The 2024 UK Autumn Budget: What You Need to Know
In October 2024, Rachel Reeves, the UK’s first female Chancellor of the Exchequer, delivered the Autumn Budget, marking the Labour Party’s first budget in over 14 years. Reeves presented a series of measures aimed at addressing the UK’s financial stability, improving public services, and boosting investment in key areas like housing, transport, and research.
Let’s break down the key points for consumers.
Why Does This Budget Matter?
This Budget shows the government’s plan for managing money and investing in the future. It's important because decisions on things like taxes, government spending, and public services affect everyone in the UK. Following the Chancellor’s speech, the Office for Budget Responsibility (OBR) released an updated forecast on the country’s economic outlook, helping to predict how these changes might impact the economy.
Key Changes for 2024
1. Increased Spending on Public Services
The government plans to increase its annual spending by about 2% of GDP over the next five years. This additional spending will be split as follows:
- One-third for long-term investments, like transport, housing, and research.
- Two-thirds for day-to-day government expenses, such as public services and welfare.
2. How Will This Spending Be Funded?
The funding for increased spending will come from:
- Higher taxes: Mainly through an increase in National Insurance contributions paid by employers and higher capital taxes.
- Borrowing: The government will also borrow more to cover additional spending.
What’s Changing with Taxes?
Several tax adjustments are coming that could impact businesses and individuals.
- Employer National Insurance Contributions (NICs):
Starting in April 2025, employers will pay a higher NICs rate of 15% (up from 13.8%). Additionally, employers will have to start paying NICs on wages above £5,000 annually, down from the previous £9,100 threshold. While this will be a bigger cost for employers, some relief will be available through the Employment Allowance, which reduces overall NICs for eligible employers.
- Capital Taxes:
Taxes on capital gains will increase starting October 2024. This may affect people selling business assets or property. Also, certain tax reliefs for business sales will see rate increases in 2025 and 2026.
- Inheritance Tax:
Starting in April 2027, unused pension funds transferred after death will be subject to inheritance tax. Changes to how agricultural and business property is taxed at death are also expected.
- VAT on Private School Fees:
As part of a campaign promise, Labour has applied VAT to private school fees. Other confirmed measures include an increase in the energy profits levy, a tax on energy companies' profits, and updates to the rules around residency for tax purposes.
Help for Vulnerable Groups and Scandal Victims
The Budget also allocated funds to support victims of past scandals:
- Post Office Horizon IT Scandal: £1.8 billion over the next three years.
- Infected Blood Scandal: £11.8 billion over six years to support affected individuals.
Additionally, Carer's Allowance—a payment for people who care for someone with substantial care needs—will see its weekly earnings limit increase from £151 to £196 starting in 2025.
Housing and Fraud Prevention
- Right to Buy Scheme:
The Budget reduces the discount available to tenants who wish to purchase their council homes and allows councils to keep the revenue from these sales. Additionally, £500 million will go to the Affordable Homes Programme for 2025/26.
- Fraud Prevention:
To reduce fraud in the welfare system, more staff will be hired to work on fraud and error prevention in the Department for Work and Pensions (DWP) and HM Revenue and Customs (HMRC). Extra resources will also be dedicated to monitoring Universal Credit claims and verifying changes to existing claims.
New Rules for Public Spending and Borrowing
To manage its finances responsibly, the government has proposed two new “fiscal rules”:
- Balancing the Day-to-Day Budget by 2029/30:
By 2029, the government aims to balance its “current budget,” which means spending on public services and welfare should be covered by tax revenues rather than borrowing.
- Reducing Financial Liabilities:
By the same year, the government wants to reduce its debt and financial obligations relative to the size of the economy, which would improve the country’s financial stability.
Spending Review: How Government Funding is Being Allocated
As part of the Budget, the Chancellor introduced Phase 1 of a new Spending Review, which sets funding limits for government departments.
- Day-to-Day Spending:
Funding will increase by £33 billion between 2024 and 2025, with healthcare and education seeing the biggest increases.
- Investment Spending:
Government spending on long-term projects will go up by £14.7 billion between 2024 and 2025, supporting areas like infrastructure and research.
What This Means for You
This Budget aims to balance increased spending with higher taxes and controlled borrowing. For individuals and families, changes in National Insurance, capital gains, and inheritance taxes could directly impact household budgets and future planning. Additionally, those benefiting from Carer’s Allowance, council housing programs, or needing help with fraud issues in welfare could see positive changes.
As the government begins to roll out these changes, it's a good time to review your financial plans and consider any adjustments, especially if you’re an employer or have investments that could be impacted by new tax rules.