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Rachel Reeves the new UK Chancellor, has confirmed she will be presenting her first budget on 30 October 2024, marking the first Labour budget in 14 years. We have already had numerous hints of what to expect, both from the original election manifesto and subsequent news updates. We also know that this budget is taking place at a time when there are substantial economic challenges and a stated £22 billion shortfall in public finances. Reeves has attributed these problems to mismanagement by the previous Conservative government, but in fairness, it was inevitable that there would be some fiscal challenges regardless of who was in power. This is exacerbated by the obvious impacts on the UK economy of the Covid pandemic and Brexit.
So these are challenging times and all taxpayers should be expecting changes – it was Labour’s buzzword of the election after all. In addition, taxpayers should be prepared to listen to a budget that emphasises fiscal responsibility and inevitable tax increases. Here we outline what you could expect in October, based on policies already announced.
Five key expectations from Rachel Reeves’ first UK Budget
Tax policy changes
Reeves has already committed to not increasing taxes for working people, including national insurance, basic, higher, or additional rates of income tax, and VAT. This was a key message throughout Labour’s election campaign. However, she has not ruled out potential increases to capital gains and inheritance taxes to address the fiscal gap and we have written in earlier articles about what could be unveiled.
The introduction of VAT on private school fees has been confirmed and this is set to take effect from 1 January 2025. It will significantly increase the cost of private education. We discuss this in detail, including the impact of partial exemptions, in another of this month’s articles.
Public spending changes
Some of the Tory party’s former flagship infrastructure projects are being cut back or shelved. These include the Stonehenge tunnel and changes to the winter fuel allowance, which will now be means-tested. These measures are not without controversy and have been positioned as part of an essential effort to reduce government spending and address the fiscal deficit.
There are definite plans to revise pay for public sector workers and junior doctors, in an attempt to put a stop to strikes and to improve morale in the public sector as a whole. Some percentage pay increases have already been mooted, but we should wait for the final figure rather than speculating any further.
Changes to economic policy
The record profits of energy companies have attracted a lot of criticism and many have been arguing for higher taxation of those companies. The budget will include important reforms to the Energy (Oil and Gas) Profits Levy, with an increase in the levy rate and changes to investment allowances available for energy companies. These reforms are part of a broader strategy to ensure energy security and to incentivise more widespread decarbonisation of the UK’s economy.
Reviews to carried interest
Another area to be reformed is the way that ‘carried interest’ for investment firms is taxed. Carried interest is significant for private equity, venture capital and hedge fund partnerships. Rather than being charged to income tax as a share of profits, it is treated as a return on interest, taxed as capital. This acts as a clear financial incentive for fund managers. The Labour government wishes to reform the taxation of carried interest, to make it fairer, by aligning the way these profit shares are taxed with income. This is part of a bigger consultation process and we await the final outcomes, likely in the 2024 Autumn Budget.
Fiscal responsibility and long-term planning changes
From day one Rachel Reeves has said that the government’s economic policy will always be responsible and based on an overarching goal of balancing the budget and reducing debt. On 30 October; Budget day, we can expect to see the launch of a long term spending review, which will specify different departmental budgets for at least the next three years.
What will the Autumn 2024 Budget mean for business owners and HNWs?
Business owners and high-net-worth (HNW) individuals should be prepared for potential changes in tax policies, particularly concerning capital gains and inheritance taxes. They should already be considering any available options available to them to utilise the current rates and reliefs attaching to these taxes.
The stated focus on fiscal responsibility and spending cuts could have implications for some of the industry sectors that are reliant on government contracts or subsidies. We know from earlier reports that Labour is committing to building 1.5million new homes over the next parliament and this will be likely to create significant demand for construction companies, which is positive news.
Keep reviewing our blogs for tax updates
The new government’s first budget will inevitably involve some tax increases. If the aim is to improve public services, stabilise the economy, and address fiscal challenges, the funds to do all this needs to come from somewhere.
We will be monitoring news on the Autumn Budget carefully to keep readers updated. You can expect a full analysis of the changes on 30 October, together with an overview of their implications for SMEs and HNW individuals and all relevant tax advice. Keep monitoring our blogs for further details.
In the meantime, if you wish to discuss any aspects of business or personal tax planning, please get in touch via partners@rjp.co.uk.
