What key budget terms mean - fiscal headroom, income tax thresholds and much more
Sky News runs through the various key terms you can expect to hear from Chancellor Jeremy Hunt in the budget - and what they mean.
Wednesday 6 March 2024 11:16, UK
Big financial announcements from the chancellor can be jammed with jargon - so we have produced a glossary of some key terms to help you navigate the day.
Chancellor Jeremy Hunt covers a wide array of topics in his statements - from fiscal headroom to VAT and capital gains tax - so it's easy to get lost.
With that in mind, here is a helpful list of some of the things Mr Hunt regularly talks about and what they mean.
National insurance
National insurance (NI) is a tax which pays for benefits - such as a state pension, maternity or job-seeker's allowance.
Payments kick in once you reach a certain earnings threshold.
Fiscal headroom
Fiscal headroom is the amount by which government can increase spending or cut taxes without breaking its own fiscal rules - in this case, to have national debt falling as a percentage of gross domestic product (GDP) within five years.
This government's fiscal headroom is judged to be low.
This means there is not much manoeuvrability to make sweeping tax changes or announce a bout of heavy spending.
Income tax thresholds
Income tax thresholds are the level of income at which people start paying tax - or begin paying higher rates of tax.
Fiscal drag
Fiscal drag occurs when pay goes up, but tax thresholds don't - dragging people into paying more tax.
Increasing tax thresholds to negate fiscal drag would cost the Treasury a lot in lost tax revenue, but would mean earners actually feel the benefit of a pay rise.
Tax burden
Simply put, the tax burden is a measurement of the weight of tax on a country's population.
While the UK's tax burden stands up pretty well compared with much of Europe, it has risen sharply.
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Tap here for moreVAT
Value Added Tax (VAT) is tax paid on most goods and services sold in the UK and around the world. There are three rates of VAT in the UK - standard (20%), reduced (5%), and zero-rated (0%).
You pay standard rate on basically everything - unless the government deems it necessary to reduce or eliminate the tax to encourage more spending on it, such as children's car seats to incentivise parents to buy them.
Inheritance tax
Inheritance tax is a tax on someone's "estate" when they die - i.e. a tax on any money, possessions or property left behind.
There is no tax if you leave your estate to your spouse or civil partner, or an exempt charity or group.
The tax is currently charged at 40% - but only on the part of the estate that is valued above £325,000. For example, if someone's estate is worth £400,000 when they die, then £75,000 of that estate would be taxed at 40% (£33,750 total tax).
The threshold increases to £500,000 if you pass your estate to direct descendants and carries over for couples - meaning a joint estate is taxed at a threshold of £1m once both parents or carers die.
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Corporation tax
Most businesses must pay corporation tax on trading profits, investments and on the sale of assets above their cost price.
This includes limited companies, any foreign company with a UK branch or office, and unincorporated associations like community groups or sports clubs.
A corporation tax hike from 19% to 25% was announced in 2021 (when Mr Sunak was chancellor) and was later scrapped by Liz Truss and her chancellor Kwasi Kwarteng. Ms Truss then spectacularly u-turned and reintroduced it after Mr Kwarteng was sacked.
Capital gains tax
Capital gains tax is a tax on the profit when you sell an asset that's increased in value - for example, shares and investments, or property that's not your main home.
High income child benefit threshold
The high income child benefit charge (HICBC) allows for child benefit to be clawed back when the highest earner in a family has an income above above a certain threshold.
Fuel duty
The duty is a tax on - you guessed it - fuel.
It's included in the price you pay for petrol, diesel and other fuels used in vehicles or for heating. The rate you pay depends on what type of fuel you purchase.
Stated government policy is that fuel duty should rise in line with inflation, but this has not happened since 2011.
Alcohol duty
This is the same as fuel duty except this time, it's obviously tax on alcohol.
The higher the alcohol per volume (ABV), the higher the duty rate is, although draught products see their duty cut to encourage pubs to drop prices of pints.
Recovery loan scheme
This is a key government lending programme introduced in 2022 that aims to support small and medium sized businesses.
UK businesses that have a turnover of £45m or less can apply for a loan of up to £2m through participating lenders, with the government guaranteeing 70% of the finance to the lender.