Podcast Summary
Budget 2023: Steady Approach with Tax Cuts and Changes for Investors and Parents: The 2023 budget featured tax cuts, child benefit changes, and plans to encourage retail investors in the UK. The chancellor aimed for a steady approach, delivering modest tax cuts, while experts warned of potential tax rises post-election. The budget focused on benefiting investors, parents, and people of working age, with reforms to NUNDOMS and ISA system.
The latest budget edition featured tax cuts, child benefit changes, and plans to encourage retail investors in the UK. The chancellor, Jeremy Hunt, aimed for a steady approach after the chaos of previous years, delivering modest tax cuts that were largely unsurprising, as seen in historical pre-election budgets. Experts noted that post-election budgets often bring tax rises, leaving potential challenges for future chancellors. The tax cuts included a national insurance cut and changes to NUNDOMS, with the focus on benefiting investors, parents, and people of working age. The budget also addressed the unfairness in the treatment of child benefit and plans to reform the ISA system to encourage more investment in UK assets. Overall, the budget was described as cautious and unsurprising, with a potential stalemate for both the chancellor and the shadow chancellor regarding future tax policies.
National Insurance tax cut mainly benefits higher earners: While the recent tax cut primarily benefits higher earners, the budget had some positive changes for working parents and potential future pension savings, but challenges remain in funding and addressing employer implications.
The recent National Insurance tax cut will primarily benefit those earning above £50,000 a year, while the bottom 40% of earners may not see any improvement or may even be worse off due to the freeze on personal tax thresholds. The budget also had some positive changes for working parents, but pensioners, particularly those not in paid work, did not benefit from the National Insurance cut. The chancellor's desire to scrap National Insurance completely in the future could lead to significant tax savings and growth, but finding the necessary funding and addressing the impact on Employers National Insurance would be major challenges.
Budget did not address larger part of National Insurance: The Chancellor's budget did not merge National Insurance and income tax, making it unlikely to abolish National Insurance entirely due to financial constraints. Labour may target the wealthy for revenue-raising measures instead.
The Chancellor's budget did not address the larger part of National Insurance that brings in more revenue than Employee National Insurance. This means the abolition of National Insurance, including Employee National Insurance, is unlikely due to financial constraints. The public may not fully understand that National Insurance is essentially another form of income tax, and merging the two taxes could make the system more transparent. However, the Chancellor's budget also included raids on Labour's revenue-raising plans, giving Shadow Chancellor Rachel Reeves a challenge to find alternative sources of funding for public services. This could potentially make it easier for Labour to target the wealthy with their revenue-raising measures.
Labour Shifts Focus to Tax Increases: Labour plans to focus on tax increases, particularly in pensions and private equity, to fund public spending and growth. National Insurance may also be increased. The Chancellor proposes a new UK ISA for investing in UK equities.
The upcoming Labour Party manifesto is expected to focus on tax increases rather than cuts, particularly in areas like pensions and private equity. This shift comes after Labour accepted the Conservative Party's tax cuts in recent budgets and acknowledges the need for revenue to boost public spending and economic growth. The party may also consider increasing National Insurance to fund investments in government departments or public services. The Chancellor, meanwhile, has proposed a new UK ISA with a £5,000 tax-free allowance for investing in UK equities, but the definition of a UK equity remains unclear. Overall, both parties seem to be aligning on the importance of investing in the UK economy.
Boosting UK Investment with an ISA: Valid Arguments on Both Sides: Despite arguments for UK ISA to support domestic equities, lack of compelling growth stocks and unclear incentives hinder its appeal, causing investors to favor US equities.
The idea of creating a UK-focused Individual Savings Account (ISA) to boost investment in the UK economy is a complex issue with valid arguments on both sides. While some believe that taxpayer subsidies should be focused on UK equities, others argue that there isn't enough new growth in the UK economy to make it an attractive investment destination. The lack of compelling UK growth stocks is a significant barrier, leading investors to favor US equities instead. The proposed UK ISA might not make a significant difference, as there may not be a large number of investors eager to invest more in the UK economy. The government's plan to sell a portion of its stake in NatWest this summer could provide an opportunity for retail investors to buy shares, but it remains unclear how a discount would be offered without devaluing existing shares. Overall, the UK economy's attractiveness to investors depends on addressing the underlying supply-side issues and fostering new growth.
UK Budget Measures: Boosting London's Financial Center, Young Savers Disappointed, and Child Benefit Changes: The UK budget included measures to strengthen London's financial center, but young savers were disappointed with no Lifetime ISA changes. The chancellor unexpectedly allowed some families to claim child benefit, but only one parent can apply.
The UK government's recent budget measures, including the proposed changes to NatWest shares and the UK ISA, aim to boost London's financial center reputation but may not have a significant impact. Additionally, young savers were disappointed with the lack of changes to the Lifetime ISA, particularly the frozen property price cap and withdrawal penalties. A surprising development was the chancellor's decision to allow around half a million mid to high earning families to claim child benefit, which was the only tax threshold he decided to thaw. For those considering applying for child benefit, only one parent can apply, and more information can be found from HMRC. Overall, the absence of a clear housing policy and lack of offers for first-time buyers remains a significant political problem for the Conservative party.
Proposed changes to child benefit and funded childcare hours: Politically and administratively challenging proposed changes to child benefit could simplify complex system, but implementation may be delayed or abandoned. Recent childcare reforms criticized for not helping low-income families enough, impact on middle and lower income families a key concern.
The current system of child benefit and its interaction with tax rules can be complex and potentially disadvantageous for some families. The proposed changes to base child benefit on joint family income, while politically and administratively challenging, could help address this issue. However, the implementation of these changes may be delayed or even abandoned due to administrative and political complexities. Meanwhile, recent reforms to funded childcare hours have been criticized for not benefiting low-income families enough. Overall, the impact of these changes on families, particularly those on middle and lower incomes, will be a key area to watch in the coming year.
High-quality early years education and childcare benefits: The government's proposed child benefit rate increase could benefit up to a million families, providing significant financial relief with an estimated yearly benefit of over £2,200 for families with two children. However, concerns exist about insufficient childcare facilities in certain areas.
The ongoing debate around childcare policy focuses on the importance of high-quality early years education rather than just childcare to enable mothers to work. The government's proposed package aims to increase child benefit rates significantly, which could benefit up to a million families, with an estimated yearly benefit of over £2,200 for families with two children. However, there are concerns about geographical pockets where sufficient childcare facilities are lacking. For those who may potentially benefit from this change, it's worth the effort to claim the increased child benefit starting April 6th. The Money Clinic podcast, featuring Carl, Miranda, and Rafe, discussed these budget insights and more. Remember, the podcast is a general discussion and not financial advice. For individual advice, consult an independent financial advisor. Additionally, the Capital Ideas podcast now has a new monthly edition featuring investment professionals' experiences and insights. Lastly, United Healthcare offers short-term health insurance plans for those between jobs, coming off parents' plans, or starting a full-time gig, providing flexible and budget-friendly coverage with a nationwide network.
