​U.K. Budget 2024: What Lies Ahead?

Chancellor Rachel Reeves introduced Labour's first Budget in 2010, marking a shift in economic strategy focusing on tax reform, social spending, and support for business sectors. Here's an in-depth look at Budget 2024's main policies, their expected impact, and the government's overarching goals.

Kirsty O'Connor / Treasury, OGL 3, via Wikimedia Commons

Personal Tax Changes

The Chancellor has maintained stable rates for income tax and employee National Insurance but introduced several adjustments to prevent 'tax creep' and increase government revenue in other areas.

Income Tax & National Insurance (N.I.):

• Income tax and employee N.I. rates remain unchanged.
• Income tax thresholds will align with inflation beginning in 2028, designed to prevent wage rises from pushing earners into higher tax bands.

Capital Gains Tax (CGT):

• Basic rate on share sales will increase from 10% to 18%.
• Higher rate rises from 20% to 24%.
• CGT on additional properties remains steady, benefitting property investors.

Inheritance Tax (IHT):

• The threshold freeze will be extended to 2030, meaning thresholds will not rise with inflation.
• From 2027, unspent pension pots will be subject to IHT, closing a common estate planning loophole.
• Agricultural property relief will be less generous from 2026, potentially impacting family farms and rural business succession planning.
• This focus on capital and inheritance taxes provides the government with added revenue while leaving wage-based taxes for individuals unchanged.

Business Tax Adjustments

Budget 2024 introduces several major changes for businesses, particularly regarding National Insurance and corporate tax obligations, to fund public sector spending while maintaining fiscal stability.

Employer's National Insurance:

• Employer N.I. rate increases from 13.8% to 15% starting April.
• The earnings threshold is lowered from £9,100 to £5,000, expanding the tax base.
• The Employment Allowance rises from £5,000 to £10,500, providing some relief for small businesses.

Private Equity & Carried Interest:

• Tax on private equity managers' carried interest will rise to a maximum of 32%, aligning the U.K. with international tax standards on investment income.

Corporate Tax Rate:

• The main corporate tax rate remains steady at 25% for taxable profits over £250,000, providing consistency amidst other changes.
• These measures are expected to generate an additional £25 billion in revenue, with implications for corporate planning and cash flow.

Simon Dawson, No 10 Downing Street, OGL 3, via Wikimedia Commons

Transport and Infrastructure Investments

The government's renewed focus on transport and infrastructure reflects its commitment to improving connectivity and accessibility, particularly in regional hubs.

Public Transport:

• England's single bus fare cap rose from £2 to £3 in January, while maintaining affordability.
• The Fuel Duty Cut of 5p per litre on petrol and diesel will extend another year, set to end in April 2025.

Rail Investments:

• Total funding commitment for HS2's extension to Euston Station in central London.
• Plans to upgrade the trans-Pennine route linking Manchester, Leeds, York, and Huddersfield.

Air Passenger Duty:

• Private jet flights will face a 50% increase in Air Passenger Duty, aligning with environmental targets.
• These investments signal Labour's commitment to revitalising transport networks, particularly in underserved regions.

Alcohol, Tobacco, and Vaping Taxes

Reflecting public health priorities, the Budget introduces new taxes on nicotine products while modifying alcohol taxes to benefit on-trade businesses.

Vaping Tax:

• A new levy of £2.20 per 10ml on vaping liquid will come into effect in October 2026.

Tobacco:

• Tax on standard tobacco will increase by 2% above inflation, while hand-rolling tobacco faces a 10% rise above inflation.

Alcohol:

• Tax on non-draught alcoholic products will align with RPI, while draught beverages will see a slight tax reduction of 1.7%.
• These changes underline a strategic push for public health by adjusting the consumption costs of targeted products.

Photo: Sergeant Tom Robinson RLC/MOD, OGL v1.0OGL v1.0, via Wikimedia Commons

Wage Adjustments and Carer Benefits

Labour aims to improve living standards with increases to the minimum wage, broadened carer benefits, and incremental steps towards wage equality.

National Minimum Wage:

• The minimum wage for over-21s will rise from £11.44 to £12.21 in April.
• Wage rate for 18 to 20-year-olds will increase from £8.60 to £10 as part of a push towards a "single adult rate."

Carer Support:

• The earnings threshold for full-time carers eligible for support will rise from £151 to £195 per week, helping more carers access financial support.
• These increases represent Labour's strategy to uplift lower-income earners and enhance financial support for carers.

Housing and Property Tax Changes

Reeves's approach to housing focuses on affordability and taxing investment properties to support the housing sector.

Affordable Housing Budget:

• An additional £500 million will extend the affordable housing budget through 2026.

Social Housing Rents:

• Providers will have greater flexibility, with multi-year agreements allowing rent increases above inflation, enabling a more sustainable income for development.

Stamp Duty:

• Surcharges for second-home buyers in England and Northern Ireland have risen from 3% to 5%.
• These policies are designed to support affordable housing while adjusting taxes on investment properties to disincentivise speculative buying.

UK Parliament, CC BY 3.0, via Wikimedia Commons

Economic Growth, Inflation, and Debt Management

The Office for Budget Responsibility (OBR) provides a cautiously optimistic forecast for U.K. economic growth and inflation.

Growth Projections:

• The OBR projects GDP growth of 1.1% in 2024, increasing to 2% in 2025.

Inflation Predictions:

• Inflation is expected to average 2.5% this year, falling to 2.3% by 2026.

Debt Strategy:

• New debt definitions will now incorporate a wider range of assets, like future student loan repayments, giving the government flexibility in managing fiscal policy.
• Reeves's strategic adjustments aim to strike a balance between long-term economic stability and immediate revenue needs.

Public Service Spending and Social Initiatives

The Budget dedicates substantial funds to healthcare, education, and historic compensation programmes, underscoring Labour's emphasis on social welfare.

NHS & Education Investment:

• Additional £22.6 billion in NHS spending, with £3.1 billion for healthcare infrastructure.
• Education funding receives a £6.7 billion increase, including £1.4 billion for rebuilding over 500 schools.

Compensation and Social Justice:

• £11.8 billion allocated to infected blood scandal victims.
• £1.8 billion for compensation to wrongfully prosecuted Post Office workers.
• These investments reinforce Labour's commitment to improving the U.K.'s social infrastructure and addressing historic injustices.

David Woolfall, CC BY 3.0, via Wikimedia Commons

Business Rate Adjustments for Retail, Hospitality, and Leisure Sectors

Labour is implementing a more flexible approach to business rates, reducing the risk of a sharp financial cliff for these sectors.

Business Rates Discount:

• For retail, hospitality, and leisure, a 40% discount on business rates is introduced for 2025/26, capped at £110,000 per business.

Small Business Tax Multiplier:

• Rates will remain frozen next year, providing stability for smaller enterprises.
• These changes are designed to support businesses on the high street, promoting recovery and adaptation amidst rising costs.

Stability or Uncertainty?

Chancellor Reeves's 2024 Budget outlines a bold approach to balancing revenue generation with targeted social investments. While businesses, especially those in high-street sectors, face increased National Insurance obligations and rising wages, stabilising corporation tax and offering a predictable framework for fiscal planning provide some reassurance. Time will tell if these policy measures will achieve the anticipated long-term growth or if the immediate financial strain will weigh too heavily on U.K. businesses.