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On Wednesday 30 October 2024, Chancellor Rachel Reeves delivered Labour’s first budget since being elected, revealing an overhaul of the UK’s public finances. We consider some of the main policies and what they mean to UK businesses.
This was a tax and spend budget. Taxes are set to raise £40bn - the second biggest tax-rising budget on record - in order to increase spend on public services over the next five years. Health, education, the building of new homes and defence spending were marked as priority areas. The tax measures announced by Reeves are expected to fund about half of the expenditure, with the balance to be funded by government borrowings.
Kennedys Partner, Iskander Fernandez says:
“Labour was keen to signal its intent when setting the tax agenda in the Autumn Budget. Alongside raising taxes, the government aims to tackle tax avoidance and misuse that the party believes will not only see an increase in the Treasury’s coffers, but aid the government in its aim to mitigate against high levels of fraud cases. Together with the appointment of a Covid corruption commissioner and an upcoming consultation on enhancing HMRC’s powers and sanctions against tax adviser facilitated non-compliance, all roads seem to lead to an increase in criminal tax investigations and prosecutions against individuals and businesses”
Tax hikes were also accompanied by three new fiscal rules:
- Firstly, to achieve a current budget surplus by 2029/30
- Secondly, to reduce public sector net financial liabilities as a share of GDP by 2029/30
- Thirdly, to cap welfare spending by 2029/30.
The Chancellor confirmed that there would be no change to VAT rates, income tax rates and employee National Insurance contributions. However, one notable business taxation announcement includes:
- Employer National Insurance Contributions
While tax burdens on working people remained unchanged, the government increased employer National Insurance Contributions (NICs) from 13.8% to 15% in addition to reducing the per employee threshold. This decision is expected to raise approximately £25bn a year by the end of the 2029/30 forecast period, making it the biggest contributor in this revenue raising budget. The extent to which this measure may squeeze employee pay or recruitment in the long term waits to be seen.
And with regard to personal taxation, a notable measure includes:
- Capital Gains Tax
The Government has increased the lower rate of Capital Gains Tax (CGT) from 10% to 18% and the higher rate from 20% to 24% with changes effective immediately. While concerns exist that increases to capital gains tax may stifle investment and entrepreneurial behaviour, the UK capital gains tax rate remains competitive when ranked against other G7 countries.
Whilst some investors may have rushed to sell their assets before the official budget announcement, others will be keen to do so before 6 April 2025 when the CGT rates for business asset disposal relief and investors’ relief will rise to 14%. Others unable or not wanting to dispose of assets within this timeframe may be less inclined to sell, either altogether or in accordance with their original exit timeframes, which may impact the expected revenue raised from this change.
Alongside raising taxes, the government aims to tackle tax avoidance and misuse that the party believes will not only see an increase in the Treasury’s coffers, but aid the government in its aim to mitigate against high levels of fraud cases.
The property market
From 6 April 2025, the current remittance basis of taxation for non-UK domiciled individuals (“non-Doms”) will be replaced with a residence based regime, making properties previously attractive to this demographic now less desirable. This will add to the property market’s existing struggles, especially buy-to-lets, second homes in rural locations and flats with high service charges. Some of the effects may be mitigated by the recent change in interest rates but large parts of the property market were already in trouble and this may exacerbate these existing challenges.
The budget has now added prime central London to that list by requiring non-Doms to pay tax. Each of these areas of the market may seem isolated but the combined effect may be significant. Those who insure property valuers’ or who are thinking of doing so will be watching how the property market responds to this measure.
Comment
As the government continues to outline its approach to economic policy and financial services, we will be monitoring the evolving policy landscape for further changes and the potential impact on business they may have. We now look ahead to the spending review expected in June 2025, to consider how the government will be setting out spending plans across government departments and what this will mean for public services and businesses alike.
Related item: King’s Speech 2024
Read other items in Professions and Financial Lines Brief - December 2024
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