Budget 2024 and Finance (No. 2) Act 2024

Budget 2024

On 6 March 2024 Chancellor Jeremy Hunt presented the Budget to the House, alongside the Office for Budget Responsibility’s (OBR) Economic and Fiscal Outlook.

In his statement to the House the Chancellor announced a series of tax measures, some of which will be included in the Finance (No. 2) Bill 2023-24. In its overview of tax legislation and rates, HM Revenue and Customs (HMRC) has listed which measures announced at the Budget are included in the upcoming Finance Bill (in Chapter 1), and which are not (in Chapter 2).

Key publications

The Budget and associated documents are published on the Government website. Of particular importance are:

• The Budget ‘Red Book’ (PDF)
• HM Treasury’s policy costings document (PDF)
• The Treasury’s impact on households document (PDF)
• HMRC’s tax information and impact notes, which describe in detail each of the tax measures which will be included in the upcoming Finance Bill
• HMRC’s list of tax rates and allowances for 2023/24 and 2024/25

Library publications

The Library has published a number of briefings on the Budget, including a summary of what was announced by the Chancellor. They are all contained in the Spring Budget 2024 webpage.

Library briefing material on the Finance Bill

It is long-standing practice for there not to be a single impact assessment on the Finance Bill (see PQ 6549, 6 September 2017). Similarly, given the scale and scope of the Finance Bill, the Library does not publish a single briefing on the Bill. Relevant material will be added to this page when it is available.

A cut in the rate of National Insurance contributions (NICs)

In his statement the Chancellor announced a cut in the main rate of National Insurance contributions (NICs) paid by employees (known as ‘primary Class 1 NICs’) and the main rate paid by the self-employed (‘Class 4 NICs’). The Government has announced the Class 1 rate would decrease from 10% to 8%, and the Class 4 rate from 8% to 6%.

This follows a reform introduced at Autumn Statement 2023 (PDF), when the Government announced a cut in Primary Class 1 NICs from 12% to 10% (effective 6 January 2024), and cut in Class 4 NICs from 9% to 8% (effective 6 April 2024).

Since this measure affects NICs, separate legislation had to be introduced to give effect to these changes. The National Insurance Contributions (Reduction in Rates) (No. 2) Bill 2023-24 was introduced on 7 March 2024. It undertook all its stages on 13 March 2024. After receiving Royal Assent on 20 March, it became the National Insurance (Reduction in Rates) (No. 2) Act 2024.

The Library research briefing on the Bill has more information on this.

The Budget debate

Following the Budget speech, the Commons passed (unconventionally, on division) a resolution under the Provisional Collection of Taxes Act 1968, allowing certain tax changes to take place immediately.

Following the Chancellor’s speech, the Government introduced 25 ways and means resolutions (PDF), which cover the measures to be included in the Finance Bill. This is a procedural step needed before the Government can publish a Finance Bill. Formally, the debate takes place on the first of those resolutions (in this case, the resolution imposing the charge of income tax for 2024/25), although the debate always encompasses the wider Budget and the UK’s economic and fiscal context. It also usually includes discussions of matters that were included in the Budget speech but are not to be included in the upcoming Finance Bill.

Party views on Budget day

The reaction from MPs following the Budget broadly fell along party lines, with Conservative MPs more likely to support measures announced by the Chancellor than opposition MPs.

Speaking for the Labour Party, Keir Starmer focussed his speech on the overarching economic situation in the UK:

[…] Britain in recession, the national credit card maxed out and, despite the measures today, the highest tax burden for 70 years.

Sir Keir continued his speech by focussing on issues such as the high tax burden, in part fuelled by the continued freeze in personal tax allowances, the rising cost of living, and the UK’s low productivity.

The Leader of the Opposition welcomed some measures announced by the Chancellor, such as the decrease in the rates of NICs, and the freeze in fuel duty. He also welcomed the Government’s decision to reform the tax regime for non-domiciles, although he added that if the Government had “sincerely” been in support of the policy, it could have acted sooner. The Labour Party had been calling for the non-domiciled tax status to be reformed since 2022.

The Labour leader concluded by asking the Government to call a General Election on 2 May.

Speaking for the Scottish National Party, Drew Hendry similarly welcomed the freeze to fuel duty rates, and also welcomed the changes the Chancellor announced to the taxation of child benefit. He similarly commented on the issue of fiscal drag, saying that economists had argued the gains from the NICs rate reduction would be “cancelled out” by tax thresholds remaining frozen. He also criticised the Budget for not increasing funding for public services.

The SNP spokesperson also added that the freeze in alcohol duty rates was “not enough”, and that a full rate duty cut would be needed to support the Scotch Whisky industry.

He then mentioned issues that the Budget could have tackled, such as the creation of a wealth tax, capping food prices in supermarkets, reducing the rate of VAT on hospitality, or reinstating VAT-free shopping for international visitors.

The leader of the Liberal Democrats, Ed Davey, echoed some of the arguments made by other opposition parties, particularly in relation to the UK’s economic outlook, the level of public investment, and the impact of the freeze on tax allowances.

Finance (No. 2) Bill 2023-24 Debate on the resolutions

The Commons debated the Budget resolutions immediately following the Chancellor’s speech, and on the following three sitting days (7, 11, and 12 March).

At the end of the debate on 12 March 2024, the ways and means resolutions were put to a vote. All the resolutions were agreed to by the House, with the following two, on division:

• The charge of income tax for 2024/25 (318 ayes to 43 noes)
• The reduction of the rate of capital gains tax for residential property from 28% to 24% (317 ayes to 46 noes)

The passage of the ways and means resolutions allowed for the Finance (No. 2) Bill 2023-24 to be introduced and receive its first reading.

Second reading

The Bill received its second reading on Wednesday 17 April 2024. The Financial Secretary to the Treasury, Nigel Huddleston, introduced the Bill and spoke of the key measures it contained to support people in the UK, including:

• The changes to the High Income Child Benefit Charge
• The increased support for the creative industries
• The cut in Capital Gains Tax on residential property from 28% to 24%
• The abolition of the Stamp Duty Land Tax Multiple Dwellings Relief

Speaking for the Opposition, James Murray (Labour) argued that a key policy that was announced in the Budget (the abolition of the non-domiciled status) had represented a “U-turn” by the Government, since the abolition of the regime had already been called by Labour. This reform will take effect from 6 April 2025 and is not included in the current Finance Bill.

He also asked the Government how it would fund what he termed a “£46 billion unfunded commitment” when the Chancellor, at the Budget, announced that it was the Government’s aspiration to abolish National Insurance Contributions altogether. The Financial Secretary responded that the Government only laid out an aspiration, rather than a clear policy commitment. The Shadow Financial Secretary added that the tax burden was still increasing regardless of the headline tax cuts, because of the freeze to tax thresholds and allowances.

Mr Murray said that Labour would not oppose the Bill at second reading.

The SNP’s Drew Hendry moved a reasoned amendment to decline the Bill’s second reading, detailing several reasons, including the fact that:

• The Government had not taken action to reduce VAT on the hospitality sectors
• The Government had not re-introduced tax-free shopping for international visitors
• The Budget had proposed an extension of the Energy Profits Levy, which threatened jobs in Scotland and “the UK’s ability to reach net zero”

The SNP’s spokesperson argued that the Bill’s provisions would not be enough to support constituents. He added that the Government had not done enough to support people with increasing food prices, and added that the issue of fuel poverty had not been addressed by the Bill.

Speaking for the Liberal Democrats, Sarah Olney also argued that fiscal drag, caused by the freeze in tax allowances and thresholds, would mean “someone on average earnings will still be £383 worse off”. She added that the Liberal Democrats called on the Government to “deliver serious investment for our NHS”, and said that the Bill had failed to introduce a windfall tax on the profits of oil and gas producers, which could have been used to support vulnerable people. She concluded by saying the Liberal Democrats could not “support a piece of legislation that fails to promise the solutions we need to get our economy moving.”

Mr Hendry’s amendment was negatived on division (42 ayes to 296 noes). The Bill’s second reading was agreed to on division (296 ayes to 49 noes).

Committee of the Whole House schedule

Following second reading, the Commons agreed to a programme motion committing the following to a Committee of the Whole House.

The table below outlines the clauses selected for this debate, and the relevant Library research briefings on the topics:

Clauses

Topic

Library Research Briefing

1 to 4 (PDF)

Income tax charge and rates etc.

Direct taxes rates and allowances for 2024/25

Fiscal drag: An explainer

12 and 13 (PDF)

Corporation tax charge and rates etc

Corporate tax reform

19 (PDF)

Energy security investment mechanism

Taxation of North Sea oil and gas

HMRC has published a tax information and impact note on the introduction of the Energy Security Investment Mechanism.

Committee of the Whole House debate

The Committee of the Whole house stage took place on Wednesday 8 May 2024.

Seven amendments (all of them new clauses) were tabled by opposition parties at this stage. Each amendment would have required the Government to analyse and report on the impact of certain measures of the Bill. For example, New Clause 1 (tabled by James Murray, Shadow Financial Secretary) would have required the Government to publish an impact of clause 2 of the Bill: specifically, an analysis of the number of individual taxpayers paying tax at the basic or higher rate in 2024/25, as opposed to previous tax years and future projections.

Several contributions during the debate referenced the current freeze to income tax and NICs allowances as contributing to a particularly high tax burden. This argument was particularly put forward by the Labour spokesperson (James Murray). Mr Murray also argued that the tax burden was particularly impacting pensioners, as the NICs headline cuts announced in previous fiscal statements would not benefit them.

Responding, Financial Secretary Nigel Huddleston said that the freeze of tax allowances was required to pay back the money that was needed to fund the Government’s response to the Covid-19 pandemic, adding that “tax levels have had to be higher out of necessity” in other countries as well. He also added that the Government’s commitment to the pensions triple lock ensured an increase to the state pension of 8.5% in April 2024 – an increase equivalent to the average amount a worker would not pay in tax due to the NICs cuts.

In his speech, Drew Hendry also said that the Budget had fallen short of the needs of communities, specifically in reference to the pressures on the cost of living.

In reference to Corporation Tax and the Energy Investment Security Mechanism, James Murray stressed the importance of stability and talked about Labour’s commitment to maintain the highest rate of Corporation Tax at 25% over the next Parliament, should Labour form the next Government. Mr Murray also expressed support for the EISM. On the other hand, Drew Hendry expressed concern, arguing that the Budget had failed to support sectors in need, such as hospitality. He added that the EISM “will jeopardise up to 100,000 jobs and hinder our environmental goals.”

Speaking for the Liberal Democrats, Sarah Olney said that the Budget could have included other measures to support businesses, such as reforming business rates, or providing further support on energy bills. Responding, the Exchequer Secretary to the Treasury, Gareth Davies, referenced measures the Government had introduced to support businesses, such as the increase in the VAT registration threshold, or the 75% business rate relief for retail, hospitality, and leisure businesses.

Although all the tabled new clauses were discussed in the debate, only the ones tabled by Labour were selected for a vote. Each of Labour’s four new clauses were negatived on division.

All the other clauses of the Bill were debated in Public Bill Committee on 21 May.

Public Bill Committee debate

The remainder of the Bill was debated clause-by-clause in Public Bill Committee in a single sitting on 21 May 2024.

There were no divisions on any of the clauses of the Bill. The only amendment tabled at this stage (a new clause asking for a review of public health, inequality and poverty effects of the Bill) was not pressed to a division.

The Bill was therefore agreed to be reported back to the House, unamended.

Remaining stages

The report stage and third reading of the Bill took place on Thursday 23 May. The timing of these stages was announced to the Commons on Wednesday 22 May. The quick turnaround between the announcement and the Bill’s remaining stages was due to the Prime Minister’s announcement that a General Election would take place on 4 July.

As there were no amendments tabled for the remaining stages, the House proceeded with the third reading of the Bill. After a short debate, the Bill was passed on division (215 ayes to 19 noes), completing its Commons stages.

The Bill then undertook all its Lords stages on 24 May. It received Royal Assent on the same day, becoming the Finance (No. 2) Act 2024.

Treasury Committee sessions

The Treasury Select Committee held three oral evidence sessions on the Budget:

• A session in the morning of 12 March 2024 with Richard Hughes (Chair of the Office for Budget Responsibility), Tom Josephs (Member of the Budget Responsibility Committee), and Professor David Miles (Member of the Budget Responsibility Committee)
• A session in the afternoon of 12 March 2024 with Yael Selfin (Vice Chair and Chief Economist of KPMG UK), Torsten Bell (Chief Executive of the Resolution Foundation), Paul Johnson (Director of the Institute for Fiscal Studies), and Professor Arun Advani (Professor of economics at the University of Warwick)
• A session in the afternoon of 13 March 2024, with the Chancellor of the Exchequer and William Macfarlane (Director of Strategy, Planning and Budget at the Treasury)