The highly anticipated first budget from Chancellor Rachel Reeves was announced today. We were braced for the news, having been warned it would involve “painful choices” to secure £40bn to fund public services and growth.
The UK’s first female Chancellor said: ‘The UK voted for change, and the Labour government has a mandate for a decade of “national renewal”.’ Reeves added today’s budget would “rebuild Britain once again.’
What are the key points in Labour’s first budget?
National Insurance
We were promised that employees would not pay more tax. Employers, however, have been hit hard. £25bn is to be raised by increasing Employers’ National Insurance to 15% from April 2025 (a 1.2% increase). A secondary threshold impacts workers’ earnings above £5,000 from April, down from £9,100 currently.
Wages
The legal minimum wage for over-21s, will increase by 6.7% to £12.21, equivalent to £1,400 a year for an eligible full-time worker. In addition, there will be a single adult rate phased in over time to eventually equalise pay for under-21s.
Eligibility for the allowance paid to full-time carers has widened, increasing the maximum earnings threshold from £151 to £195 a week.
Personal Taxes
- The current freeze on income tax and Employee National Insurance thresholds will remain until 2028.
- Capital gains tax paid on profits from selling shares to increase from up to 20% to up to 24%. CGT rates on additional property sales are to stay the same.
- The current inheritance tax threshold of £325,000 is to be extended to 2030.
- The concept of non-domicile residents will be abolished from April 2025 (read more).
Business Taxes
Employment allowance – which allows companies to reduce their National Insurance liability – is to increase from £5,000 to £10,500.- Tax paid by private equity managers on the share of profits from successful deals is to rise to up to 32% from April, (currently up to 28%).
- Corporation tax paid on taxable profits over £250,000 to stay at 25% until the next election.
Lifestyle Changes
- 5p cut to fuel duty on petrol and diesel, due to end in April 2025, kept for another year.
- The cap on single bus fares in England will rise from £2 to £3 from next January.
- Tax on tobacco to increase by 2% above inflation, and 10% above inflation for hand-rolling tobacco.
- Tax on non-draught alcoholic drinks to increase by the higher RPI measure of inflation, but tax on draught drinks cut by 1.7%.
Public Spending
The government is committed to spending:
- £22.6bn increase in the NHS day-to-day health budget, and £3.1bn increase in the capital budget. That includes £1bn for repairs and upgrades and £1.5bn for new beds in hospitals and testing capacity.
- £5bn on housing, including increasing the supply of affordable housing.
- £3.4bn for the warm homes plan to upgrade buildings, lowering energy bills.
- £500m additional funds to target potholes next year.
- £1.3bn for additional grant funding for local government, including £600m for social care.
‘Today’s budget raises significant tax to support the progressive funding plans,’ says Emily Bridges of re:accounts Chartered Accountants in Stevenage. ‘Labour has stuck to its promise of not increasing taxes on individual workers, however employers have been hit hard by the increase in Employers’ National Insurance.’
How does today’s budget impact you or your business? For help with adjusting your financial planning and forecasting, please contact the friendly team at re:accounts.
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