Chancellor Rachel Reeves delivered Labour's first Budget in almost 15 years on 30 October. In a bumper 76-minute speech, she announced £40bn worth of tax hikes, including an increase to employer National Insurance contributions.
Some spending promises were also unveiled, including an additional £22.6bn for the day-to-day health budget. This is intended to support a struggling NHS.
Scroll for full reporting and analysis from the team at MoneyWeek.
Good Tuesday morning – it’s Kalpana Fitzpatrick and Katie Williams here on our live blog. Only one sleep to go until Budget Day and the team at MoneyWeek HQ is gearing up for an interesting one. Stick with us as we share analysis in the lead-up, during, and after the event.
What time is the Budget tomorrow?
Reeves’s Budget speech will take place after Prime Minister’s Questions tomorrow, 30 October. It is likely to kick off at around 12:30 UK time.
Budget speeches usually last around an hour, but this can vary. The shortest one in UK history was Benjamin Disraeli’s 1867 Budget speech, which lasted 45 minutes. The longest was William Gladstone’s in 1853, which lasted for four hours and 45 minutes.
The word "Budget" comes from the old French word "bougette", which means leather bag. "It was customary to bring the statement on financial policy to the House of Commons in a leather bag," according to the UK Parliament website.
Today, the chancellor uses the famous red despatch box. Reeves will be photographed extensively with the little red box tomorrow – the first time it has ever been carried by a female chancellor of the exchequer.
(Image credit: Photo by JUSTIN TALLIS/AFP via Getty Images)
What has Keir Starmer said about the Budget?
The prime minister has warned that the Budget will be “painful” and involve “tough decisions”. He has also said it will be “a Budget for working people, from a government for working people”.
This phrase “working people” has become contentious in recent days, following a disagreement about how a “working person” should be defined.
This could have important implications when it comes to policies around taxation. On the campaign trail in the lead-up to the election, Labour promised not to raise taxes for working people.
But what does this mean, precisely? We will be taking a closer look.
How does Keir Starmer define a “working person”?
A working person is someone who “goes out and earns their living, usually paid in a sort of monthly cheque”, the prime minister said last week. He added that they were unlikely to be able to “write a cheque to get out of difficulties”.
When quizzed on whether someone with a job plus additional income from shares or a second property would count as a working person, Starmer responded that they “wouldn’t come within my definition”.
Is this a fair definition?
Starmer’s definition has prompted a defensive response from people up and down the country who work for a living, but who have saved up and bought assets on the side. Many are worried that they will be penalised by tax hikes.
Commenting on Starmer’s definition, Holly Mackay, founder of investment comparison website Boring Money, says: “It reinforces an old-fashioned narrative which I’ve spent my working life trying to dispel. Namely that shares are only for posh tweed-wearing landowners.”
A Budget for “strivers who graft”
Over the weekend, Reeves hinted at a broader definition of “working people”, though. Writing for the Sun on Sunday, she suggested working people are “strivers who graft”. She also reiterated the promise not to hike income tax, employee National Insurance or VAT.
“Whereas the Tories always asked working people to pick up the bill, I’ll ensure you won’t face higher taxes by not increasing National Insurance, the basic, higher, or additional rates of income tax or VAT,” the chancellor wrote.
Reeves has promised not to hike employee National Insurance contributions, but employer contributions look like they could be set to rise in Wednesday's Budget.
(Image credit: John Lamb via Getty Images)
£40 billion of tax hikes and spending cuts?
If there is one thing we are fairly sure about, it is that taxes are likely to go up in the Budget. Starmer has asked those with “broader shoulders" to carry a "higher burden".
Reeves is rumoured to be planning £40 billion worth of tax hikes and spending cuts – the so-called “funding gap” – in a bid to balance the books going forward.
She has previously accused the former Conservative government of leaving a £22 billion shortfall in the public finances this year.
One of the ways Reeves could raise revenue is by meddling with pension policies.
As it stands, pension savers currently enjoy a 25% tax-free lump sum from their pension pot (the most you can have is £268,275) – but this amount could be reduced to 20%.
Both the Institute for Fiscal Studies and the Fabian Society have also argued that the tax free lump sum allowance should be reduced to £100,000 because the current cap favours the wealthy.
While changes to the tax-free lump sum are only rumours at this stage, it has sparked concerns and prompted some savers into taking out their lump sums early.
Any changes to pensions will be disruptive and, if the government fiddles with the rules, it will need to allow plenty of time for adjustments and implementation so that people can plan adequately for retirement.
Cutting the lump sum allowance to £100,000 would be an unpopular move among those who have built up a decent-sized pension pot.
(Image credit: Halfpoint Images via Getty Images)
Biting costs
Investment platform Interactive Investor provided us with some stats on what some policies could cost you:
Fiscal drag: If the deep freeze in tax thresholds is extended from 2028 to 2030, someone with average earnings (£35k) could end up with a £366 higher tax bill due to fiscal drag, rising to £1,099 for higher-rate taxpayers.
Capital gains tax: If Reeves aligns GCT with income tax, a basic-rate taxpayer could pay £700 more and a higher-rate taxpayer would pay £1,400 more on a £10,000 gain.
Less generous workplace pension scheme changes: Someone earning £35k would lose out on £700 in pension contributions each year if their employer decides not to raise their pension contributions from 5% to 7% due to higher cost pressures. The extra contribution could add around £177,000 over 40 years.
Hunt – OBR should not publish the £22 billion fiscal hole report
Former chancellor Jeremy Hunt wants to block a report from the Office for Budget Responsibility (OBR) from being published tomorrow. The report will break down the details of the £22 billion fiscal hole Reeves talked about in the summer.
Hunt is arguing it could be used as a political weapon and that the OBR should be left out of the political fray. He has written to the cabinet secretary, Simon Case, asking for procedural fairness.
The OBR must be politically impartial and the public and markets need to know that it is holding the government to account without fear or favour. I have written to the Cabinet Secretary to ask why basic rules of fairness are not being followed. If we are to keep the OBR out of… pic.twitter.com/iUsDEQTduAOctober 29, 2024
We’re ending today’s live blog on some good news. The chancellor has just announced that the National Living Wage will increase by 6.7% next year.
We’ll be back tomorrow for more. Have a lovely evening.
Good Wednesday morning, and Happy Budget Day. This is Kalpana Fitzpatrick, Ruth Emery, Marc Shoffman, Vaishali Varu, Oojal Dhanjal and Katie Williams here on our live blog.
There are less than three hours to go before the chancellor delivers her first Budget speech.
Here are some financial and economic policies that have already been confirmed in the lead-up to the fiscal event:
Reeves will change the government’s self-imposed borrowing rules to free up more money for investing in the UK economy and infrastructure projects.
The National Living Wage will rise by 6.7% next April from £11.44 to £12.21 per hour.
The single bus fare cap will be raised from £2 to £3.
Will capital gains tax go up?
Reeves is said to have her sights on capital gains tax. If this is true, there are a number of routes open to her.
One option would be to further slash the annual tax-free allowance from its current level of £3,000. However allowances have already been cut dramatically in recent years – from £12,300 in 2022/23, to £6,000 in 2023/23, and to £3,000 in the current tax year.
Another more radical option would be to align the rates of income and capital gains tax.
CGT hike: the case for and against
“The Office for Tax Simplification, now disbanded, has previously argued the CGT exemption was too high and that the disparity between rates of CGT and income tax distorts decision making,” says Laura Suter, personal finance director at AJ Bell.
However, those on the other side of the argument point out that investing comes with additional risk and that wealth creators need to be incentivised accordingly. If capital gains are taxed at the same rate as income, why would you take on the additional risk?
How much money would a CGT hike raise?
Experts have warned that a CGT hike might not actually have the desired effect in terms of filling the government’s coffers.
Analysis conducted by HMRC showed that an increase in CGT rates could lead individuals to behave differently, for example, reducing the number of gains they realise in a period.
There could also be a decrease in the number of individuals selling CGT-liable properties, resulting in a decrease in other taxes like stamp duty land tax.
HMRC’s projections show that, if Reeves were to hike the higher CGT rate by 10 percentage points, it could lead to a £2 billion reduction in revenue by 2027/28, equating to roughly a 7.5% decrease in CGT revenue over a three-year period.
Chancellor @RachelReevesMP has left Number 11 to deliver her first Budget. pic.twitter.com/SN8MYK0rzmOctober 30, 2024
Reeves rumoured to hike employer NICs
While Labour has promised not to hike National Insurance for workers, it looks like taxes could be set to rise for their employers.
If the rumours are true, Reeves is expected to raise the National Insurance contribution rate for employers by 1-2%. She may also lower the threshold at which employers start paying the tax.
Experts have said the policy could raise around £20 billion. However, critics have said it will hit businesses and that higher costs will have a negative impact on employees when it comes to things like wage rises.
Anna Leach, chief economist at the Institute of Directors, says: “It is essentially the equivalent of a poll tax on companies, and takes no account of whether a business is profitable or not. At a time when business confidence is low, hiring plans have already been hit, and vacancies are falling, this will hit employment prospects and earnings.”
Will stamp duty thresholds drop?
Homebuyers will be keeping an eye on the Budget for an update on stamp duty thresholds.
Labour has previously said stamp duty thresholds would drop from April 2025 following an increase at the end of 2022.
The change means the stamp duty threshold for all home-movers would drop from £250,000 to £125,000, while relief for first-time buyers will drop from £425,000 to £300,000.
Rightmove said the average first-time buyer will pay £3,538 in stamp duty compared with nothing now.
It’s a moment in history as it will be the first time a female chancellor will deliver the Budget!
Today is the first time in our country’s history that a Budget will be delivered by a woman. For every young girl watching, let this be a sign that there should be no ceiling on your ambitions. https://t.co/lKNXMwJTxkOctober 30, 2024
Reeves has started her Budget speech and is recapping some points we have heard before – about the £22 billion black hole and Labour’s promise to deliver a Budget to “rebuild Britain”.
£1.8bn set aside to compensate victims of the Post Office scandal.
Office for Budget Responsibility forecasts say inflation will average 2.5% this year, 2.6% in 2025, 2.3% in 2026, 2.1% in 2027 and 2028 before reaching the Bank of England’s 2% target in 2029, the chancellor has told the House of Commons.
The chancellor says GDP growth is forecast to be 1.1% this year, rising to 2% in 2025, according to the OBR. Growth is then forecast to be:
1.8% in 2026
1.5% in 2027
1.5% in 2028
1.6% in 2029
Rachel Reeves has said the Budget will raise taxes by £40 billion in total, warning that any chancellor would "face the same reality” due to public finance shortfalls.
Reeves wants people back into work and to reduce their reliance on benefits. "Get Britain Working" whitepaper to follow.
Carer’s Allowance currently provides up to £81.90 per week – but Reeves has announced plans to increase this to the equivalent of 16 hours at the National Living Wage per week.
Reeves says this is “the largest increase in Carer’s Allowance since it was introduced in 1976”. A carer can now earn over £10,000 per year.
“Carers will keep more of their money,” Reeves said.
Reeves has announced that the basic and new state pension will be uprated by 4.1% in 2025/26, thanks to the triple lock, as widely expected. This will give 12 million pensioners an income boost of £470 a year. She also revealed that Pension Credit would go up by the same amount - 4.1% next April.
We want to give retired workers the long-term financial security they need.That’s why in 2025-26 we’re increasing the State Pension by up to £470 in line with the Triple Lock. pic.twitter.com/5pjeQOyRpQOctober 30, 2024
“There will be no higher taxes at the petrol pump next year…”
The government will protect working people and those in local communities by freezing fuel duty next year.This is a tax cut worth £3bn and will save motorists almost £60 a year. pic.twitter.com/HhyvXYfI8LOctober 30, 2024
Reeves confirms her promise not to hike income tax, employee National Insurance contributions or VAT.
She said working people won’t see higher taxes in their payslips but it is unclear what this means for those not paid a regular salary.
Reeves says only 6% of estates will pay inheritance tax this year. But she has announced some new measures on the tax in her Budget.
The government is extending the freeze on nil-rate bands until 2030 (currently frozen until 2028).
Inherited pensions will also be brought into the inheritance tax net from April 2027.
The chancellor may not have hiked National Insurance for employees, but she has announced an increase in the tax for employers. This will go up by 1.2 percentage points to 15% from April 2025. Reeves is also reducing the earnings threshold at which employers start paying the tax, from £9,100 to £5,000.
Capital gains tax changes
The lower rate of capital gains tax (CGT) will rise from 10% to 18% and the higher rate from 20% to 24%, the chancellor has said.
CGT on residential property will remain at 18% and 24% for basic and higher rate taxpayers respectively.
Air passenger duty
“Air passenger duty has not kept up with inflation, so I am making an adjustment…”
There will be an increase of no more than £2 for an economy-class short haul flight. But, a 50% hike for private jet users!
Landlords face stamp duty hike
The chancellor has announced a stamp duty hike for second-home buyers and landlords.
The additional rate of stamp duty will rise from 3% to 5% from tomorrow.
Best start to the school day
Tripling investment in breakfast clubs in schools
Special educational needs provision and improved outcomes for vulnerable children
£1bn uplift in funds, 6% real term increase
VAT on private school fees
VAT on private school fees will come into play from January 2025. Legislation will be in place to remove their business rates relief from April 2025.
The government will invest £5bn to deliver its plans on housing next year.
Labour has pledged to build 1.5 million homes over the course of this parliament.
Additional funding for the NHS
Reeves has announced a £22.6bn increase in the day-to-day health budget and a £3.1bn increase in the capital budget over this year and next.
To allow the NHS to deliver 2% productivity growth next year, reforms and investment are vital, Reeves says. She adds that a 10-year plan for the NHS will be published in the spring.
NEWS: Funding to kickstart delivery of two million extra NHS appointments.The Chancellor has confirmed new funding to help deliver an extra 40,000 elective appointments per week.Reducing waiting lists and building an NHS fit for the future. pic.twitter.com/I2Pkv8zizsOctober 30, 2024
Budget summary
Rachel Reeves delivered a powerful Budget, the first Labour one since 2010. Here’s a quick summary, but stay tuned for some more analysis and what the Budget means for you.
No change to income tax, employee NI or VAT
Income tax band thresholds will rise in line with inflation from 2028
Capital gains tax to rise from 10% to 18%, and the higher rate will go up from 20% to 24%
IHT threshold frozen until 2030, but pensions and AIM shares will be part of your estate
Businesses will pay NI at 15% on salaries above £5,000, as of April 2025
Air Passenger Duty on flights increased, adding £2 for economy short-haul flights, and up to 50% on private jets
Fuel Duty frozen, saving motorists £60 a year
National Living Wage up 6.7%
£2 cap on bus fares will go up to £3 from January
Triple Lock stays, meaning state pension will rise by 4.1% in April
Stamp Duty surcharge on second home purchases will go up from 3% to 5% from tomorrow (31 October)
VAT on private school fees
Reeves reconfirmed that VAT will be charged on private school fees. We look at how you can prepare for a hike.
State pension: how much more will you get from April?
The chancellor confirmed today that the state pension will increase next April in line with the triple lock. Here are some key numbers you need to know:
Someone receiving the full new state pension will gain an extra £470 a year from April, giving a total of £11,973.
The full basic state pension will increase from £169.50 to £176.45 per week, worth an extra £360 annually.
The Pension Credit standard minimum guarantee will increase by 4.1% from April 2025. This means an annual increase of £465 in 2025-26 in the single pensioner guarantee and £710 in the couple guarantee.
Those who do not receive Pension Credit will lose their Winter Fuel Allowance, though, worth up to £300 a year.
Employer National Insurance will rise by two percentage points to 15%.
The threshold at which employers start paying NI will also be reduced from £9,100 per year to £5,000 per year.
Capital gains tax will rise immediately from 10% to 18%, with the higher rate rising from 20% to 24%.
The stamp duty surcharge on second homes will rise by two percentage points from 3% to 5%.
IHT rates won't change, but the nil-rate bands will be frozen for an additional two years until 2030. Several reliefs and exemptions (such as those on private pensions) have also been scrapped or cut.
And that concludes our coverage on today's live blog! Thank you for sticking with us and have a lovely evening.
Hello, it’s Kalpana Fitzpatrick and Katie Williams here today with some analysis as we digest yesterday’s Budget.
First-time buyers and stamp duty
The temporary cut to stamp duty will end in March 2025. First-time buyers purchasing a property costing £625,000 face paying £11,250 more in tax.
Buying a second home? You’ll pay £2,500 extra in tax.
Laura Suter, director of personal finance at AJ Bell, says: “We’ll inevitably see a flurry of people looking to lock in their home purchase before the deadline next March – with estate agents and solicitors braced for some long days ahead of the finish line. We saw a similar story when stamp duty breaks were introduced during the pandemic and then expired, with a boom in house sales ahead of the deadline. This rush to complete in time could push prices up and lead to more competition in the housing market.”
Sterling drops to a two-month low
“Bond investors are continuing to dump gilts this afternoon after Reeves’ borrowing plans proved to be higher than expected, which is rapidly generating a sterling risk premium. Alongside a jump in gilt yields, the pound immediately swung 0.6% to the downside at around 1:30pm GMT,” says FX market analyst Kyle Chapman at Ballinger Group.
Reeves scraps high income child benefit reforms
Reeves didn't address this point directly in her Budget speech, but documents published afterwards revealed she has shelved plans to overhaul the controversial high income child benefit (HICB) charge.
Under current rules, parents re-pay the benefit (worth up to £1,248 per year) at a rate of 1% for every £100 they earn over a £60,000 threshold. This applies as soon as one parent's income exceeds the threshold.
Critics have said this is unfair, as it means a couple earning £59,000 each is exempt, while a single parent earning £65,000 gets hit.
One of the final acts of the Tory government was to announce an overhaul of the policy to look at household income rather than individual income.
Reeves said the reform would come at "significant fiscal cost".
How have investment markets responded to the Budget?
Markets were calm while Reeves delivered her Budget speech, but gilt yields rose in the aftermath as investors digested the full implications of higher government borrowing and spending.
Rate-sensitive areas of the UK equity market are also in the red today as markets contemplate whether the Budget will contribute to interest rates staying higher for longer.
Commenting this morning, Russ Mould, investment director at AJ Bell, pointed out that UK banks were one of the few risers on the FTSE 100 "as they stand to benefit from a stronger interest rate environment as they can charge more for lending".
