As the UK prepares for its first Labour Budget in 14 years, the upcoming Autumn Budget 2024 is set to address a significant £22 billion financial shortfall. With Chancellor Rachel Reeves at the helm, the Budget is expected to introduce a mix of tax increases and spending cuts aimed at stabilising the economy and fostering growth. We delve into the key predictions and potential implications of the Autumn Budget coming up in under a fortnight, covering employer national insurance contributions, pension reforms, capital gains tax, and more.
Employer National Insurance Contributions
One of the most talked about changes in the Budget 2024 is the potential increase in employer national insurance contributions (NICs). Currently set at 13.8 percent on employee earnings above £9,100 per year, this tax could be adjusted to raise an estimated £17 billion annually. The last time it was at a higher level was back in 2022/2023 in the five or so month period where the 1.25 percent health and social care levy was a thing.
The Labour Party's manifesto had promised not to raise taxes for "working people," but this pledge may not extend to employer NICs. Treasury officials are also considering applying NICs to employer pension contributions, which are currently exempt. This isn't a charge that will be paid by employees, but where an employer makes a pension contribution on behalf of the employee (as a benefit, or salary sacrifice scheme - currently both are exempt). This change could significantly increase costs for employers, potentially leading to reduced pension contributions for employees, slower wage growth, and job cuts. Business groups have expressed concerns that such increases could hinder job creation and wage growth, particularly in sectors like hospitality.
Pension Reforms
Autumn Budget 2024 may also introduce other significant changes to pension taxation.
Speculation suggests a reduction in the tax-free lump sum from pensions on withdrawal, currently at 25 percent up to £268,275, to £100,000. Additionally, there are discussions about charging national insurance on private pension incomes (currently treated as NIC exempt) and introducing income tax on inherited pensions. These measures aim to increase revenue but have sparked concerns about their impact on retirement savings.
Capital Gains Tax and Inheritance Tax
Reforming capital gains tax (CGT) is seen as a potential revenue-raising measure. Aligning CGT rates with income tax could generate £14 billion annually, £4 billion shy of totally covering the fiscal deficit (£18 billion). However, critics argue that higher CGT could deter investment. Inheritance tax (IHT) changes are also on the table, with potential increases in the tax rate or reductions in the threshold for taxable estates. These reforms align with Labour's goal to raise funds from wealthier individuals while maintaining economic growth.
Council Tax and Stamp Duty
In two weeks the Budget might see reforms to the council tax system, possibly replacing the current banding system with a 0.5 percent annual property value tax. However, Labour has previously stated they would not change council tax bands. Stamp duty changes are also anticipated, with the reduction of the threshold for first-time buyers from £425,000 to £300,000 on the cards, as well as shifting the focus to an annual land value tax.
Gambling Tax and Fuel Duty
The gambling industry is bracing for potential tax increases, with proposals to double taxes on "higher harm" products like online casino games. This could raise between £900 million and £3 billion annually. The industry warns that higher taxes could lead to job losses and increased illegal gambling.
Fuel duty, which has been frozen for over a decade, might also see changes. The 5 pence cut introduced two years ago would be scrapped, potentially raising an additional £2 billion for the Taxman.
Business Rates and Green Economy
A reform to business rates to create a fairer system, would benefit smaller businesses whilst not bringing in any additional income. Supporting the green economy, with potential alternatives to fuel duty as the transition to electric vehicles progresses include road user charges or changes to the way VAT is levied on EV charging.
The Labour Budget comes at a time of economic uncertainty, with inflation falling below 2 percent for the first time in three years - it's down to 1.7 percent. This drop may influence interest rate decisions by the Bank of England, currently holding at 5 percent. However, forecasts of interest rates being cut over the next months may be shortlived as the inflation figure quoted does not include the increased energy price cap.
Chancellor Reeves aims to avoid real-terms cuts to government departments while boosting investment to stimulate growth. The government is adhering to a borrowing rule that requires all day-to-day spending to be funded by taxes rather than borrowing.
The proposed tax and spending measures have sparked debate among politicians and the public. Some ministers have bypassed Reeves, appealing directly to the Prime Minister to soften proposed spending cuts. Business groups warn that potential tax increases could hinder economic growth, while health organizations and charities have welcomed measures like the ban on disposable vapes.
Whatever happens in two weeks, it is looking like it will be a significant political and economic moment, with far-reaching implications for businesses, individuals, and the broader economy. As the government navigates fiscal challenges and public expectations, the Autumn Budget will be closely watched for its impact on growth, investment, and social equity.
We will continue to monitor for any new developments as always will be following the live Budget on October 30th.