Chancellor Rachel Reeves confirms in Labour’s first budget since 2010 she will raise £40bn in taxes to fund public services and growth. The Budget is a pivotal moment for Labour, with Reeves promising to “invest, invest, invest.”
The Chancellor has consistently referred to the £22bn ‘black hole’ funding gap and the previous government’s unfunded commitments as evidence of their “height of irresponsibility.”
Today’s Budget, as described by Reeves, will deliver economic stability, increase investment and deliver growth.
The much-leaked increase in employers’ NI contribution is the major headline and will deliver some £25bn per year by the end of the Parliament.
In reaction to the Budget, Tom Reynolds, Chief Executive of the BMA said:
“Today’s budget introduces both challenges and opportunities for bathroom manufacturers and our partners. The 1.2% hike in employer National Insurance contributions and the 7% increase in the National Living Wage will exert significant pressure on wage costs, even with a higher allowance for smaller firms. The tax burden may also weigh on consumer confidence, vital to the home improvement market.
“However, the Chancellor’s investments in infrastructure, housing, and healthcare present exciting opportunities, particularly in social housing and housing decarbonisation. Most promising, though, is the budget’s commitment to stability, fiscal discipline, and sustained growth. Whether these aims are realised remains to be seen, as initial market responses have been mixed. In the days to come the BMA team will be delving into the detail of the budget and sharing our analysis with members.”
The government has published its full Budget Report as laid before the House of Commons along with supporting and related documents. They can be read on the Gov.uk website.
Key points in brief:
Business taxes
- Employers to pay National Insurance (NI) on workers’ earnings above £5,000 from April, down from £9,100 currently, with the rate increasing from 13.8% to 15%.
- An uplift to the Employment allowance – which allows companies to reduce their NI liability – to increase from £5,000 to £10,500. This adjustment will exempt 865,000 employers from paying National Insurance entirely next year.
- Tax paid by private equity managers on share of profits from successful deals to rise from up to 28% to up to 32% from April.
- The main rate of corporation tax, paid by businesses on taxable profits over £250,000, to stay at 25% until next election.
- Permanently lower business rates for retail, hospitality and leisure businesses from 2026-27. Until then they will receive 40% relief on business rates up to a cap of £110,000.
Personal taxes
- The freeze on income tax and NI thresholds to end in 2028, to prevent fiscal drag.
- Capital gains tax paid on profits from selling shares to increase from up to 20% to up to 24% – rates on additional property sales to stay same.
- Freeze on inheritance tax thresholds extended beyond 2028 to 2030.
Wages
- The “national living wage”, the legal minimum for over-21s, will increase by 6.7% to £12.21 per hour, equivalent to £1,400 a year for an eligible full-time worker.
- The rate for 18 to 20-year-olds to go up from £8.60 to £10 as part of a long-term plan to move towards a “single adult rate”.
Housing
- The government will spend £5bn on housing, including increasing the supply of affordable housing.
- Current affordable homes budget running until 2026, boosted by £500m.
- A reduction to right to buy discounts would deliver 2000 new homes in Cambridge.
- £3bn of additional support for SMEs and the Build to Rent sector in the form of housing guarantee schemes to support the private housing market by allowing developers to access lower-cost loans.
- Social housing providers to be allowed to increase rents above inflation under multi-year settlement.
- Stamp duty surcharge, paid on second home purchases in England and Northern Ireland, to go up from 3% to 5%.
Healthcare
- A 10-year plan for the NHS to be published in the spring, targeting 2% productivity growth next year.
- A £22.6bn increase in the day-to-day health budget, and £3.1bn increase in the capital budget, which includes £1bn for repairs and upgrades and £1.5bn for new beds in hospitals and testing capacity.
- Target patient hospital waiting times to 18 weeks.
Transport
- £2 cap on single bus fares in England to rise to £3 from January.
- 5p cut to fuel duty on petrol and diesel will be kept for another year.
- Commitment to fund tunnelling work to take HS2 high-speed rail line to Euston station.
- £500m increase in the roads budget next year to target potholes.
Energy
- £3.4bn over three years for the warm homes plan to upgrade buildings and lowering energy bills.
- An increase in the Energy Profits Levy from November 1. This raises the tax rate on oil and gas activities to a striking 78%.
- GB Energy will be based in Aberdeen and secured a £125m allocation.
Public Investment
- A new rule will target debt falling as a share of the economy. Debt will be measured as public sector net financial liabilities, recognising benefits from investments applying in 2029-2030. The net financial debt will fall by the third year of every forecast. Four “guardrails” were introduced to ensure capital spending is economically sound.
- There will be regular reports on government investments from the OBR.
- The government will invest £1bn in aerospace, £2bn in automotive to support electric vehicles, and £500m for life sciences.
- The government will invest £6.1bn in funding in sectors such as engineering, biotechnology and medical science.
Inflation and growth forecasts
- The government will maintain the Bank of England’s 2% target for inflation.
- According to OBR forecasts, inflation will average 2.5% in 2024, rise to 2.6% in 2025, and gradually drop to 2% in 2029.
- The OBR slightly upgrades its growth forecast for this year but adjusts it down in later years. GDP growth is forecast to be 1.1% in 2024, then 2%, 1.8%, 1.5%, 1.5%, and 1.6% in 2030.