Rachel Reeves, Chancellor of the Exchequer outlined the new Labour government’s plans to rebuild Britain, emphasising “fixing the foundations to deliver change”. This was a £40 billion tax-raising budget that prioritised tax increases, restoring public finances, fostering economic growth and encouraging investment in the UK.
Opinion:
- While the Autumn Budget 2024 includes several promising initiatives, the implications of increased taxes and costs for small business cannot be overlooked.
- The increase in Employer’s NI along with the reduction in the secondary threshold will have a detrimental affect on smaller businesses; agencies and umbrella companies
- The increase in the national insurance employment allowance provides some rest bite against the above changes but will not negate the overall increase in employment costs
- Large investments in industries within innovation, tech, infrastructure and housing could create business opportunity for suppliers
- The reduction in business rates relief to 40% as opposed to a complete removal of this relief is welcome news
- Corporation tax will be maintained at 25% being the highest rate with £1m annual investment allowance. This stability will allow for business to plan capital investments with some certainty.
Summary:
The Chancellor Rachel Reeves’ budget introduces key changes which will increase costs for employers, particularly recruitment and umbrella companies. The hike in employers NIC, increased minimum wage and anti-fraud measures signal tighter oversight and higher employment costs. For business owners, CGT hikes and changes to non-domicile status impacts wealth management, while investment in specific sectors should spur job growth.
Some of the key points from the chancellor’s speech include:
Pensions, Employment Rights, and Benefits
- National Living Wage: Rises by 6.7%, from £11.44 to £12.21
- National Minimum Wage for Ages 18-20: Will rise by 16.3%, from £8.60 to £10.00 (the largest increase on record and marks the first step towards a single adult rate).
- Apprentice Wage: Will increase from £6.40 to £7.55.
- Carers Allowance: Weekly earnings limit raised to the equivalent of 16 hours at the National Living Wage per week.
- Pensions Triple Lock: Maintained, with state pensions to increase by 1.4%. Pension credit minimum guarantee also increases, with further scrutiny on the lifetime allowance.
- Employment Bill: Aimed at protecting worker rights, including against bullying and ensuring statutory benefits and pensions. This strengthens regulatory oversight for employers and umbrella firms managing worker benefits.
Tax Changes
- Income Tax Thresholds: There will be no extension to the freeze which currently ends 2027-18. From 2028-29 this will increase in line with RPI.
- Employers National Insurance: Will increase by 1.2% to 15% from April 2025.
- Employers National Insurance: The secondary threshold at which point this becomes payable will be reduced from £9,100 to £5,000.
- Employers National Insurance Allowance : This will increase from £5,000 to £10,500
- Capital Gains Tax: The rate will rise from 10% to 18%, while the higher rate will increase from 20% to 24%. This will still be the lowest CGT rate in Europe and applies to the sale of shares and similar assets, excluding residential properties.
- Inheritance Tax: Thresholds will remain frozen until 2030, with inherited pensions to be included within an estate from April 2027.
- Business Asset Disposal Relief: Will remain at 10% this year but will increase to 14% from April 2025 and 18% from April 2026.
- Stamp Duty Land Tax: An increase from 2% to 5% for second homes.
- VAT on Private School Fees: Will be introduced from January 2025.
- Business Rates Discount: The current 75% discount will be replaced by a 40% discount, capped at £110,000, after April 2025 as opposed to ending.
- Carried Interest: Increase to 32% from April 2025.
- Late Tax Payment Interest: Overall increase in interest rates charged on overdue taxes.
Duties and Allowances
- Fuel Duty: Will be frozen for the coming year.
- Alcohol Duty: Increasing in line with RPI from February on all non-draft products.
- Draught (Beer) Duty: Cut by 1.7%, taking a penny off pints in pubs.
- Air Passenger Duty: Increasing by 50% for private jets.
- Tobacco Duty: Renewed at RPI +2%, with an increase of 10% on hand-rolled tobacco this year.
- Vaping Liquid Duty: A flat-rate duty to be introduced from 2026.
- Energy Profits Levy: Increase to 38% for oil and gas companies.
Infrastructure and Public Services
- Infrastructure Investment: An extra £50 billion allocated to drive growth in the economy.
- Housing Development: £5 billion investment for building 1.5 million new homes.
- NHS Funding: A £22.6 billion increase in day-to-day budgets and a £3.1 billion capital budget increase, with a spring 10-year plan to be released.
- Ministry of Defence: To receive a £3 billion budget increase.
- Pothole Repairs: An additional £500 million allocated to fixing potholes.
- Breakfast Clubs: Investment will triple.
- Special Educational Needs Funding: Increased by £1 billion.
- Household Support Fund: £1 billion allocated to extend support.
Other Key Initiatives
- New Crackdown on Tax Avoidance: HMRC to hire 5,000 extra compliance officers.
- Non-Domicile Tax Regime: Will be abolished and replaced.
- Covid Corruption Commissioner: Government to appoint a commissioner to address historic issues and recover funds from fraud.
- Funding Settlements for Nations: Largest real-terms funding settlement since devolution.
- Reduction of Right to Buy Discounts: For social housing.
Economic and Fiscal Outlook
- Bank of England Inflation Target: Maintaining a target of 2% with CPI inflation projected to average 2.5% this year and gradually decrease to 2.0% by 2029.
- OBR Forecast: Real GDP growth expected to be 1.1% in 2024, 2.0% in 2025, 1.8% in 2026, 1.5% in 2027, 1.5% in 2028, and 1.6% in 2029.
- Economic Goals: Reeves emphasized restoring economic stability, focusing on sustainable growth, and closing a substantial £22bn deficit with transparency on public finances.
- Public Spending: A 2% savings target across public services was set, aiming for fiscal responsibility. Additionally, the Budget includes substantial investment in compensation schemes and increased departmental budgets for critical sectors like health and education.
The Treasury press release on the budget can be found here.
