Britain's chancellor Rachel Reeves poses with the red budget box as she leaves 11 Downing Street. Photograph: Stephen Peter's
Opening Remarks by Rachel Reeves Rachel Reeves asserts that the UK voted for change and that the Labour government has a clear mandate for a decade of "national renewal." She promises to put "more pounds in people’s pockets" and enhance living standards, emphasizing that the key to driving economic growth lies in "investing, investing, investing." Reeves calls for the government to "restore economic stability" and move beyond the 14 years of Conservative leadership, stating that the Labour Party has successfully rebuilt the UK economy in the past and is committed to doing so again.
Reeves announces that this budget will involve raising taxes by £40 billion, expressing pride in being Britain's first female Chancellor of the Exchequer.
Peter Walker, Senior Political Correspondent, highlights the political challenge at the heart of Reeves's budget: convincing the public that they are better off and that public services are improving. This will require significant investment, coupled with pointed criticism of the Conservatives, and an acknowledgment of her historic position as the first female chancellor.
National Insurance Reeves clarifies that employees will not face direct increases in their national insurance contributions; however, she will raise employers’ contributions by 1.2 percentage points to 15% starting in April. Additionally, the government will lower the secondary threshold from £9,100 to £5,000. These changes are expected to generate £25 billion annually by the end of the forecast period. Previously, employers were charged 13.8% on earnings exceeding £175 per week, and a 1% increase is projected to generate around £8.5 billion.
Walker notes that this move represents a significant financial decision and is politically risky. While public services are in dire need of funding, the increase may be framed as a tax on jobs, potentially hindering economic growth, despite new allowances for smaller businesses.
Capital Gains and Inheritance Tax Reeves confirms that capital gains tax will rise, with the lower rate increasing from 10% to 18% and the higher rate from 20% to 24%. The freeze on the inheritance tax threshold will continue, allowing up to £325,000 to be inherited tax-free. Furthermore, reforms to relieve business and agricultural asset taxes will generate an additional £2 billion, imposing a 20% tax on assets exceeding £1 million.
Walker explains that the capital gains tax hike was largely anticipated, with the increases being relatively modest by international standards. The adjustments to inheritance tax, while aimed at closing loopholes, are expected to result in a manageable increase in revenue.
Tobacco and Alcohol Taxation The government will introduce a levy on vapes, aligning it with tobacco taxes. Additionally, Reeves announces a 1.7% reduction in draught duty, equating to a penny off a pint.
Walker remarks that the changes in so-called "sin taxes" reflect a government less concerned about appearing paternalistic, as evidenced by tougher taxation on sugary drinks. The minor reduction in beer duty may be seen as a concession to popular opinion.
Fuel Duty Reeves argues that increasing fuel duty next year would be "the wrong choice," therefore opting to extend the freeze for another year, while maintaining the previous government's 5p cut. Walker points out that this decision is politically sensitive; while the £3 billion cost is significant, the strong opposition to fuel duty increases makes it challenging to raise.
Office for Budget Responsibility (OBR) Reeves claims Labour inherited a £22 billion "black hole" stemming from unfunded commitments made by the Conservative government. The OBR's review suggests the previous government failed to disclose crucial spending details, potentially altering forecasts. Reeves has committed to implementing ten recommendations from the OBR's review.
Walker observes that this narrative is inherently partisan, yet the suggestion that the Conservatives misled the OBR provides political cover for impending tax increases and limited public expenditure raises.
Compensation Schemes Reeves announces an £11.8 billion compensation package for victims of the infected blood scandal, along with an additional £1.8 billion for those affected by the Post Office Horizon IT scandal. Walker notes that bipartisan support for these measures is likely, bolstered by Reeves's remarks regarding the prior government's lack of financial planning for compensation.
Inflation and Growth Forecasts The Chancellor will uphold the Bank of England's 2% inflation target. According to the OBR's estimates, inflation is expected to average 2.5% in 2024 and gradually decline to 2% by 2029. The OBR has slightly revised its growth forecasts upward for this year but anticipates slower growth in subsequent years. GDP growth is projected at 1.1% for 2024, increasing to 2% in 2025, before tapering off in later years.
Walker comments that while the OBR's inflation and growth predictions aren't particularly strong, Reeves would welcome any figures that remain within the target range, particularly as growth is a primary focus for the current government.
Government Borrowing Reeves announces new guidelines aimed at preventing borrowing for day-to-day expenses. Over the next three years, the budget is set to balance, with projected deficits of £26.2 billion in 2026, followed by surpluses in subsequent years. Public sector net debt is forecasted to decline from £127 billion in 2024-25 to £70.6 billion by 2029-30.
Walker suggests that Reeves and her team will likely emphasize the anticipated reductions in borrowing and the move towards surplus in their messaging, especially in rebuttal to Conservative critiques of fiscal management.
Minimum Wage Reeves confirms a 6.7% increase in the national living wage for those over 21, raising it to £12.21—equivalent to an additional £1,400 annually for a full-time worker. A single adult rate will be phased in to equalize pay for those under 21.
Walker notes that raising wages is typically viewed as a favorable move among voters, though there may be concerns from businesses regarding potential impacts on job creation.
Air Passenger Duty Reeves details an increase in air passenger duty by up to £2 for economy short-haul flights, with an additional 50% charge for private jets, potentially reaching £450 per passenger. Walker highlights that this change poses minimal political risk while providing Reeves an opportunity to deliver pointed critiques toward Rishi Sunak.
Business Rates Businesses in the retail and hospitality sectors will receive a 40% relief on business rates, capped at £25,000.
Non-Domicile Tax Status The non-domicile tax status will be abolished effective April.
Additional Measures Reeves states that the government aims to raise £6.5 billion by targeting tax avoidance, including regulation of umbrella companies.
We specialise in advising and arranging tax-efficient insurance solutions tailored for company directors and business owners, helping them protect their assets and plan for the future. By structuring insurance premiums to be paid through the business—rather than from post-tax personal income—clients can achieve substantial tax savings. This approach reduces overall costs while ensuring essential coverage is in place to safeguard their families, employees, and assets. Our bespoke solutions not only help maximise tax efficiency but also provide peace of mind, knowing that what matters most is protected. Get in touch today to discuss how we can create a tax-smart insurance strategy for your unique needs.
Comments