UK government tax cuts could spark ‘modest stimulus to consumption’
The UK government delivered what might be its last budget before a general election. Will it provide any relief to marketers or agencies?
A 2% to National Insurance could, in theory, provoke more consumer spending / Unsplash
Measures contained within the UK government’s spring budget – potentially the last Conservative budget before a British general election – could provide a boost to marketers and agencies by provoking higher consumer spending.
But, according to the IPA, the impact is likely to be “modest.”
The measure leading the headlines is a 2% reduction in National Insurance (NI), which is being cut from 10% to 8% from April. NI, which is primarily used to fund the state pension, was cut from 12% to 10% in 2023. In real cash terms, it means someone earning £35,000 will save around £450.
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Chancellor of the Exchequer Jeremy Hunt told the House of Commons today (March 6) that the measure was part of “a plan to grow the economy” and emphasized the benefit to employees and freelancers.
“We have cut [NI] by one-third in six months without increasing borrowing and without cutting spending on public services. That means the average earner in the UK now has the lowest effective personal tax rate since 1975 – and one that is lower than in America, France, Germany or any G7 country,” he said.
“It means an additional £450 for the average employee or £350 for someone self-employed... changes which grow our economy by rewarding work.”
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The measure could have a mild impact on consumer spending. David Clasen, finance director of the Institute for Practitioners in Advertising (IPA), told The Drum: “In light of the cut to NI, and if other things remain equal – a big if – it’s reasonable to expect a modest stimulus to consumption, with a little trickle along into budgets and a smaller trickle down to agencies.”
Caroline Norbury, chief executive of lobbying group Creative UK, says the cut would be welcome news for freelance workers.
Freelancers make up a significant portion of the UK’s advertising workforce, but agencies, including major employers such as WPP and Publicis Groupe, have systematically cut their freelance budgets over the last 18 months. The former, perhaps the largest international ad agency employer, cut the number of freelancers it used last year by 15%.
“The cut in National Insurance is welcome for creative freelancers – particularly as we are still in the midst of the cost of living crisis,” says Norbury.
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As Clasen notes, however, any impact is likely to be slight – in part due to a government measure enacted in 2022 labeled a “stealth tax” by Labour. The 2022 autumn budget included a measure to freeze income tax and NI payment thresholds until 2028, in practice meaning that more people pay higher rates. According to the Office for Budget Responsibility, the 2023 and 2024 NI cuts don’t offset the additional taxes being paid by Britons at large as a result of that earlier measure.
Norbury said other measures aimed at boosting the UK’s creative sector, including tax reliefs equivalent to over £1bn, were welcome.
The government plans to introduce a 40% relief from business rates for film studios in England over the next decade, create a new UK independent film tax credit for films with budgets under £15m, and remove the 80% cap for visual effects costs on the audio-visual expenditure credit.
“We’re delighted to see support for independent film announced in the shape of a new UK Independent Film Tax Credit for films with budgets up to £15m,” adds Norbury. “Scrapping the 80% VFX cap will make a real difference when it comes to incentivizing UK production and the increase in the rate of tax credit by 5% is a positive step forward.”