The Chancellor delivers the Autumn Budget 2024
Posted on by John Lubbock

How did we get here? It feels a long way since the 2007/8 financial crash now, but the budget changes made today are a direct consequence of decisions taken by the previous Labour government of Gordon Brown, and the Conservative government following it. 

Austerity was a set of fiscal policies designed to respond to the financial crisis through a combination of quantitative easing and huge cuts to public spending to prevent the inflationary effect of printing money. Where did all the money we printed go? Governments effectively bought debt from banks, which was then lent out at very low rates to companies and individuals to invest. Much of it went into inflating the value of assets owned by the wealthy.

Cut to Labour saying that it wants a budget for ‘working people’. Not working class people, of course, because Labour doesn’t want to appear too left wing, but there has been a lot of talk about rewarding people for work, not for speculating on the value of assets. 

Labour had pledged not to increase income tax, national insurance and VAT in its pre-election manifesto. It appears the government will largely keep these promises on paper, though there will be an increase in the employer contribution to National Insurance, a tax on wages. There will also be a freeze on income tax bands, meaning more people will pay higher rates as their incomes rise.

After Reeves had set the scene, the policy announcements came thick and fast.

The Chancellor’s main goal, she said, was to restore economic stability and create growth. Reforming planning, a long term industrial strategy, skills training, and investment in infrastructure such as the renewables were all touted as part of a strategy to create long term growth.

Reeves relied on OBR projections suggesting that the UK’s budget would be back in surplus by 2027/28, from a deficit of over £100 billion in the current financial year. 

Welfare spending needed to be ‘more sustainable’, Reeves said, with reforms to the work and pensions system, a ‘crackdown of fraud’ in welfare which would save £4.3 billion a year. Investment in HMRC would also help clamp down on tax avoidance, Reeves said.

Support with the cost of living was another vital area, Reeves said, with the government accepting the Low Pay Commission’s suggestion of increasing the national minimum wage, and increasing the carers’ allowance. Recommendations from the Trussell Trust and Joseph Rowntree Foundation to reduce the amount of debt repayment paid by those on low incomes were also included in the budget.

Reeves said that although the freeze to fuel duty would cost £3 billion a year, she would keep the freeze for another year

“I say to working people, I will not increase your National Insurance, I will not increase your VAT, I will not increase your income tax,” the Chancellor declared.   

However, employer NI contributions will go up 6.7%. “We are asking businesses to contribute more”, Reeves said. There will be an offset in Employment Allowance for smaller businesses, meaning many of them will not pay NI.

On Capital Gains Tax, Reeves said she would increase the lower rate from 10-18% and the higher rate from 18-24%. The UK would still have the lowest CGT rate of any G7 economy, she said. However, the personal tax threshold would rise from 2028, a move which seems to have surprised many commentators.

On inheritance tax, which is only paid by 6% of estates, Reeves said she was taking a ‘balanced approach’. The inheritance tax threshold of £325,000 would be extended, bring inherited pensions into inheritance tax, and reform agricultural and business property relief. The first £1 million of agricultural and business property would still be tax free, but would be charged at 50% over that amount.

Duties on vaping and tobacco would also go up, as well as the soft drinks levy, to raise nearly £1 billion by the end of the forecast period.

Reeves moved on to changes to air passenger duty, meaning an increase of no more than £2 for an economy short haul flight. “But I am taking a different approach to private jets”, Reeves said, by increasing the tax by 50%, as she nodded to Rishi Sunak’s frequent use of private jets.

Alcohol duty rates on non draft products would increase, Reeves said, but duty on draft beers would fall, knocking a small amount off beer prices. ‘Reeves cuts price of a pint by a penny’, the BBC live news ticker read.

The ‘Non Dom’ tax loophole would be closed, Reeves confirmed, and stamp duty on second homes would also be increased by 2%. VAT and business rates relief on private schools would also be 

The levy on oil and gas profits would be increased to 38%, with investment allowances also being increased to support jobs in the oil and gas sector. 

Capital spending would grow by 1.7%, Reeves said, which confirmed her pledge for no return to austerity. However, there would still be difficult decisions, and increased spending alone would not fix public services.

On housing, Reeves announced increases to budgets for housebuilding, a reduction in right to buy discounts for people buying their council homes, and allowing local authorities to retain the full amount to reinvest in housing. The government will also increase investing in home insulation.

Reeves also confirmed investment for the much delayed HS2 high speed rail project, ensuring that it finishes at London Euston. Investment in school maintenance was also announced to deal with infrastructure issues caused by poor quality RAAC concrete.

The Chancellor then moved on to attacking the Tories’ record on the NHS, with waiting lists and outcomes worsening seriously. She committed to publishing a long term plan for the NHS next Spring, and a £22.6bn increase in the day to day health budget, and a £3.1bn increase in the capital budget, the largest real terms increase in NHS spending (outside the Pandemic uplift) since 2010, according to the Chancellor.

Reeves promised that this would bring waiting lists down and deliver on a manifesto commitment for 40,000 new hospital appointments a week. “It doesn’t mean these choices are easy, but they are responsible,” Reeves said, adding that if the Tories disagreed with her policies, they should say what they would do differently.

Labour has made a clear fiscal break with the previous government, and as a result this budget feels both important and mildly radical. Where it is arguably less radical, despite its targeting of assets rather than income, is the lack of significant additional taxes on wealth. Unite union leader Sharon Graham agrees.

Changes to inheritance tax are a start, but most of these will only affect those who are already incredibly wealthy, and only marginally. Ending tax exemptions for Non Doms and inheritance taxes on land is a good start, but does little about the untaxed trillions sitting in offshore bank accounts in British overseas territories like the Cayman Islands.

Meanwhile, some anti-Brexit activists remain unhappy that Labour is saying nothing about the impact on UK finances caused by Brexit.

No budget can please everybody, and this is sure to please and frustrate those struggling with the cost of living crisis who need more government help. The sound and fury of the budget day is a vital mile marker along the political road, but the proof of the wisdom of any fiscal decision is in its long term effects. Labour has about four years to prove to the public that its decisions have benefitted people’s lives. If it’s able to do that, and that is a big if, it will be a long way back to government for the Tories.