Rachel Reeves has now released her first budget as The Chancellor and there will be relief that she has avoided the disaster-class that Liz Truss served up just two years prior. It was mentioned that the budget deficit would fall sharply throughout 2026/27, before creeping higher again shortly after.
The main goal for Rachel Reeves to bring the budget deficit down over the coming years is seen through Tax Hikes of over £40bn. The headline tax increase is laid on the table of employers, through an increase in National Insurance Contributions and an increase just shy of 7% in the National Minimum Wage.
Firstly, the National Insurance Contribution has been increased by 1.2% to 15% now, coupled with the threshold being cut from £9,100 to £5,000. That increase alone equates to £25bn of the £40bn mentioned earlier, with three quarters of the increase hitting the lower paid employees. The Office for Budget Responsibility (OBR) has now reassessed the spending and tax plans and has re-forecasted UK Inflation to show that the headline number won't fall back below the 2% target until the end of the decade. This prospect of inflation remaining above the 2% target for the foreseeable future will no doubt lead to more cautiousness from The Bank of England when they sit future meetings surrounding Interest Rates. In relation to this, inflation is forecast to rise to 2.5% this year, with a figure of 2.6% in the year of 2025.
The Government also confirmed they would look to boost investment and spending by changing the current debt rules. They will now target Public Sector Net Financial Liabilities whereas previously the target was based on Public Sector Net Debt. This simply means the government has more leeway to increase spending, with Reeves committing to an extra £100bn over the next 5 years in capital spending.
Lower rates of Capital Gain Taxes (CGT) will increase from 10% to 18% whilst higher rates are also due to rise from 18% to 24%. Residential property CGT rates will be maintained at 18% and 24% also, raising to £2.5bn a year by 2029/2030. Subsequently, the stamp duty on second homes will increase from 3% to 5% by tomorrow.
Chancellor Reeves also stated that a new residence scheme with internationally competitive arrangements is awaited and those who benefitted from the savings of the Non-Dom tax status will no longer be able to as before due to its abolishment come April 2025. The OBR says that these changes will raise by £12.7bn over the next 5 years.
CLICK HERE to read full details about the Autumn Budget.
