Rachael Reeves delivers the 2024 budget
Rachel Reeves has vowed to “restore stability” to the British economy as she unveils £40bn of tax rises.
The Chancellor has vowed to stick to Labour’s manifesto pledge not to raise taxes on “working people”, defined loosely by Sir Keir Starmer as those with only “a small amount of savings”.
But she said a £22bn “black hole” left behind by the last government, added to other pressures such as compensation schemes, meant she would have to increase taxes £40bn.
This includes a widely-trailed rise in National Insurance employer contributions, raising £25bn.
She also announced increases to capital gains tax, inheritance tax, stamp duty, alcohol duty, tobacco duty and air passenger duty.
However, in one bright spot for households, she said fuel duty would not rise.
Addressing MPs, Ms Reeves: “This is a changed Labour party and we will restore stability to our country again. The scale and seriousness of the situation that we have inherited cannot be underestimated.”
Compensation schemes for victims of the infected blood scandal and the Post Office scandal had not been budgeted for by the Conservatives, she said. They are expected to cost £11.8bn and £1.8bn respectively.
She also announced a “crackdown on fraud in our welfare system”, through upgrades to government computer systems, that is expected to save taxpayers £4.3bn.
An upgrade to HM Revenue & Customs’ systems is also expected to tackle tax avoidance, bringing in an extra £6.5bn over five years.
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Tax rises:
- National Insurance, employer contributions
- Capital gains tax
- Inheritance tax
- Air passenger duty
- Alcohol duty
- Tobacco duty
- Stamp duty
Inflation, debt and the economy
Ms Reeves said the Government will keep the Bank of England’s inflation target at 2pc.
But she warned household finances had been “stretched to their limit” by recent price rises.
The Office for Budget Responsibility now forecasts consumer price inflation will average 2.5pc this year, 2.6pc in 2025, then 2.3pc in 2026, 2.1pc in 2027, 2.1pc in 2028 and 2.0pc in 2029, the Chancellor said.
On economic growth, she says Labour’s plans will boost output.
The OBR is forecasting annual growth of 1.1pc in 2024, 2.0pc in 2025, 1.8pc in 2026, 1.5pc in 2027, 1.5pc in 2028 and 1.6pc in 2029.
On borrowing, she says the Government will stick to its “stability rule” early – meaning it will not borrow to fund day-to-day spending by 2027/28, by which point the budget will be in surplus.
Minimum wage increase
The Government will increase the National Living Wage by 6.7pc to £12.21 an hour, Ms Reeves said.
It follows a recommendation by the Low Pay Commission and is expected to be worth up to £1,400 a year for a full-time worker.
For the first time, she said, the system will also shift towards “a single adult rate” – phased in over time – partly by increasing the minimum wage for 18 to 20-year-olds by 16.3pc initially to £10 an hour.
State pension
Under the Government’s “triple lock”, which Labour committed itself to during the election, Ms Reeves says the basic and state pension will be uprated by 4.1pc next year.
This means 12 million pensioners will gain £470 next year.
She adds this means spending on the state pension is forecast to rise by over £31bn by 2029-30 “to ensure that our pensioners are protected in their retirement.”
Fuel duty
A temporary 5p cut to fuel duty was on course to be reversed next year, with the rate also increased in line with inflation, but Ms Reeves says it will remain at current levels.
That will cost the Government £3bn she says, but adds that hiking it “while the cost of living remains high… would be the wrong choice”.
“I will maintain the existing 5p cut for another year, too. There will be no higher taxes at the petrol pumps next year,” she says.
National Insurance
Employees have been spared a National Insurance increase but businesses are being asked to “contribute more”, Ms Reeves says.
The Chancellor said employers will see their NI contributions rise by 1.2 percentage points, to 15pc, from April.
She is also lowering the threshold at which companies start to pay on an employee’s salary, from £9,100 per year to £5,000.
The change – which economists have warned will lead to reduced hiring and smaller pay rises – will raise £25bn per year.
“I know that this is a difficult choice. I do not take this decision lightly,” Ms Reeves said.
More than 865,000 small businesses will be exempt under changes to the employment allowance, however, which is rising from £5,000 to £10,500.
Capital gains tax
From today, Ms Reeves said the lower rate of capital gains tax will rise from 10pc to 18pc, while the higher rate will rise from 20pc to 24pc.
However, she said the rates on property would stay the same while the lifetime limit for business asset disposal relief while remain at £1m.
The rate of relief will remain at 10pc this year before rising to 14pc in 2025 and 18pc in 2026.
According to the OBR, the changes will raise £2.5bn.
Ms Reeves says capital gains on so-called carried interest in the fund management also needs to be “fairer”.
She says the rate will rise to 32pc in April 2025 and that further reforms will be confirmed in 2026.
Inheritance tax
Ms Reeves says a freeze on inheritance tax thresholds will be extended by two years, to 2030.
This means the first £325,000 of any estate can be inherited tax-free, she says, rising to £500,000 if the estate includes a residence passed to direct descendants.
It also rises to £1m when a tax free allowance is passed to a surviving spouse or civil partner.
But she says inherited pensions will be brought into inheritance tax from April 2027 and that agricultural property relief and business property relief will be “reformed”.
From April 2026, the first £1m of combined business and agricultural assets will not incur inheritance tax but after that it will apply at an effective rate of 20pc.
Taken together, these measures raise over £2bn in the final year of the forecast.
“I understand the strongly held desire to pass down savings to children and grandchildren. So I am taking a balanced approach in my package today,” Ms Reeves said.
Air passenger duty
Air Passenger Duty has not kept up with inflation in recent years, Ms Reeves says.
So she says it will rise by “no more than £2 for an economy class short-haul flight”.
However, for private jets, the rate will increase by 50pc – the equivalent of £450 “per passenger for a private jet to California”.
Alcohol duty
Duty on non-draught products will increase in line with retail price inflation from February next year, the Chancellor confirms.
But she says two-thirds of alcoholic drinks sold in pubs are served on draught and duty on these products will fall by 1.7pc.
This means “a penny off a pint in the pub”.
Tobacco duty
The Government will increase tobacco duty by retail price inflation, plus 2pc, every year for the rest of this parliament, Ms Reeves announces.
For hand-rolling tobacco, the rate will also rise 10pc this year. And a flat rate duty will be introduced on all vaping liquids from October 2026.
Along with annual increases in the soft drinks industry levy, she says the measures will raise nearly £1bn per year by the end of the forecast period.
Stamp duty
The stamp-duty land tax surcharge for second-homes, known as the “Higher Rate for Additional Dwellings”, will rise by 2 percentage points to 5pc from Thursday, Ms Reeves confirms.
This will “support over 130,000 additional transactions from people buying their first home, or moving home” over the next five years, the Chancellor claims, although she does not spell out how.
Corporation tax
Today the Government is publishing a “Corporate Tax Roadmap”, which Ms Reeves claims will “providing the business certainty called for” by business lobby groups the CBI, British Chambers of Commerce and the Institute for Directors.
It confirms that corporation tax will remain at 25pc for the duration of this parliament and keeps current expensing reliefs.
Non-dom regime
“If you make Britain your home, you should pay your tax here,” Ms Reeves says.
She confirms the abolition of the “outdated” non-domicile tax regime from April 2025 and replace it with a “new, residence based scheme” that is “internationally competitive”.
The OBR says the package of measures will raise £12.7bn over the next five years.
Income tax
The previous government froze income tax and National Insurance thresholds repeatedly to raise revenue, drawing more people into higher tax bands, Ms Reeves says.
But she says she will not extend this “stealth tax” further, meaning that from 2028-29, personal tax thresholds will be uprated in line with inflation again.
“When it comes to choices on tax, this government chooses to protect working people every single time,” she says.
Spending on defence, schools, councils
Ms Reeves says she is increasing the core schools budget by £2.3bn next year, with an extra £300m also pledged for further education and a “tripling” of investment in breakfast clubs.
Special educational needs spending will also rise by 6pc or £1bn from this year.
At the same time, Ms Reeves says the defence budget will rise by £2.9bn next year, as ministers chart a path to spending 2.5pc of GDP on defence in the long-term.
“There is no more important job for government than to keep our country safe,” the Chancellor says.
Local government is also getting a funding increase. Ms Reeves announced £1.3bn of extra grant funding for “essential services”, including £600m more for social care and £230m to tackle homelessness and rough sleeping.
“I said there would be no return to austerity, and that is the choice I have made today,” the Chancellor says.
Download the full Autumn budget HERE