Chancellor Rachel Reeves presented the UK’s 2024 Autumn Budget on 30 October 2024, marking a significant shift in tax policy and public spending for the new Labour government. Here are the key highlights:
1. Increased Taxes and Fiscal Reform
Reeves introduced substantial tax changes aimed at increasing government revenue.
• Capital Gains Tax: Both the lower and higher capital gains tax rates were increased, with the lower rate raised from 10% to 18% and the higher rate from 20% to 24%. The government chose to leave residential property thresholds unchanged, allowing £325,000 to be inherited tax free, but signalled that further adjustments could come in future budgets. Moreover, there will be more tax from reforming reliefs for business and agricultural assets as those assets will attract inheritance tax of 20% after £1 million.
• Employer national insurance: A central component is a 1.2% rise in employer national insurance contributions, which is anticipated to generate an additional £25 billion annually.
• Inheritance Tax: Changes include extending inheritance tax to pension pots from 2027, an adjustment aimed at closing loopholes in wealth transfer. Reliefs on inherited agricultural land and family businesses are now capped, reducing the tax-free transfer options in these areas. AIM shares will now receive only a 50% inheritance tax relief.
• Income Tax: Chancellor said the government will uprate personal tax thresholds on income tax and national insurance in line with inflation from 2028-29.
• Abolition of Non-Dom Tax Status: Additionally, Labour committed to abolishing the non-domicile tax status by 2025, replacing it with a new residence-based scheme designed to attract temporary residents under competitive, yet stricter, tax arrangements.
2. The Minimum Wage
• The Chancellor Rachel Reeves announced a significant increase to the national minimum wage, boosting it by 6.7% for workers aged over 21. This change raises the minimum wage from £11.44 to £12.21 per hour, benefiting over 3 million people and marking one of the largest minimum wage increases in recent years.
• Additionally, young workers aged 18 to 20 saw an even more substantial raise, with their hourly rate climbing from £8.60 to £10, providing a larger income boost to this age group than has been seen historically.
• There will be a single adult rate phased in over time to ultimately equalise pay for under-21s.
3. Support for the NHS and Public Services
• Labour’s budget reemphasized its commitment to core services, notably the NHS, with additional funding allocated to manage rising costs and improve patient services, targeting 2% productivity growth next year.
• Reeves pledged further resources to public sector salaries, particularly within health and social care, to attract and retain workers in these essential fields. She announced £3.1bn increase in the capital budget, and £22.6bn increase in the day-to-day health budget.
4. Business Rate Reforms and Reliefs
• In a move to support the retail and hospitality industries, Reeves extended business rate reliefs, aiming to ease pressures on small and medium-sized businesses grappling with inflation and high operating costs.
• Retail, hospitality and leisure businesses will receive 40% relief on business rates up to a cap of £110,000 until 2026-27, then the government will introduce permanently lower business rates for these businesses. These measures are particularly targeted at high street shops, pubs, and restaurants to preserve jobs and sustain the economy through the ongoing cost-of-living crisis.
• Taxes on carried interest will rise from 28% to 32% from April.
5. Energy and Climate Initiatives
• Reeves included provisions for clean energy investments, with incentives for renewable energy development and subsidies for households to make green energy transitions, aligning with the government’s climate goals. The Chancellor emphasized the UK’s commitment to reaching net-zero emissions, with policies encouraging both individual and corporate sustainability efforts.
• She announced £3.4bn for the warm homes plan to upgrade buildings, which will help lowering energy bills.
• The chancellor said that increasing fuel duty next year would be the “wrong choice” and maintained the last government’s 5p cut by extends the freeze for a year.
• The government also announced the creation of Great British Energy, a new entity to be based in Aberdeen.
• The government will invest £1bn in aerospace and £2bn in automotive to support electric vehicles
6. Education and Skills Development
• The government announced increased funding for education and skills training, focusing on reducing the skills gap and ensuring a skilled workforce.
• The chancellor announced that the schools’ budget will rise by £2.3bn to support the hiring of teachers.
• Furthermore, the Department for Education will receive £6.7bn, which is a 19% real-terms increase. That includes £1.4bn that will be spent to rebuild schools in the much-needed areas. The school maintenance budget will be raised by £300m to £2.1bn.
• Moreover, VAT will be brought in on private school fees in January 2025.
• Key investments will go toward STEM programs, apprenticeships, and retraining initiatives, positioning the UK to meet the demands of a modern, technology-driven economy.
7. Infrastructure and Housing
• The Chancellor underscored Labour’s commitment to addressing the housing crisis by allocating funds for affordable housing development and renovation of existing housing stock. This is paired with infrastructure investments aimed at modernizing transport networks and improving connectivity across the UK, focusing particularly on regional development.
• She said there will be a £500m surge in the roads budget next year to target potholes.
• The chancellor announced that the government will hire “hundreds of new planning officers” to accelerate housebuilding. The government will spend £5bn on housing, including increasing the supply of affordable housing, in a drive to achieve its goal to build 1.5m new homes
Conclusion:
Rachel Reeves’ 2024 Autumn Budget represents a blend of tax hikes, wealth redistribution efforts, and public investment aimed at reducing economic inequality and supporting vital services. Through sweeping reforms to inheritance and capital gains taxes, increased support for the NHS, and robust climate initiatives, Labour’s budget signals a long-term vision for sustainable growth while responding to immediate economic pressures. These measures set the stage for Labour’s broader fiscal approach, addressing critical economic issues and promoting resilience in the face of global and domestic challenges.
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