Autumn Budget 2024: Taxes rocket by £40bn as employers told to pay more
Rachel Reeves has hiked employers’ national insurance contributions (NICs) by 1.2 per cent, as she delivered the Labour government’s first Autumn Budget in office, which saw taxes rise by a record £40bn and government borrowing increase.
The Chancellor unveiled the rise – which is set to see the levy hit 15 per cent for firms and raise some £25bn in tax receipts over the forecast – as part of a package of fiscal measures aimed at setting out Labour’s agenda for power.
Reeves also said she was reducing the secondary threshold – the “level at which employers start paying national insurance on each employee’s salary” – from £9,100 a year to £5,000, and increasing the employment allowance from £5,000 to £10,500 in a boost for SMEs.
It came amid a Budget which hiked taxes by the biggest ever amount in cash terms, with Reeves blaming her economic inheritance from the Conservatives, arguing: “Together, the black hole in our public finances this year, which recurs every year, the compensation payments which they did not fund, and their failure to assess the scale of the challenges facing our public services means this budget raises taxes by £40bn.
CGT and inheritance taxes
“Any Chancellor standing here today would face this reality. And any responsible Chancellor would take action. That is why today, I am restoring stability to our public finances.”
On capital gains tax (CGT), Reeves, as she delivered the first Labour budget since Alistair Darling in 2010, said the lower rate of CGT would rise from 10 to 18 per cent, and the higher rate would rise from 20 to 24 per cent, while maintaining the rates on residential property.
While inheritance tax (IHT) thresholds will stay frozen until 2030, but Reeves said the Budget would bring “inherited pensions into inheritance tax from 2027”, while reforming agricultural and business property relief with assets over £1m facing an effective 20 per cent rate.
A 50 per cent relief will be applied “in all circumstances, on inheritance tax for shares on the Alternative Investment Market (AIM)”, with Reeves saying the overall IHT changes would raise some £2bn in the final forecast year.
Additional tax changes Reeves announced included:
- Renewing the tobacco duty escalator and introducing a flat rate duty on vaping liquid from October 2026,
- Increasing taxes on soft drinks in line with CPI inflation each year going forward,
- Maintaining electric car incentives in company car tax,
- Hiking air passenger duty on private jets by a further 50 per cent,
- Offering 40 per cent relief on business rates for the retail, hospitality and leisure industry in 2025-26,
- Announcing future plans for “two permanently lower tax rates for retail, hospitality and leisure”,
- Raising alcohol duty on non-draught drinks in line with RPI from February, but cutting draught duty by 1.7 per cent, which Reeves said “means a penny off a pint in the pub”.
She also announced the Treasury is abolishing the non-dom tax regime from April 2025 and introducing a new residence based scheme, as well as increasing CGT on carried interest to 32 per cent from April 2025, with further reform to come.
The stamp duty land tax surcharge on second homes will increase to five per cent, and ministers are boosting the energy profits levy on oil and gas firms to 38 per cent and removing the 29 per cent investment allowance.
Reeves also opted against continuing a freeze of the income tax thresholds, which would have seen workers continue to pay more tax by being dragged into higher bands over time.
“There will be no extension of the freeze in income tax and National Insurance thresholds beyond the decisions of the previous government,” Reeves declared.
Labour’s manifesto promise to charge VAT on private school fees was confirmed by Reeves from January 2025, with business rates relief to be removed from April 2025.
Debt and spending
The Chancellor also announced changes to the way the government measures debt and borrowing, to enable tens of billions of additional investment over the course of the parliament, intended to renew the UK’s infrastructure and fund improvements to public services and state buildings.
This meant “counting not just the liabilities on a government’s balance sheet, but the financial assets,” she said.
Government departments will see their funding grow by 1.5 per cent in real terms from 2024-25, with total, including capital, spending to grow by 1.7 per cent, which Reeves insisted was “no return to austerity” but that public services would have to undergo reform.
Spending commitments including tripling investment in breakfast clubs, raising the core schools budget by £2.3bn, £300m for further education, and a £1bn uplift for SEND.
The government will “set a path” to spending 2.5 per cent of GDP on defence, Reeves said, as she announced a defence increase of £2.9bn next year with £3bn guaranteed to Ukraine “per year, for as long as it takes”.
Local governments will receive £1.3bn in additional funding for essential services, the Chancellor added, with some £3.4bn, £1.7bn and £1.5bn for the Scottish, Welsh and Northern Irish governments.
Reeves, who is Britain’s first female Chancellor, took to the despatch box in the Commons chamber on Wednesday lunchtime, where she addressed MPs for over an hour.
She argued in the Chamber that it was “not the first time that it has fallen to the Labour party to rebuild Britain” – citing the post-war government of 1945, the 1964 “white heat of technology”, and the 1997 rebuilding of schools and hospitals”.
Speaking ahead of the fiscal event, she said: “Politics is about choices. This Labour government chooses investment over decline.”
She also posed for the traditional Budget day photograph holding the Chancellor’s red box outside No11 Downing Street, shortly before heading to Parliament.