everyone will be happy.