Rachel Reeves delivered Labour’s first budget in almost 15 years on Wednesday, with £40bn of tax rises, including a 1.2% increase to employer’s national insurance, for which the threshold has been cut to £5,000.
The chancellor announced a swathe of “difficult but necessary decisions” to the House of Commons to restore economic stability.
Employers’ national insurance contributions is set to increase from 13.8% to 15%, and the threshold at which they have to pay it will drop from £9,100. But there was also some relief for employers in that the employment allowance will increase from £5,000 to £10,500.
Other key points included capital gains tax for higher-rate payers, on assets such as shares. This will go up from 20% to 24%, and for lower rate tax payers it will rise from 10% to 18%. On residential property, the rates will remain at 24% and 18%.
The 5p cut to fuel duty on petrol and diesel, due to end in April 2025, will be kept for another year, while the stamp duty land surcharge for second homes will be hiked by 2% to 5% from Thursday.
Reeves added that full-time carers would be able to earn more without losing their allowance, with the maximum earnings threshold rising from £151 to £195 a week.
Read more: Pound whipsaws after first Labour budget in 15 years
It came as the Office for Budget Responsibility (OBR) revealed that UK GDP growth will be 1.1% in 2024, 2.0% in 2025, and 1.8% in 2026. This is followed by growth of 1.5% in 2027, 1.5% in 2028, and 1.6% in 2029.
The figures show a faster than expected rise this year and next year, but then weaker than forecast growth later in the forecast.
Harry Quilter-Pinner, interim IPPR executive director, said: “Today’s budget marks a decisive, positive shift for the UK economy. By setting a course that involves higher investment than the previous government planned, and additional tax revenue to support public services, the chancellor is steering the country away from stagnation and austerity, towards a better economy.
“On investment, the chancellor has heeded our call that getting the fastest growth in the G7 will not be possible with the lowest investment in the G7. This budget marks the moment when the UK turns the tide on our low investment, low productivity, low wage economy. The focus must now be on increasing investment year on year, and spending it well, to deliver shared growth.”
LIVE 49 updates
-
Mortgage rates will be higher after budget
Mortgage rates will be higher after the budget, according to forecasts published by the Office for Budget Responsibility.
The below graph is from the OBR’s official economic and fiscal outlook document which was published earlier today:
-
Labour move ‘is in fact a tax on working people’
As you can imagine, comments are flying in regarding the budget speech. Here are comments from the National Institute of Economic and Social Research on frozen tax thresholds.
Ben Caswell, senior economist, said:
-
Non-dom tax regime to be abolished
The non-dom tax regime will be abolished from April 2025, replacing it with a residency based scheme with competitive reliefs for temporary visitors.
Paul Barham, partner at Forvis Mazars, said:
-
GMB union hails extra cash for schools and hospitals
The GMB union welcomed the budget but urged the government to move more quickly on infrastructure projects.
Gary Smith, the GMB’s general secretary, said:
-
-
Sunak: ‘You name it, they’ll tax it’
“Never in the history of our country will taxes be higher than they are under this Labour government,” said Sunak.
He says Labour specifically promised that they “wouldn’t raise taxes on working people” — but instead have increased national insurance for employers, thus “breaking that promise”.
“They’re taxing your job, they’re taxing your business, they’re taxing your savings. You name it, they’ll tax it.”
He also added that the OBR does not back up the government’s claim of a £22bn black hole, saying it does not appear in their report.
-
Rishi Sunak’s response to budget
Former prime minister Rishi Sunak has accussed Rachel Reeves of breaking Labour’s manifesto tax promises, saying the budget contained “broken promise after broken promise”.
He said both the chancellor and prime minister Sir Keir Starmer s had not been “straight with the British people” at the general election.
He said:
-
UK budget keeps sterling steady
Sterling has pared this morning’s losses against the dollar and fell only modestly against the euro, as the UK budget announcement keeps the British economic outlook intact.
The OBR forecast Reeves’ fiscal budget to be in balance two years earlier than forecast in March.
To achieve that, there will be £40bn in tax rises, including a 1.2% increase to employer’s NI, for which the threshold has been cut to £5,000, and through hikes to capital gains and carried interest taxes.
Kyle Chapman, FX market analyst at Ballinger Group, said:
Read more from Yahoo Finance UK
-
IHT reform ‘disappointing but provides runway for growth’
Amisha Chohan, head of small cap strategy at Quilter Cheviot:
-
Budget summary
Here’s a mini summary from Sky News’ political editor Beth Rigby.
-
HS2 now terminating at Euston
Rachel Reeves said the Labour government is committed to HS2 terminating at Euston in central London but suggested private investment would be needed to finish that part of the project.
She said:
-
NHS to receive more than £25bn in extra funding
The NHS will received a major funding boost, said Reeves, with an extra £22.6bn to be allocated to the day-to-day health budget. Meanwhile £3.1bn will be given for capital investment.
“This is the largest real-terms growth in day to day NHS spending outside of COVID since 2010,” the chancellor said.
-
More cash for Ministry of Defence, says Reeves
“There is no more important job for government than to keep our country safe, and we are conducting a Strategic Defence Review to be published next year. And as set out in our manifesto, we will set a path to spending 2.5% of GDP on defence at a future fiscal event.
“Today, I am announcing a total increase to the Ministry of Defence’s Budget of £2.9bn next year ensuring the UK comfortably exceeds our NATO commitments and providing guaranteed military support to Ukraine of £3bn per year, for as long as it takes.”
-
VAT on private school fees
Reeves says that 94% of children in the country attend state schools and that she will introduce VAT on private school fees from January 2025.
The government will soon introduce legislation to remove their business rates relief from April 2025.
She also announced a £1bn increase in special educational needs funding, an increase of 6% year-on-year, saying she is tripling investment in school breakfast clubs.
She added:
-
Reeves brings in 50% increase in air passenger duty for private jets
Turning to air passenger duty Reeves says that it has not kept up with inflation. There will be a small adjustment, worth no more than £2 for economy, short-haul flights.
However, she is increasing the rate of air passenger duty on private jets by a further 50% — equivalent to £450 per passenger.
Taking a dig at Rishi Sunak, she confirmed this would be the equivalent of £450 per passenger for a flight to California.
-
New tax on vapes announced
To discourage non-smokers and young people from taking up vaping, Reeves has announced a vaping duty for the first time at £2.20 per 10ml of liquid.
This will start from 1 October 2026, in addition to a one-off tobacco duty rise to keep the incentive to choose refillable vaping over smoking.
-
Strict rules on inheritance tax will raise more than £2bn
Reeves will extend the inheritance tax threshold freeze for a further two years to 2030.
The first £325,000 of any estate can be inherited tax-free has risen to £500,000 if the estate includes a residence passed to direct descendants, and £1m when a tax free allowance is passed to a surviving spouse or civil partner.
She said:
-
Capital gains tax increases
Reeves told Commons today that capital gains tax (CGT) will increase — the lower rate of will rise from from 10% to 18%, and the higher rate from 20% to 24%. Meanwhile, the rates on residential property will remain at 18% and 24%.
This tax is charged on profits which are made from selling assets such as a second home or investments, including shares.
She added that this will still be the lowest rate for any European G7 country.
Brian Byrnes, head of personal finance at Moneybox, said:
-
Carer’s allowance rises
The chancellor said the Labour government will increase the carer’s allowance from £81.90 per week to the equivalent of 16 hours at the national living Wage per week.
A carer can now earn over £10,000 a year whilst receiving the allowance. This will allow them to “keep more of their money”, Reeves says.
-
NI increase reaction: ‘This will hurt many businesses’
Ian Goodwin, employment tax partner at Forvis Mazars, said:
Download the Yahoo Finance app, available for Apple and Android.