There had been much speculation about this budget. Finally, Rachel Reeves—the UK’s first female Chancellor—delivered her plan for the UK economy on 30 October 2024.
The budget includes tax rises and key commitments on borrowing and spending. So, what are the highlights, and how do they affect you?
The Economy
- Chancellor Reeves confirmed that the UK economy faces a £22bn “black hole”, requiring £40bn in tax rises.
- CPI inflation is forecast to rise by 2.5% this year. Over the next five years, the annual forecast is 2.6%, 2.3%, 2.1%, 2.1% and 2%, respectively.
- GDP could rise to 2% next year, but the OBR argues this will just be a “temporary boost”, falling to 1.8% and 1.5% in 2026 and 2027, respectively.
- £11.8bn of compensation has been set aside for victims of the infected blood scandal, and £1.8bn for victims of the Post Office Horizon scandal.
- From 2024-25 onwards, total departmental spending will grow by 1.7% in real terms.
- Next year, the core schools budget will rise by £2.3bn, and £6.7bn of capital investment will be committed to efforts such as rebuilding 500 schools.
- Another £2.9bn will be committed to defence and £1.3bn more to local government. The day-to-day NHS budget will get a £22.6bn increase, with £3.1bn more for investment.
- £70bn would be set aside for investment and building new infrastructure from the National Wealth Fund.
Taxes
- The lower rate of Capital Gains Tax (CGT) has gone up from 10% to 18%. For Higher Rate taxpayers, the rates have now increased from 20% to 24%.
- CGT rates on the disposal of residential property will remain at 18% and 24%.
- The inheritance tax (IHT) threshold freeze will be extended by two more years until 2030.
- The stamp duty surcharge for second homes has increased from 3% to 5%.
- Taxes on draught drinks will fall, with a 1.7% cut on alcohol duty.
- Air passenger duty on private jets will rise by 50%.
- Agricultural Property Relief and Business Property Relief will change in April 2026. The first £1m of combined assets will be IHT-free. Above this threshold, IHT will apply at 50% relief (an effective rate of 20%).
- The non-dom tax regime will be abolished on 6 April 2025 and replaced with a new, residence-based scheme.
Salaries and Wages
- The Low Pay Commission’s recommendation to increase the National Living Wage by 6.7% to £12.21 an hour will be accepted.
- The maximum Carers Allowance of £151 per week will be raised to the equivalent of 16 hours at the National Living Wage per week – i.e. an additional £45.
- The Employment Allowance has been raised from £5,000 to £10,500.
- The freeze on income tax thresholds will expire in 2028-29 and will increase in line with inflation after that.
Benefits & Personal Finance
- Single bus fares will now be capped at £3 per journey instead of £2.
- Fuel duty has been frozen until 2026, so there will be no tax rises on petrol and diesel.
- ISA limits will remain unchanged until 5 April 2030.
- The Household Support Fund and Discretionary Housing Payments have been extended until March 2026 to help those struggling with living costs.
- New rules are arriving for those who claim Universal Credit (UC) and need to repay benefits debts to the government. A new Fair Repayment Rate will cap any repayments at 15% of your UC standard allowance.
- The Help to Save scheme has been extended until April 2027. Anyone who works (earning at least £1) and claims UC will be able to access it.
Pensions
- The basic and new State Pensions will be raised by 4.1% in 2025-26. For 12m pensioners, this should amount to an extra £470 next year.
- Pensions will be brought into an individual’s taxable estate (for IHT) from April 2027.
- The Pension Credit Standard Minimum Guarantee will also rise by 4.1%.
- Overseas pension transfers to the European Economic Area (EEA) or Gibraltar will no longer enjoy special tax treatment but will need to pay the usual 25% charge.
Business
- Employers’ National Insurance (NI) will rise by 1.2%, to 15%, from April 2025.
- The Secondary Threshold (the level of an employee’s salary when NI needs to be paid) will also be lowered from £9,100 per year to £5,000.
- The Employment allowance will also rise from £5,000 to £10,500.
- Business Asset Disposal Relief will stay at 10% in 2024, but rise to 14% in April 2025. It will then go up again to 18% from 2026-27.
- The retail, hospitality and leisure industry will get 40% relief on business rates in 2025-26, up to a limit of £110,000 per business.
- The “windfall tax” (Energy Profits Levy) on oil and gas companies will rise to 38%, expiring in March 2030. These firms will also have their 29% investment allowance removed.
How Will You Be Affected?
Those earning the National Living Wage can look forward to an above-inflation pay rise next April. The same applies to recipients of the basic and new State Pensions. With additional spending pledged to local government, schools and the NHS, citizens can hold out a bit more optimism for improved public services.
Higher earners and investors may be less happy about the Autumn Statement. The increase in CGT rates will make it harder to generate returns outside of tax-efficient “vehicles”, such as ISAs. Estate planning will become more restricted as pensions are brought into taxpayers’ estates in 2027. Many landlords already face great pressure on their portfolios after years of increasing interest rates and the loss of tax allowances. The 2% rise in stamp duty – together with the new rates arriving in March 2025 – will add further challenges.
The budget also leaves several questions unanswered. In particular, how will pensioners be affected by the continuing freeze of income tax rates until April 2028? Current forecasts show that if the policy is left unchanged, this will bring the full new State Pension into the 20% Basic Rate in the coming years.
Conclusion
This budget once again shows the importance of waiting for the Autumn Statement rather than trying to second-guess it. Certain predictions were vindicated, such as the increase in CGT rates and increased NI for employers.
However, CGT rates were not equalised with rates for income tax (as they were in the 1980s under Nigel Lawson). Few also predicted that the Employment Allowance would also rise from £5,000 to £10,500, effectively shielding many small businesses from the tax rise.
Critics argue that the Autumn Statement will damage living standards and make it harder for investors to generate returns and pass down their wealth. Others claim that the tax rises and slow GDP growth will be compensated as the NHS and public services receive extra money.
What is not in doubt is that this budget will have a big impact on financial planning over the coming years. Please speak with an adviser to discuss how this affects your goals and strategy.
