Historic Budget sees £40 billion in tax increases alongside investment pledges

  • Person icon Tim Evershed
  • Calendar icon 30 October 2024 19:36

After weeks of intense speculation, Chancellor Rachel Reeves delivered a historic Budget to the House of Commons on 30 October. The Budget, Labour’s first in over 14 years and the first ever delivered by a female Chancellor, saw £40 billion tax-raising announcements. Ms Reeves also pledged to ‘invest, invest, invest’ to drive growth and ‘restore economic stability’.

 

Unfunded pledges

The Budget saw Ms Reeves repeat her claims that the government had inherited a £22 billion ‘black hole’ in the public finances from the Conservative Party. The government said it will publish a line-by-line breakdown of the £22 billion that will include hundreds of unfunded pledges.

As a consequence, the Budget raised taxes by £40 billion, with Ms Reeves saying that any Chancellor would ‘face the same reality’ and any ‘responsible Chancellor would take action’.

Likely increases

Pre-Budget speculation had centred on the likelihood of increases to employers’ National Insurance contributions (NICs), Capital Gains Tax (CGT) and Inheritance Tax (IHT). In the event, there were significant changes to all three taxes.

The Chancellor announced an increase to the rate of employer NICs by 1.2 percentage points to 15% from 6 April 2025. However, the Secondary Threshold – the level at which employers become liable to pay NICs on each employee’s salary – will reduce from £9,100 per year to £5,000 per year.

CGT on non-residential assets will increase from 10% to 18% for those paying the lower rate, and 20% to 24% for those paying the higher rate for disposals from 30 October 2024. These new rates will match the residential property rates. The CGT rates applicable to assets qualifying for Business Asset Disposal Relief (BADR) and Investors’ Relief will remain at 10% this year, before rising to 14% from April 2025 and 18% from April 2026

Distortion removed

The IHT nil rate band remains unchanged at £325,000, although from April 2027 inherited pension pots will be brought into the IHT net. The government says this will remove a distortion which has led to pensions being used as a tax planning vehicle to transfer wealth rather than their original purpose to fund retirement.

From April 2026, agricultural property relief and business property relief will be reformed. The highest rate of relief will continue at 100% for the first £1 million of combined business and agricultural assets on top of the existing nil rate bands, fully protecting the majority of businesses and farms. The rate of relief will reduce to 50% after the first £1 million.

The Chancellor also confirmed that VAT will be introduced on private school fees and the abolishment of the non-dom tax regime.

Protecting living standards

Ms Reeves said she would protect living standards by unfreezing the thresholds on Income Tax and NICs from 2028 while she extended the cut in Fuel Duty for another year.

Another measure that had been revealed before Budget Day was an increase in the National Living Wage. This will go up from £11.44 to £12.21 an hour from April 2025, a rise of 6.7% worth £1,400 a year for a full-time worker.

The Chancellor also pledged a decade of ‘national renewal’ with increased funding for schools and the NHS. Further spending announcements included on housing, transport, aerospace, automotive and capital spending.

The right choices

Ms Reeves said: ‘The choices I have made . . . are the right choices to restore stability to our public finances, to protect working people, to fix our NHS and to rebuild Britain.

‘That does not mean that these choices are easy, but they are responsible.’

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