Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
The first formal Budget of the new Labour Government has taken place – and the key line seems to be driving economic stability in the aftermath of the Conservatives’ ‘black hole’ in finances.
Some key points:
“My belief in Britain is brighter than ever,” says Chancellor Rachel Reeves in her opening remarks, but change is needed to succeed.
“The only way to drive economic growth is to invest, invest, invest. There are no shortcuts. We must restore economic stability and turn the page on the last 14 years.”
There will be a line-by-line breakdown to demonstrate where the £22bn black hole was created by the Conservative government, who did not provide the OBR with all the information required for the Spring Budget.
This means any comparison between today’s budget and the Spring forecast are not useful, because the Conservatives failing to provide the OBR information means the forecast would have been ‘materially different’ if the correct information had been provided.
£11.8bn funding for those infected and affected by the infected blood scandal.
£1.8bn to compensate the Post Office Horizon scandal victims.
This budget raises taxes by £40bn.
This Budget aims to maintain the target of 2% inflation.
There will be an appointment of a new Covid Corruption Minister, who will be responsible for reclaiming money paid for dodgy Covid contracts.
It stretched household finances to its limit, with inflation hitting a peak of 11%. OBR says inflation will average 2.5% this year, 2.6% 2025 then returning down to 2.0% by 2029.
Economic growth: end to short termism. The OBR have published a five- and ten-year forecast. The new Charter for Budget Responsibility confirms this will be a permanent feature.
Stability rule: avoid borrowing for day to day public spending by 2029/30. The budget will be balanced every third year until then.
There will be changes to the Capability to Work Assessments but this is not explained in detail.
Rachel Reeves promises a crackdown on fraud in the welfare system, often the work of criminal gangs. Innovative new methods to avoid illegal activity. They will use direct access to bank accounts to recover debt, saving £4.3bn a year by the end of the forecast period.
The Chancellor promises to modernise the HMRC systems to make sure people pay what they owe, and add new staff. They will crack down on umbrella companies and increase the interest on unpaid taxes, with a raise of £6.5bn by the end of the forecast with these measures.
An increase to the hours permitted to work at National Minimum Wage up to 16 per week, or up to £196 a week, an increase in £45 allowed earnings a week. This allows carers to take more money home – just over £10,000 a year, in fact.
The HSF will be extended and continued.
Reduction of Universal Credit debt repayment amount that can be deducted from 25% to 15% each month.
National Living Wage rises to £12.21 an hour and a single adult rate phased in over time, to bring all over-18s receiving the same rate.
In 2025-26, the State Pension rises due to a commitment to the Triple Lock, up to £470.
Fuel Duty will remain the same to avoid a £3bn burden. The rate is frozen at 5p.
Air Passenger Duty will be increased by 50% – around £450 per passenger – for private jets. For commercial flights, there will be a rise of no more than £2 per economy seat.
“I will not increase your National Insurance, VAT or Income Tax” says the Chancellor. “Working people will not see higher taxes in their payslips.”
Personal allowances will remain frozen with a guaranteed rise in 2028/9.
To raise the revenues required to fund the public services:
An increase in Employer NI contributions by 1.2% to 15% from April 2025, with a reduction in the secondary threshold from £9,100 to £5,000. Raising £25bn per year.
The Employment Allowance will increase from £5,000 to £10,500, meaning small businesses won’t pay any NI at all and over 1 million will pay the same or less than previously. They can employ up to four people on National Living Wage without paying NI.
The lower rate increases from 10% to 18% and the higher rate from 20% to 24%. CGT on residential property will also be 18% and 24%.
The lifetime limit for business asset disposal relief is capped at £1m.
Chancellor Reeves says she understands the desire to pass on hard-earned money to children and grandchildren, but that the need to raise revenue is also required – so a balanced approach is needed.
This starts with an extension of the current IHT threshold freeze to 2030. The first £325,000 of any estate can be inherited tax-free, rising to £500,000 when including a primary inheritance.
Stevie Heafford, tax partner at HW Fisher, says: “The decision by the government to freeze this figure until 2030, rather than increase it in line with inflation, means that many people will continue to find themselves caught in the Inheritance Tax trap for the first time.”
A close of the loophole with pensions: from April 2027 they will form part of the estate.
From April 2026 the first £1m of business assets will not attract IHT, then with a 50% relief. This will protect small family farms with 75% claims unaffected by these changes.
There will also be a 50% relief on shares in the Alternative Investments market.
SDLT will stay the same apart from for second homes with a rise to 5%, effective from 31st October 2024.
Day to day spending from next year onwards will grow in 1.5% in real terms.
“There will be no return to austerity, but there will be difficult choices in the next stage of the spending review. We can’t simply spend our way to improving services.
We will use technology to improve services and ensure tax payer money is spent as efficiently as possible”.
There will be an extra £1.3bn for local councils, including £230m to tackle homelessness and at least £600m for social care.
From January 2025, VAT will apply to private school fees.
The core schools budget will increase by £2.3bn. Thousands more breakfast clubs will be provided. A further £300m for further education.
There will be a reform for Special Educational Needs children, with a £1bn uplift in funding, which is a 6% real-term increase on this year’s spending.
The Chancellor has introduced a £2m fund for Holocaust education schemes.
There will be £6.7bn for the Department of Education next year for investment in schools, including the rebuilding of those in desperate need of repair or expansion.
A £2.9bn increase to the military’s defence budget to adhere to NATO agreements and support for Ukraine ‘for as long as it takes’.
There will be funding to commemorate the 80th anniversary for VE and VJ day in 2025.
The Chancellor insists on cracking down on shoplifting, including on low value items, to support the retail sector.
“We are today securing the delivery of the Transpennine railway upgrades to include York, Leeds, Manchester with electrification – by the end of this year and to be completed by 2026,” says the Chancellor.
There will be an increase in investment for east to west rail connections such as between Oxford and Milton Keynes.
Funding has been secured to ensure HS2 will go to Euston station.
“Potholes have been an all-too visible reminder of our failure to invest as a nation”, says the Chancellor, who pledges an increase of £500m for road maintenance, to fix an extra million potholes each year.
The bus fare cap will not end: it is extended for a further year to a cap of £3 until December 2025.
The Government will set up GB Energy in Aberdeen.
There will be 11 new green hydrogen projects to fund clean energy.
“In the Spring, we will publish a ten year plan for the NHS, to move from hospital to community, from analogue to digital, from sickness to prevention”, the Chancellor stated.
There will be a £22.6bn increase in the day-to-day spending budget of the NHS, and a £3.6bn additional capital spending budget.
There will be £1bn of capital investment in 2025 to repair and rebuild NHS buildings. The seven hospitals affected by the RAC (concrete) crisis will be immediately aided.
A further £1.5bn will be provided for new beds in hospitals and capacity for more than 1m more diagnostic tests.
Waiting lists will reduce, with a target of waiting times to be no longer than 18 weeks.