It wasn’t that much of a surprise but was still hugely shocking given the extent of the figures involved and how much it will affect working families through out the country. British Chancellor of The Exchequer Rachel Reeves has delivered Labour’s first budget since 2010 in which she laid out an array of tax rises which were meant to repair a so-called black whole in the country’s finances. There had been many rumours during the general election campaign which Labour had always denied, however these were all proven to be correct once the chancellor had delivered her budget.
In front of a packed House of Commons, Ms Reeves stood up and delivered her list of measures which were intended to help the country recover from the financial situation they said they had inherited from the last government. Overall, she announced £40bn wort of tax rises which are aimed at helping to fund the NHS and other public services. The main measures in the budget include:
Personal taxes
Rates of income tax and National Insurance (NI) paid by employees, and of VAT, to remain unchanged
Income tax band thresholds to rise in line with inflation after 2028, preventing more people being dragged into higher bands as wages rise
Basic rate capital gains tax on profits from selling shares to increase from from 10% to 18%, with the higher rate rising from 20% to 24%
Rates on profits from selling additional property unchanged
Inheritance tax threshold freeze extended by further two years to 2030, with unspent pension pots also subject to the tax from 2027
Exemptions when inheriting farmland to be made less generous from 2026
Business taxes
Companies to pay NI at 15% on salaries above £5,000 from April, up from 13.8% on salaries above £9,100, raising an additional £25bn a year
Employment allowance – which allows smaller companies to reduce their NI liability – to increase from £5,000 to £10,500
Tax paid by private equity managers on share of profits from successful deals to rise from up to 28% to up to 32% from April
Main rate of corporation tax, paid by businesses on taxable profits over £250,000, to stay at 25% until next election
Wages, benefits and pensions
Legal minimum wage for over-21s to rise from £11.44 to £12.21 per hour from April
Rate for 18 to 20-year-olds to go up from £8.60 to £10, as part of a long-term plan to move towards a “single adult rate”
Basic and new state pension payments to go up by 4.1% next year due to the “triple lock”, more than working age benefits
Eligibility widened for the allowance paid to full-time carers, by increasing the maximum earnings threshold from £151 to £195 a week
Transport
5p cut in fuel duty on petrol and diesel brought in by the Conservatives, due to end in April 2025, kept for another year
£2 cap on single bus fares in England to rise to £3 from January, outside London and Greater Manchester
Commitment to fund tunnelling work to take HS2 high-speed rail line to Euston station in central London
Government says it will “secure the delivery” of TransPennine rail upgrade between York and Manchester, after reports ministers were looking to cut costs
Air Passenger Duty to go up in 2026, by £2 for short-haul economy flights and £12 for long-haul ones, with rates for private jets to go up by 50%
Extra £500m next year to repair potholes in England
Vehicle Excise Duty paid by owners of all but the most efficient new petrol cars to double in their first year, to encourage shift to electric vehicles
Drinking and Smoking
New flat-rate tax of £2.20 per 10ml of vaping liquid introduced from October 2026, as ministers shelve Tory plans to link the levy to nicotine content
Tax on tobacco to increase by 2% above inflation, and 10% above inflation for hand-rolling tobacco
Tax on non-draught alcoholic drinks to increase by the higher RPI measure of inflation, but tax on draught drinks cut by 1.7%
Government to review thresholds for sugar tax on soft drinks, and consider extending it to “milk-based” beverages
Government spending and public services
Day-to-day spending on NHS and education in England to rise by 4.7% in real terms this year, before smaller rises next year
Defence spending to rise by £2.9bn next year
Home Office budget to shrink by 3.1% this year and 3.3% next year in real terms, due to assumed savings from asylum system
£1.3bn extra funding next year for local councils, which will also keep all cash from Right to Buy sales from next month
Social housing providers to be allowed to increase rents above inflation under multi-year settlement
Discounts for social housing tenants buying their property under the Right to Buy scheme to be reduced
Stamp duty surcharge, paid on second home purchases in England and Northern Ireland, to go up from 3% to 5%
Point at which house buyers start paying stamp duty on a main home to drop from £250,000 to £125,000 in April, reversing a previous tax cut
Threshold at which first-time buyers pay the tax will also drop back, from £425,000 to £300,000
Current affordable homes budget, which runs until 2026, boosted by £500m
UK Growth
Office for Budget Responsibility (OBR) predicts the UK economy will grow by 1.1% this year, 2% next year, and 1.8% in 2026
Inflation predicted to average 2.5% this year, 2.6% next year, before falling to 2.3% in 2026
Official definition of UK government debt loosened by including a wider range of financial assets, such as future student loan repayments
Budget policies will increase UK borrowing by £19.6bn this year and by an average of £32.3bn over the next five years, according to the OBR
Other Measures
£11.8bn allocated to compensate victims of the infected blood scandal, with £1.8bn set aside for wrongly prosecuted Post Office sub-postmasters
Government to stop receiving surplus cash from pension scheme for mineworkers
Extra spending in England will lead to £3.4bn more for Scotland, £1.7bn more for Wales, and £1.5bn more for Northern Ireland in devolution payments
Following the Chancellor’s speech, leader of the opposition Rishi Sunak gave their reaction in which he declared that it was proof that what they had been saying during the general election campaign was correct all along. He also stated that working families would be the hardest hit and would be pushed in to a life in debt.
Tania Bowers, Global Public Policy Director at APSCo commented:
“While employers’ contributions to NICs haven’t been increased by as much as was speculated, we are worried that this has the potential to inadvertently hinder permanent and temporary recruitment. For the UK’s SMEs in that economically critical 10-250 employee banding the financial burden this places on them will only reduce the investment they can channel into new hiring.
“The overall cost of engaging contractors is also a concern, particularly for the many SMEs in the recruitment sector who won’t be in a strong bargaining position to pass the additional tax rate on their payroll up their supply chains to all their clients. When we add this to the extra costs of hiring that are being built into the employment rights reforms, it makes conditions for business, recruitment and economic growth difficult. A more positive macro-economic environment, given the infrastructure investments announced, may alleviate some of the pain and create the dynamic landscape that the Chancellor is striving for, but it is a question of timing.
“It is encouraging to see investment being funnelled into sectors and industries that are in direct need of reform to boost skills. The skills required simply don’t exist in the domestic market and it is important that this is reversed. If we look at construction, for example, our latest data shows a decline of applications for permanent and contract positions of 35% and 41% respectively between September 2023 and September 2024. This is despite vacancies stabilising and is indicative of a growing gap between the supply and demand of skills.
“The financial support pledged to get more people back into work will alleviate some of this in the longer-term, but it takes time to build the skills that are needed. More immediate steps to boost access to talent – through stronger international trade deals and more effective access to contractors – is also required.”
Overall take on the Autumn Budget 2024, Theo Bertram, Director, Social Market Foundation said:
“For a first Budget, it is hard to think of a tougher test. Economically, it’s an almost impossible balancing act: how do you get growth, demonstrate prudence, repair public services and raise tax fairly?
Reeves’ answer to that today was in some ways typically Labour: higher taxes, higher borrowing, and higher public spending, with the taxes largely coming from employers and the wealthy. She appears to have managed to pull this off without scaring the markets – and after the recent disaster of Trussonomics, that is no small feat.
The SMF is pleased to see changes in alcohol duty for which we have long argued but the choice to freeze fuel duty was disappointingly short-termist and the absence of a targeted tax on remote gambling was a missed opportunity.
The changes to the fiscal rules to allow more investment in infrastructure will make a positive difference in the long-term. However, in the shorter-term more than £25bn of tax rises falling on employers is a significant burden on business at a time when the government is betting on growth.
Reeves’ priority is clearly to balance the books and to fill the holes in public finances and while the scale of the tax rises is historically high, the increase in spending is still relatively slight. Departments outside of health and defence are going to need to find cuts and the government has notably chosen not to make spending commitments to tackle child poverty at this stage.”
