The Adam Smith Institute Responds to the 2024 Budget

Commenting on the Budget, Maxwell Marlow, Director of Research at the Adam Smith Institute, said:

“The scale of the challenge facing Britain is enormous. GDP per capita, wages, productivity and living standards have all stagnated and our public services aren’t working. The Chancellor is right to say that the only way to get our country out of this quagmire is to go for growth.

Unfortunately, many of the measures outlined in this Budget will have the complete opposite impact to that which is intended by the Chancellor and will worsen - rather than fix - Britain’s problems. The abolition of the non-dom regime will drive away highly-mobile wealth creators, and so their tax contribution will decrease and they will invest less in our economy. The Minimum Wage rise will increase the cost of goods and services, and make it harder for businesses to employ more people, or to move people off minimum wage jobs. Anti-private sector measures, namely levying VAT on private school fees, will not improve state sector provision. Instead, the Government risks overwhelming state schools, increasing class sizes, and reducing opportunities for under-privileged children, all whilst potentially raising no money at all. And a tax on vaping liquid will increase the cost of products that smokers use to help them give up cigarettes.

We welcome the Chancellor’s decision to unfreeze Income Tax thresholds from 2028, preventing more workers being dragged into higher Income Tax bands. But the tax rises in this Budget will actively hurt working people. An increase in Employers’ National Insurance Contributions, which is a tax on jobs, will suppress wages and job creation. The hike to Capital Gains Tax too will keep productivity and wages low. 

The Government needs to outline a radical plan to boost growth and wages. This Budget is not it.”

Commenting on the Budget’s impact on the UK’s long-term competitiveness, Sam Bidwell, Director of the Next Generation Centre, said:

“The short-sighted policies outlined in this Budget will drive away investment, stall growth and continue to erode the UK’s competitive edge.

Abolishing the non-dom regime is unlikely to raise revenue in the medium to long-term, as highly-mobile wealthy individuals will simply relocate to countries with more competitive tax offerings. In fact, it will cost the UK money, as there will be fewer non-doms contributing tax revenue and investing in our economy. 

Similarly, raising capital gains tax will increase the cost of capital, deterring investment and suppressing productivity. Furthermore, evidence from other countries shows that hikes to capital gains tax actually reduces revenue.

As the UK’s global competitiveness declines, it becomes less attractive to the investors who drive growth and productivity. Ultimately, these proposals are self-defeating, and will fail to boost tax revenues or promote economic growth.”

Commenting on Budget’s Implications for the hospitality sector, Sebastian Charleton, Digital and Communications Manager at the Adam Smith Institute, said:

“The measures outlined in today’s budget represent a mixed picture for the struggling hospitality sector.

Raising both National Insurance contributions for employers and the minimum wage will be a double whammy for hospitality businesses. These decisions will keep wages low, and discourage hiring- and will be especially damaging for the hospitality industry which is already grappling with high energy and staffing costs, and arduous noise and licensing regulations.

The Chancellor has announced plans to cut draft beer duty - but this will only remove a single penny from the cost of a pint. Considering that the UK has some of the highest alcohol duties in Europe, this is simply not enough. Meanwhile, duties on other alcohol, including whisky, have been increased in this Budget.

The announcement of business rates reform will undoubtedly receive a warm welcome from the sector. This is a step in the right direction, but must be accompanied by a real plan to address the underlying causes of the hospitality sector’s difficulties.”

-ENDS-

Notes to editors:

For further comments or to arrange an interview with one of our team, contact press@adamsmith.org | 0758 477 8207

The Adam Smith Institute recently published the following research papers which relate to the measures announced in the Budget:

• The ASI’s Millionaire Tracker found that the UK is set to lose the greatest proportion of millionaires in the world by the end of Parliament. By 2028, the share of Britain’s population who are millionaires will fall from 4.55% to 3.62%- a decrease of 20%.

• ASI research on the potential economic impact of abolishing the non-dom status conservatively estimated that it could cost £6.5 billion by 2025 and 23,000 jobs by 2030.

• Further ASI research highlighted that the government’s proposals for reform as part of the expected abolition of the non-dom status could have unintended, undesirable and unfair consequences. The ASI outlined a number of proposals which would make the UK more attractive to highly-mobile wealth creators, including an annual Italian-style flat fee and a move to a sliding scale tax rate. 

• The ASI’s research previously found that levying VAT on private school fees could cost, rather than raise, money, overwhelm state schools and reduce opportunities for underprivileged children. 

• The ASI submitted to the Government’s consultation on levying VAT on private schools.

• The ASI’s recent paper on capital gains tax found that the tax is increasing the cost of capital in the UK, leading to lower productivity, investment and wages, and that evidence from other countries shows that increases to the rate of CGT actually decreases tax revenue, whilst cuts to the rate increases revenue. The report called for the phased abolition of CGT, finding that this could increase annual national income by 0.9%- the equivalent of £25 billion.

• The ASI’s has published research on the problems facing the hospitality industry- from high taxes to stifling regulation.

• The ASI has previously called for Inheritance Tax to be abolished.

The Adam Smith Institute is one of the world’s leading think tanks. It was ranked first in the world among independent think tanks and as the best domestic and international economic policy think tank in the UK by the University of Pennsylvania. Independent, non-profit and non-partisan, the Institute is at the forefront of making the case for free markets and a free society, through education, research, publishing, and media outreach.