In a bid to rebuild the British economy by “putting pounds back in people’s pockets”, Chancellor of the Exchequer Rachel Reeves revealed the Labour Party will raise tax funds to £40bn to secure economic stability.
For the first time in 14 years, a Labour government delivered a financial statement, with Reeves announcing the UK Autumn Budget in Parliament today (30 October) becoming the first female British Chancellor to do so.
An essential focus of Reeves’ budget is to “restore economic stability, protect working people, and begin to repair our public services”, but the Chancellor warned this does come with “difficult challenges to make”.
In doing so, the UK will raise taxes by £40bn and will publish a line-by-line breakdown in the £22bn ‘blackhole’ in public service funding from the previous Conservative government. Reeves stated that “any Chancellor will have to face this reality”.
Reeves also revealed that the previous budget laid out by the opposition Conservative Party “did not provide the OBR (Office for Budget Responsibility) all the information to them”, and if they had known the information of the Spring Budget, it would have been “materially different, hiding the reality of their public spending plans”.
When it came down to addressing inflation, Reeves stated that the government will continue working to maintain the Bank of England’s target of 2.0%, a figure that marginally increased by 0.2% last August.
As the cost-of-living crisis is still impacting the pockets of UK citizens, the Chancellor revealed a five-year forecast for Consumer Price Index (CPI) inflation until 2029. She stated that CPI inflation will average to 2.5% for the remainder of 2024, 2.6% next year, 2.1% in 2027, 2.1% in 2028, and 2.0% by 2029.
GDP growth rate over the five-year forecast period is expected to grow by 1.1% this year, 2.0% in 2025, 1.8% in 2026, 1.5% in 2027, 1.5% in 2028 and 1.6% in 2029, hoping to bring about an “end to short termism”.
This underscores an element of the Labour Party’s seven key pillars for economic growth and stability; restoring stability, increasing investment, a £70bn wealth fund to “Get Britain building again, working with mayors to develop local growth plans, launching ‘Skills England’ for better employment rates, long-term strategies for small businesses growth, and driving innovation to protect UK’s clean energy mission.
Rise on Capital Gains Tax
One of the more controversial decisions in the eyes of the Conservative opposition was Reeves’ announcement that capital gains tax on UK businesses will increase from 10% to 18%, with a higher rate of 20% to 24%.
Reeves believes this will maintain Britain having the lowest capital gains tax of any European economy and G7 economy.
There was also a significant increase in employers’ national insurance contributions by 1.2% to 15% by April 2025. There will also be a reduction in the secondary threshold when employers start paying national insurance on each salary from £9,100 a year, to £5,000 a year in a bid to raise £25bn a year before the forecast period.
This may come as no surprise to many across the UK as Reeves is committing to many of the financial policies within the Labour manifesto, concentrating on better spending on public services and infrastructure, whilst asking for businesses to contribute more.
Despite this, there will be a greater focus on the small and medium-sized business (SME) market, which represents 99% of businesses in the UK with over 5.5 million SMEs in 2023.
Reeves announced that the government will be increasing the employment allowance from £5,000 to £10,500. This means that 865,000 businesses will not be required to pay any national insurance next year.
Protecting working people’s finances
The UK Autumn Budget focused on helping to address the £22bn in public spending from its Conservative predecessors by enabling the working class to earn more.
By continuing to commit to its manifesto, the Labour Party will now increase the national living minimum wage from £11.41 to £12.21 an hour from April 2025, with the minimum wage for 18-20 year olds rising from £8.60 to £10 an hour.
There was also the decision to freeze fuel duty for one year and extend the temporary 5p cut to March 2026, worth approximately £3bn in tax cuts. This decision by Reeves is expected to save car drivers £59 next year.
There will be no doubt that the public sector and its services will greatly benefit from Reeves’ financial policies as she looks to build confidence from the UK population by affording higher minimum wages and opportunities for employment.
However, many of her tax raises, particularly capital gains tax, will more than likely be frowned upon by UK businesses and startups as they will argue that several years of stagnating investment from the private sector is another burden they will have to contend with.
