BANK HOLDS INTEREST RATES AS INFLATION AND ECONOMY SHOW IMPROVEMENT

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The Bank of England held interest rates at 5.25% despite continued falls in the rate of inflation and a return for growth for the UK economy in January.

The Bank’s Monetary Policy Committee (MPC) voted by eight to one to hold the base rate at 5.25%, the fifth month in a row that it has stayed at that level.

The Bank said that it needs to be certain that inflation will fall to its 2% target and stay there before making cuts to rates.

David Bharier, Head of Research at the BCC, said the decision to hold rates was widely expected.

He added:

‘However, it prolongs the period of uncertainty for firms grappling with high borrowing costs.

‘While [the] inflation data showed a further easing, most small businesses know that the economy remains fragile. The interest rate is itself a driver of inflation, as housing, rental, and borrowing costs continue to rise.

‘Our most recent forecast expects some cuts to the base rate going forward, potentially falling to 4.5% by the end of the year. But in the meantime, businesses need reassurance from policymakers that there is a clear plan to drive much needed economic growth.’

The Bank’s decision followed the release of data that showed the pace of inflation has slowed.

It fell to 3.4% in February, according to the Office for National Statistics (ONS).

That is down from 4% in January and December, and the lowest rate for nearly two and a half years.

The slower pace of food price rises helped push down overall inflation, along with soft drinks, restaurants and hotels, the ONS said.

This effect was partially offset by petrol prices and rental costs.

Meanwhile, the UK’s economy returned to growth in January, according to the ONS.

The economy grew by 0.2% during the first month of 2024 following a fall in output during the previous month.

The economy was boosted by stronger sales in shops and online and more construction activity in January.

The ONS said the services sector led the bounce back after retailers struggled to draw in shoppers in December.

Internet link: BoE website BCC website ONS website ONS website

RELIEF AT HMRC’S REVERSAL OF HELPLINE CLOSURES

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HMRC’s decision to halt its plans to restrict taxpayer helplines and direct people to online services instead has been met with relief by the Federation of Small Businesses (FSB).

The tax authority had announced that it was closing its self assessment helpline for six months every year. It was also restricting the opening times of its VAT helpline and the usage of its PAYE helpline.

HMRC says it is halting these plans ‘in response to the feedback while it engages with its stakeholders about how to ensure all taxpayers’ needs’.

The FSB says that more investment in digital and telephone is needed – not a reduction in service.

Tina McKenzie, Policy Chair, FSB said:

‘Small businesses will definitely be relieved that the drastic reduction in HMRC’s helpline opening hours has been paused. We are very glad that HMRC has listened to the chorus of dismay which greeted its initial announcement.

‘While online services are a key part of the communications mix for the tax authority, sometimes there’s just no substitute for a real human on the end of a phone line who can listen, engage, and help untangle issues.

‘Before phone line cuts are considered, HMRC needs to build capacity in its digital services, as if those are improved – with real people online to offer help instead of chatbots – many small firms like to interact with the tax authority this way, as it can be more flexible and available out of hours.’

Internet link: GOV.UK FSB website

JEREMY HUNT CUTS NICS AGAIN IN THE SPRING BUDGET

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The Chancellor made further changes to National Insurance contributions (NICs) following the cuts made in the Autumn Statement 2023. The rates for NICs will be cut by two percentage points for both employees and the self-employed from 6 April 2024.

This will see Class 1 employee NICs reduced from 10% to 8% from 6 April 2024, down from 12% at the end of last year. Meanwhile, Class 4 self-employed NICs are cut from 9% to 6% from 6 April 2024.

Mr Hunt made a number of other changes that will relieve the tax burden on businesses, families and motorists. He cut the higher rate of capital gains tax on residential property disposals from 28% to 24%. The lower rate will remain at 18% for any gains that fall within an individual’s basic rate band.

The threshold for VAT registration will be lifted from £85,000 to £90,000 from 1 April 2024. According to the government, this will mean 28,000 businesses will no longer be VAT registered in 2024/25.

The Budget saw the creation of a new ISA that will allow people to invest in UK-focused assets. The new UK ISA creates an allowance of £5,000. This will be in addition to the £20,000 that can be subscribed into an ISA. The government will consult on the details.

The Chancellor made his cut to NICs possible with a series of tax raising measures. These include the abolition of the Furnished Holiday Lettings regime and Multiple Dwellings Relief, alongside a new duty on vaping and an increase in tobacco duty.

The UK’s tax rules for non-UK domiciled individuals will be replaced with a residence-based regime that Mr Hunt says will raise £2.7 billion in revenue.

This new regime will commence on 6 April 2025 and applies UK-wide. Individuals who opt in to the new regime will be exempt from UK tax on foreign income and gains for their first four years of residence in the UK, while the government will make transitional arrangements for existing non-doms.

Internet link: HM Treasury press release