The 2024 Autumn Budget

First Labour Budget in 14 Years: Key Highlights and Implications

The newly appointed Chancellor, Rachel Reeves, presents the first Labour Budget in over a decade.

A Historic Moment in UK Politics

In a significant shift at Westminster, Chancellor Rachel Reeves unveiled the first Labour Budget in 14 years, marking the first time a female Chancellor has delivered such a statement. The Budget carried the classic Labour "Spend and Tax" focus, with a tone aimed at addressing a “£22 billion black hole” left by the previous administration—a phrase repeated multiple times in her speech.

Economic Outlook: Modest Growth and Persistent Inflation

The Office for Budget Responsibility (OBR) now predicts that inflation will slightly exceed the Bank of England’s 2% target, sitting at 2.5% for this year and continuing to hover slightly above target throughout this Parliament. Economic growth is expected to reach 1.1% this year, 2.0% in the following year, and around 1.5% annually for the next five years—modest figures below the “ideal” growth rate of 2.5%.

Pre-Budget Leaks: Employer’s National Insurance Increase

In the run-up to the Budget, news emerged about an increase in Employer’s National Insurance (NI). While Labour had pledged not to raise Income Tax, VAT, or NI in its manifesto, this increase has stirred debate over what constitutes a “working man.” Many business owners argue they too fall under this category. The Chancellor highlighted Labour’s goals to restore stability, protect working people, fix the NHS, and rebuild Britain.

The 7 Pillars of Growth

The Chancellor laid out seven key pillars for economic growth, including:

• Restoring stability
• Increasing investment in infrastructure
• Ensuring nationwide prosperity
• Creating a “Skills England” to promote workforce re-entry
• Establishing a long-term industrial strategy
• Boosting Research & Development funding
• Maximizing growth in clean energy

Redefining UK Government Debt

Reeves also announced changes to the calculation of UK Government debt, which will now exclude certain capital costs. This adjustment enabled the government to commit to £100 billion in capital spending over the Parliament's duration, with an anticipated return of £15 billion in additional GDP.

National Living Wage and National Insurance Changes

Effective April 2025, the National Living Wage (NLW) will rise, bringing annual earnings for a full-time worker to just under £25,400. Young workers aged 18-20 will see their annual income grow to £20,800. Employer’s NI will increase from 13.8% to 15.0%, with the secondary threshold lowering to £5,000. However, smaller businesses may benefit from an increase in the Employer Allowance, rising from £5,000 to £10,500 per year.

Tax Allowances and Capital Gains Tax

Personal allowances will remain frozen until 2028, with the Chancellor indicating a potential increase by inflation in 2028/29. In Capital Gains Tax (CGT), the general rate will rise to 18%, with a higher rate of 24% for high earners. For business asset disposals, the lifetime CGT limit of £1 million will remain, but tax rates will increase to 14% in 2025/26 and 18% in 2026/27.

Inheritance Tax Revisions

Changes to Inheritance Tax (IHT) were announced, extending the freeze on the Nil Rate Band until 2030. Inherited pensions will now be included in IHT from April 2027, and agricultural and business property reliefs will be modified. Starting in 2026, only the first £1 million of such assets will receive 100% relief, with a 50% relief on additional value.

Corporation Tax and Private School VAT

Corporation Tax will remain at a maximum of 25% during this Parliament, with no immediate changes to rates or reliefs. However, a roadmap was introduced to clarify future policies. A 20% VAT rate on private school fees will be introduced in January 2025, alongside the removal of business rate relief for schools with charitable status.

Stamp Duty, Vehicles, and Non-Dom Taxation

Stamp Duty on second homes will increase from 3% to 5%, and companies purchasing properties over £500,000 will face a 17% duty. Following a recent court ruling, double cab pickups with over one tonne of payload will be considered cars for tax purposes from April 2025. Additionally, the rules for Non-Domicile (Non-Dom) tax status will change in 2025, with UK residency alone determining tax obligations.

Duty Changes and New Levies on Tobacco and Vapes

The Chancellor froze fuel duty and lowered draught beer duty by 1p per pint, while tobacco duties increased to discourage smoking. A new duty on vapes will take effect in October 2026.

Summary of Key Tax Rates and Changes

The table below provides a summary of main tax rates for this year and the next, highlighting significant changes from prior years.

PERSONAL TAX RATES

Notes: 1. Reduces by £1 for every £2 income over £100,000 gross income giving effective tax rate of 60%
2. Not available if taxable non-savings exceeds the starting rate band

NATIONAL INSURANCE

CORPORATION TAX

Notes: 3. This is computed marginal rate based purely on trading profits

NATIONAL LIVING WAGE

Notes: 4. This relates to first year of apprenticeship employment only. Apprentice then moves to appropriate NLW rate.

CAPITAL GAINS TAX

Notes: 5. Rate will increase to 18% from 6 April 2026