Budget 2024: What’s been announced?
Chancellor Rachel Reeves has delivered the Labour Party’s first Budget in over a decade, marking a new approach to funding public services, boosting infrastructure, and addressing economic challenges.
A historic £40 billion in tax hikes is central to the plan, with aims to strengthen the NHS, education, and local government resources. Here’s a closer look at the key measures and how they could impact you, your business, and the economy at large.
Personal Taxes: What’s Changing?
In a move to avoid ‘bracket creep’ – where inflation pushes individuals into higher tax bands – income tax and National Insurance (NI) thresholds will rise with inflation from 2028.
Other personal tax changes include:
Capital Gains Tax (CGT): The basic rate on share profits will increase from 10% to 18%, while the higher rate rises from 20% to 24%.
Business Asset Disposal (BAD) relief: CGT rate on business asset disposals with BAD relief will increase to 14% from April 2025 and to 18% by 2026, up from 10%.
Inheritance Tax: The current freeze on the inheritance tax threshold will extend to 2030. Starting in 2027, unspent pension pots will also become taxable, and exemptions for inheriting farmland will be reduced from 2026.
These measures aim to balance the books and shift the tax load, particularly toward capital gains and inheritances, while keeping headline income tax and employee NI rates stable.
Business Taxes: New Rates and Reliefs
Businesses face significant shifts in National Insurance contributions and private equity taxation, but there’s also increased NICs relief benefitting smaller companies:
National Insurance: The rate for employer contributions will rise to 15% on salaries over £5,000 (from 13.8% on salaries over £9,100), which could impact many large employers.
Employment Allowance: To support smaller businesses, the allowance will increase from £5,000 to £10,500, offsetting the higher NI rates.
Private Equity Tax: Tax on private equity managers’ profits will rise from up to 28% to a new maximum of 32%, beginning in April 2024.
Meanwhile, the main corporation tax rate will hold steady at 25%, giving companies a clear outlook until the next election.
Wages, Benefits, and Pensions: Increases Across the Board
Supporting incomes across age groups, the Budget introduces adjustments to minimum wages and state benefits:
Minimum Wage: Workers over 21 will see an increase in the minimum wage to £12.21 per hour, with younger workers’ wages also rising as part of a gradual move toward a unified adult rate.
State Pension: Due to the “triple lock,” state pensions will see a 4.1% increase next year, providing a boost to retirees. Eligibility for carers’ allowance will also expand, as the weekly earnings limit rises to £195.
Transportation: Fuel Duty, Bus Fares, and HS2 Commitments
The Budget includes changes to fuel duties, fare caps, and infrastructure commitments designed to improve public transportation:
Fuel Duty: The Conservatives’ 5p fuel duty cut will be extended for another year.
Bus Fares: The cap on single bus fares outside London and Greater Manchester will increase to £3 starting in January.
Rail: There’s a renewed commitment to complete tunneling work to bring the HS2 high-speed rail to Euston station, boosting connectivity to central London.
Additionally, a £500 million allocation will address England’s persistent pothole problem, and new vehicle tax incentives aim to support a transition to electric cars.
Alcohol, Tobacco, and Vaping: Higher Taxes on Popular Products
For those who consume alcohol, tobacco, or vape, there are notable tax increases ahead:
Vaping: A new tax on vaping liquids of £2.20 per 10ml will come into effect in October 2026.
Tobacco and Alcohol: Taxes on tobacco products will rise by 2% above inflation, with hand-rolling tobacco seeing a 10% increase. Non-draught alcoholic drinks will also be taxed at the higher rate of RPI inflation, though draught drinks will receive a slight tax reduction of 1.7%.
Public Spending Increases and Local Government Support
Public services such as the NHS and education will receive funding boosts, while councils will gain increased flexibility:
NHS and Education: Spending on these sectors in England will rise by 4.7% in real terms this year, with smaller increases expected in subsequent years.
Local Councils: Councils will gain an additional £1.3 billion next year and will retain all funds from “Right to Buy” sales, supporting local investments and public housing.
Housing: Affordable Homes and Rent Increases for Social Housing
Addressing housing needs, the Budget introduces measures for both renters and prospective buyers:
Social Housing Rent: Providers can now raise rents above inflation under a new, multi-year settlement.
Stamp Duty: A surcharge for second homes in England and Northern Ireland will increase 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 2025. Threshold at which first-time buyers pay the tax will also drop back, from £425,000 to £300,000.
These changes, alongside a £500 million boost to the affordable homes budget, are aimed at supporting housing affordability and availability.
Economic Forecasts and Debt Management
Finally, the Office for Budget Responsibility (OBR) has revised its economic outlook, predicting moderate growth and controlled inflation rates:
Economic Growth: Expected growth of 1.1% this year, followed by 2% next year, with an aim to reach 1.8% by 2026.
Government Debt: A broader definition of government debt now includes future student loan repayments and other assets, providing a more flexible approach.
In addition, the Budget includes £11.8 billion for compensation to victims of the infected blood scandal and £1.8 billion for wrongly prosecuted Post Office sub-postmasters.
Final Thoughts: Labour’s Fiscal Strategy
Budget 2024 reflects Labour’s goal to fund public services and support lower-income workers through targeted tax rises and spending increases. While higher taxes on businesses, capital gains, inheritance aim to fund these ambitions, the government has kept major taxes on income, employee NI, and VAT steady. The question remains as to how much these tax rises will directly or indirectly impact household budgets in the months and years to come.
