Seven ‘painful’ changes Labour made in 2024 autumn Budget

This afternoon, Chancellor Rachel Reeves stood at the House of Commons despatch box to deliver Labour’s first Budget for 14 years.

Delivering one of the most high-stakes budgets for years, the Chancellor revealed a high tax, high spending and high borrowing financial plan that many people are going to find ‘painful’.

But that’s not our term, but rather how Prime Minister Keir Starmer described the Budget, telling Brits to brace themselves for a rough ride in a speech delivered in the garden outside Downing Street in August.

Follow the latest updates on the Autumn 2024 Budget on our live blog

Now having delivered a feature-length speech to the Commons which featured jeers, cheers and sneers from those in attendance, we now have a better idea of where that ‘pain’ is coming from- and who is going to feel the brunt of it.

In Labour’s manifesto ahead of the election, the party pledged to ‘not increase taxes on working people’.

It was quite a vague promise — it’s not clear who exactly they meant by ‘working people’, or the range of taxes that were counted within that description.

However, the manifesto does specify some taxes that they wouldn’t raise: VAT, national insurance, and income tax.

The PM has also said he will not increase corporation tax, meaning the biggest potential revenue raisers for the government have largely been cut off.

Capital gains tax

Capital gains tax (CGT) is paid on the profit you make when you sell something — as the name suggests, it’s a tax on the capital you’ve gained as a result of the sale.

It’s not paid on everything you might sell though, mainly just big stuff: personal possessions worth £6,000 or more (except your car), property that isn’t your main home (affecting landlords, for instance), and business assets.

You also pay it on any shares that aren’t in an ISA (Individual Savings Account) or PEP (Personal Equity Plan), as well as a few other ‘chargeable assets’. Find all the details on the government website here.

The Telegraph reported in August that middle-class clients of wealth managers are rushing to sell off their property and shares now, in anticipation of a CGT hike later this month.

According to the newspaper, there are suggestions the levy might be brought into line with income tax — which could mean the higher rate jumps from 20% to 45%.

Meanwhile, the Guardian reported earlier this month that the Treasury is testing a range of 33% to 39% for the tax.

Inheritance tax

Inheritance tax is paid on the property, money and possessions of someone who has died.

It doesn’t affect people whose estate has a value of less than £325,000 or those who leave everything above that threshold to their spouse, civil partner, or certain good causes.

As with most things in the world of tax, there are a heap of different exemptions, margins, and fine details. You can read about them on the government website.

The current standard rate for inheritance tax is 40%. Any changes would likely only affect a small portion of the population — in 2020-21 less than 4% of estates in the UK paid the tax.

Employer national insurance contributions (NICs)

At Prime Minister’s Questions earlier in October, Sir Keir refused to rule out increasing national insurance for employers.

But wasn’t raising national insurance one of the measures ruled out in the manifesto? Well, Labour might be preparing to argue that they only ruled it out for ‘working people’ — ie. for contributions paid by employees.

Increasing the rate of NICs paid by employers by one percentage point could bring in about £8.5 billion for the Treasury by 2027/28, according to HM Revenue and Customs.

Reeves could also levy employer NICs on pension contributions, which the Resolution Foundation reckons could result in a net gain of £12 billion or so.

The Chancellor has hinted in speeches that this is one change we can expect to see in the Budget — but it would lead to questions over her party’s commitment to its manifesto.

Non-dom reforms

This is one Budget decision that was actually mentioned in Labour’s manifesto — but it may be trickier than it seems.

During the election campaign, the party said it would raise £5.2 billion by closing more loopholes in the non-dom tax system.

According to the Office for Budget Responsibility, losing the tax break for rich foreigners could raise somewhere around £3.2 billion.

However, the OBR warned that’s not a fixed figure because those same rich foreigners have a habit of running off somewhere they can keep more of their wealth — meaning the Treasury could actually end up losing more cash than it makes.

Taxing gambling

According to the Guardian, ministers are considering ramping up tax on the gambling sector by up to £3 billion, with what’s known as a ‘sin’ tax.

The move was recommended in a report by thinktank the IPPR, which said it would help improve Brits’ health too.

Fuel duty

This is one area where the Tories were particularly generous over the past 14 years, with Chancellor after Chancellor choosing to freeze fuel duty.

It’s come as a massive help to British motorists, particularly during the cost-of-living crisis, but has cost the government a lot.

The Resolution Foundation reckons the Treasury would lose out on £5 billion if a forecast 6p rise in fuel duty — due to inflation and the end of a temporary cut introduced by Rishi Sunak — is cancelled instead of being allowed to go ahead.

Pension tax relief

There has also been speculation that changes could be made to pension tax breaks.

A recent report from left-of-centre thinktank the Fabian Society suggested reducing and redistributing the tax relief for pensions could raise at least £10 billion a year.

It said the relief workers receive on their pension contributions and investments while they’re saving up for retirement far outweighs the revenue generated by the Treasury through tax on pensions when they’re withdrawn.

That’s especially true for high earners, the report said, adding: ‘For this reason, reform of pension tax relief should be a priority for a revenue-raising Budget.’

Beyond taxes, there are questions over whether Reeves might change the fiscal rules that dictate how much the government can borrow to fund public spending.

Centre-left thinktank Institute for Public Policy Research recently released a report suggested the Chancellor could unlock an additional £57 billion of headroom if she targets ‘public sector net worth’ as part of her debt measure.

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