Autumn Budget 2024: £40 billion tax rise and other changes

An overview

Rachel Reeves presented the Budget today, pledging to "fix the foundations" of the UK economy and promote sustainable growth. The UK's first female Chancellor spent over an hour in Parliament sharing Labour's strategy to rebuild the nation after more than a decade of Conservative governance. Here's a breakdown of the key elements from her address:

Key Budget Highlights:

• A £13 billion compensation package for the victims of the infected blood and Post Office scandals.
• Overall tax hikes totaling £40 billion.
• A commitment to tackle fraud, aiming to save £4.3 billion annually by 2029.
• Plans to reduce benefit dependency, with a forthcoming white paper targeting inactive Britons to re-enter the workforce, alongside £240 million allocated for 16 new initiatives.
• A 6.7% rise in the national living wage, setting it at £12.21 per hour; the minimum wage for under-21s will also increase to £10 per hour, with gradual alignment planned.
• Carer's allowance adjusted to match the equivalent of 16 hours at the National Living Wage per week, pushing annual earnings for carers receiving the allowance above £10,000.
• Fuel duties remain unchanged, with Reeves assuring no new taxes on fuel in the coming year.
• No increases in VAT, national insurance, or income tax for individual workers.
• Employers' national insurance contributions will increase by 1.2 percentage points to 15% by 2025, while the threshold for paying employer NI will be lowered from £9,100 to £5,000. Small businesses, however, will see their employment allowance rise from £5,000 to £10,500.
• Capital gains tax will rise to 18% on lower rates and 24% on higher rates.
• A freeze on inheritance tax thresholds has been extended to 2030, with changes like incorporating inherited pensions in inheritance tax (IHT) from 2027 and partial IHT relief on agricultural land above £1 million.
• Air passenger duties on private jets will rise by 50%.
• Hospitality businesses will receive 40% business rate relief.
• A 1.7% reduction in draught alcohol duty, offering "a penny off a pint" in pubs.
• Introduction of a flat duty on all vaping liquid starting October 2026, alongside a tobacco duty hike.
• Abolition of the non-dom tax regime, replaced with a new resident-based model.
• Current electric vehicle (EV) tax incentives for company cars will remain until 2028.
• Raised carried interest threshold for private equity to 32%.
• VAT on private school fees will take effect in January 2025, with changes to business rate relief forthcoming.
• No extension on the freeze for income tax and national insurance thresholds, which will adjust with inflation.
• Stamp duty surcharge on second homes will rise to 5%.
• The windfall tax on oil and gas profits increases to 38%.
• The current 75% business rates discount will be reduced to 40%, capped at £110,000.
• Local councils will retain all proceeds from Right to Buy sales.

Public Spending:

• £100 billion in capital investment over five years.
• Health budget sees a £22.6 billion increase, plus £3.6 billion for capital expenditures.
• Public spending to rise 1.5% in real terms, avoiding austerity, according to Reeves.
• An additional £2.3 billion for schools, with significant funding for breakfast programs, teacher recruitment, and special needs education.
• Defence spending will rise to 2.5% of GDP, adding £2.9 billion next year.
• A £5 billion boost for house building and dangerous cladding removal.
• Extra funding allocated for Scotland, Wales, Northern Ireland, and English regions.
• £500 million added to road maintenance.
• The National Wealth Fund will invest in high-growth sectors, including £1 billion for aerospace, over £2 billion for automotive industries, and £520 million for life sciences innovation.
• Support for 11 new green hydrogen projects across the UK.
• £3.4 billion set aside for a “warm homes plan.”
• GB Energy is to be established in Aberdeen.

OBR Projections:

• GDP growth forecasts by the OBR are 2%, 1.8%, and 1.5% for 2025, 2026, and 2027, respectively.
• Inflation, based on CPI projections, is expected to be 2.5% this year, decreasing incrementally to 2% by 2029.
• Public sector net borrowing is projected to decrease from 4.5% of GDP to 2.1% by 2029.