Budget 2024 live updates: Inflation falls to lowest rate in three years, Reeves ‘eyes £40bn’ in cuts and spending
Rachel Reeves will announce Labour’s first Budget in 15 years later this month, leading one of the most highly-anticipated fiscal events in over a decade.
As the chancellor looks to fill the £22bn “black hole” in public spending she announced in late July, speculation has mounted about what measures will be included on 30 October.
During the Labour’s first few months in power, ministers have warned that “tough decisions” will be required to balance the books. Prime minister Sir Keir Starmer has said the event is going to be “painful” but that there is “no other choice given the situation that we’re in”.
This likely means tax rises and spending cuts can be expected. The government has already come under fire for its decision to cut back winter fuel payments for millions of pensions, sparking a row which has hung over its first 100 days in power.
In their manifesto, Labour pledged not to increase “taxes on working people,” ruling out changes to national insurance contributions (NICs), income tax or VAT. This has given them “little room for manoeuvre” says Institute for Fiscal Studies director Paul Johnson, as the top three sources of Treasury revenue are sealed off.
However, experts are now criticising Ms Reeves after she and the prime minister refused to rule out an increase in employer NICs, which could raise £17bn a year.
Officials have indicated that they do not believe the measure would represent a tax rise for working people. However, Mr Johnson has said the hike would be a “straightforward breach” of Labour’s manifesto.
We’ll be bringing you all the latest updates ahead of the big event on 30 October here, on The Independent’s liveblog.
Key points
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Budget rumours: Inheritance Tax reform
Inheritance tax is a levy on the estate of someone who has died. This is their property, money and possessions. Crucially, it is not paid if the value of these things is below £325,000.
The tax rate is 40 per cent, but it’s only charged on the part of the estate that’s above the threshold. In 2023/24, only 5 per cent of deaths generated an inheritance tax bill, raising around £7 billion.
However, the IFS writes that the tax measure “is littered with special exemptions”. These include a business relief, the ability to pass on agricultural land tax-free, and the tax-free passing on of pension pots.
The economic think tank says that ending these measures alone would raise £4.8bn a year by 2029.
Albert Toth16 October 2024 06:00
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Tell us what you’d like to see announced in Labour’s first budget
We would like to hear your thoughts on what you would like to see introduced in Reeves’ Budget. Should she focus on measures to support homeowners, such as the Freedom to Buy scheme? Or would you prefer a focus on closing tax loopholes, such as abolishing non-dom status, to ensure a fairer tax system?
The Independent16 October 2024 03:00
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Budget rumours: Taxing pension savings
Pension tax relief is a reduction of the amount of tax paid on private pensions. It helps workers save for retirement by boosting their pension pots.
The amount of tax relief a person is granted is based on their income tax. It will effectively cancel out tax on pension contributions up to a maximum of £60,000.
After this, contributions will be taxed at either 20, 40, or 45 per cent, depending on which income tax rate the worker falls into.
However, the chancellor is thought to be considering a flat 30 per cent pension tax relief rate. This would mean that higher earners would effectively pay 10 per cent in tax, while those on the additional rate would pay 15.
The measure would raise around £3 billion a year, with 7 million earners paying more tax. But it would be better news for basic rate earners, who would actually begin to receive a 10 per cent boost to their pension contributions.
Evaluating the idea last year, the IFS said it would “redistribute the burden of taxation from the bottom 80 per cent to the top 20 per cent of earners.”
Albert Toth16 October 2024 00:01
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Budget rumours: Capital Gains reform
It has been reported that Rachel Reeves is considering tweaking Capital Gains Tax at the 2024 Budget.
Capital Gains Tax (CGT) is paid on the profit made when an asset which has increased in value is sold. It is applied to things like the sale of personal possessions worth more than £6,000 (apart from a car), property that’s not the seller’s main home, shares and business assets.
It is charged at 10 or 18 percent for basic rate taxpayers, and 20 or 24 for higher or additional rate earners. There is a tax-free allowance of £3,000.
There are several ways CGT could be changed. In the run-up to the election, the Lib Dems and Greens both said they would rethink the tax bands to be more similar to income tax, raising an estimated £5.2bn a year.
Albert Toth15 October 2024 22:00
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Ex-Bank of England chief Mervyn King urges Rachel Reeves to raise national insurance in Budget
Exclusive: Former Bank of England governor Mervyn King has made a dramatic intervention warning Rachel Reeves that she must raise national insurance in her Budget on 30 October.
The Independent’s political editor David Maddox reports:
David Maddox15 October 2024 20:00
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Preview: What will be in Labour’s Budget?
Changes to capital gains, inheritance tax, pension savings and more – here’s your guide to what the Labour Budget on 30 October could have in store:
Albert Toth15 October 2024 18:00
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Analysis: Reeves will need lawyer’s language to break national insurance pledge
During the election Labour made a clear promise “not to raise taxes on working people”. This specifically included income tax, VAT and national insurance contributions.
The problem Rachel Reeves has as her first Budget approaches on 30 October is that somehow she has to pay for an estimated £25bn in spending commitments and encourage economic growth with little room for manoeuvre.
Her former Bank of England mentor Lord Mervyn King has warned her against extra borrowing even by rewriting the fiscals and suggested she raises national insurance instead to invest.
It is clear from the prime minister’s words this morning that national insurance rises on employer contributions is now a strong possibility. But does this mean a breach in the manifesto promises from just over 100 days ago?
The Tories say yes – they would – but so does the independent Institute for Fiscal Studies director Paul Johnson.
It appears that Labour are planning on using a lawyer’s way out – appropriate for the prime minister – to emphasise that their pledge was “for working people” not employers.
David Maddox15 October 2024 16:00
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Budget 2024: Latest news as proposed national insurance hike sparks row
Hello and welcome to The Independent’s Budget 2024 live coverage where we’ll be bringing you the latest updates ahead of Labour’s fiscal event on 30 October.
Labour has been criticised in recent days for refusing to rule out an increase to employer national insurance contributions (NICs). Some experts say the measure would break their pledge to not raise taxes on working people – but officials have indicated that the government does not agree.
Institute for Fiscal Studies director Paul Johnson said the measure would be a “straightforward breach” of the Labour manifesto, but added that Ms Reeves will “almost certainly” need to break a manifesto commitment to meet her spending targets.
He says that a 1p hike in employer NICs would “probably not” be very damaging to jobs.
Shadow chief secretary to the Treasury Laura Trott said: “In 2021, the chancellor said increasing employer national insurance was a tax on ‘workers’. That’s why even in her own words it breaks Labour’s manifesto promise not to increase tax on working people.”
However, it has been pointed out that Ms Trott and her party had criticised Labour for not ruling out the measure in the run-up to the General election, implying they did not believe the manifesto had done so.
