As October 30th nears, all eyes are on Chancellor Rachel Reeves as she prepares Labour’s first budget in over a decade, dubbed “a landmark week for Britain” by the Prime Minister. With high expectations, Reeves faces a complex economic landscape: inflation is stabilising, but financial pressures loom, including a £22bn deficit, legacy compensation costs for the Post Office and Infected Blood scandals, and a pledge to sustain public sector spending without a return to austerity.
To back her commitment and balance spending while driving growth, Reeves has announced she will be changing the UK’s debt rules to unlock billions of pounds in additional headroom for spending on long-term infrastructure projects. She will introduce two new fiscal rules:
- Stability Rule: Mandates that day-to-day spending be covered by revenue, allowing borrowing only for long-term investments.
- Investment Rule: Adjusts debt calculations to increase fiscal headroom by up to £50bn, though concerns persist about market reactions, especially regarding gilt prices and potential interest rate impacts.
Another focal point is Labour’s promise not to raise income tax, National Insurance (NI), or VAT for “working people”—a term that stirred debate when the PM suggested it might exclude share earners and landlords. This statement was later clarified, with a spokesperson specifying that only those whose primary income is from shares would be excluded. The definition, however, remains conveniently vague.
Unlike traditional budget secrecy, Reeves has been briefing the media to calm market fears, a tactic that’s drawn criticism from the House of Commons, with the Speaker rebuking her for prioritising the press over its elected members. By laying her cards on the table early, Reeves seems to be aiming for stability, but the tactic is drawing its own kind of heat.
Below we take you through some of the speculation relating to the Budget, looking at what has been briefed so far and assess what we can actually expect.
Expected Tax Announcements
- Income Tax: A likely extension of the freeze on income tax thresholds beyond 2028, bringing in up to £7 billion a year as wages grow.
- Capital Gains Tax (CGT): Anticipated to rise several percentage points above the current 20% on earnings above £50,271, while some existing reliefs could be scaled back.
- National Insurance Contributions (NICs): Higher employer contributions are anticipated by up to 2%, likely to raise approximately £20 billion.
- Inheritance Tax (IHT): Possible changes to reliefs and thresholds to be expected in a bid to increase IHT receipts.
- Fuel and Alcohol Duties: The Treasury is expected to end the current 5p freeze on fuel duty, with an additional 1-2p per litre increase, and potentially raise alcohol duty.
- Stamp Duty: Expected end to Tory-era stamp duty reliefs, raising costs for property transactions over £125,000.
- Non-Domicile Status: Revisiting Labour’s pledge to replace non-dom tax status with a shorter, more modern scheme, though some specifics remain under review following concerns about wealthy foreigners leaving the UK.
- VAT on Private Schools: Set to go ahead with minimal dilution to its original pledge, with a few exemptions, such as for military families.
- Vaping Products: A potential new tax increase targeting vaping products as part of a broader public health strategy.
- Windfall Tax on Oil and Gas: Projected to increase from 35% to 38%, targeting profits from November 2024 through March 2030.
- Aviation Tax: Potential rise in Air Passenger Duty as part of environmental policy, with potential impacts on domestic flight costs.
- Business Rates: Reforms to be expected aiming to ease the burden on smaller businesses while increasing rates for large multinationals.
- Council Tax Reform: Speculation around replacing the current banding with a 0.5% flat-rate tax on property values.
Expected Spending, Pay, and Investment Announcements
- Bus Fare Cap: An increase in the cap from £2 to £3 confirmed, in place until the end of 2025.
- National Minimum Wage: A possible notable rise and possible rebranding as the “new living wage.”
- Pothole Funding: A £500 million pledge to address the backlog in pothole repairs.
- Employment Support: £240 million confirmed to expedite local employment services and reduce economic inactivity.
- Affordable Homes Programme: An additional £500 million announced, focusing on social and affordable housing.
- School Investments: A £1.4 billion allocation to the School Rebuilding Programme confirmed, with an additional £550 million over last year.
- NHS Infrastructure: Rebuilding initiatives expected as part of Labour’s long-term investment strategy.
- Child Poverty: Expanded support expected, though specifics remain under wraps.
- Public Sector Investment: New initiatives expected to leverage private sector funds, particularly in green energy, digital, science, and transportation.
- National Wealth Fund: Funding commitments of £5.8 billion, focusing on green technology and infrastructure.
- Carbon Capture: Expanded carbon capture initiatives in high-emission areas.
- Government-Funded Childcare: As previously announced, there will be £1.8 billion for local authority childcare expansion and £15 million for new nurseries in primary schools.
- Breakfast Clubs: Funding tripled to over £30 million to support breakfast clubs nationwide.
- Water Pollution: £47 million to help alleviate river pollution issues impacting housing development.
Labour’s first budget has long been expected to be a pivotal moment for the new government, and judgment by the markets, business, MPs and the public will be made after the Chancellor has made her speech after 12.30 on Wednesday.
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