Autumn Budget 2024: How “Painful” Will It Be?

Summary

In this video, the speaker discusses the potential impacts of the upcoming UK budget, which will be presented by Chancellor Rachel Reeves on October 30, 2024. The budget is expected to address key economic issues like inflation, slow growth, government debt, and skills shortages. Although major tax increases on income, VAT, and National Insurance have been ruled out, there may be hikes in capital gains tax, inheritance tax, and housing-related taxes. The speaker also highlights possible changes in pension reforms, new taxes, and adjustments to current tax policies.

Takeaways

• 📅 Rachel Reeves will present the first budget of the new Parliament on October 30, 2024.
• 💰 The budget will have a significant impact on taxation, growth, inflation, and unemployment in the UK.
• 📉 The UK faces challenges such as slow productivity growth, sticky inflation for services, and a skills shortage in certain sectors like construction and manufacturing.
• 📊 Government debt is around 100% of GDP, limiting its ability to issue more debt, so much of the budget will rely on taxation.
• 🚫 Rachel Reeves has ruled out increasing income tax, National Insurance, or VAT, as well as corporation tax for the duration of this Parliament.
• 📈 Capital gains tax is a likely target for increases, and the current £3,000 tax-free allowance could be scrapped.
• 🏠 Inheritance tax and stamp duty land tax could be revised, potentially affecting thresholds and exemptions.
• 🏦 Pension reforms are possible, with tax reliefs or lump sum allowances facing adjustments.
• 🔋 A new tax on electric vehicles could be introduced to compensate for the decline in fuel duty revenues.
• 🛡 Taxes on ISAs are unlikely, but there could be reductions to the annual allowance of £20,000 for contributions.

Q & A

Why is the upcoming UK budget significant?

The upcoming UK budget, set for October 30, 2024, is significant because it will lay out the fiscal plans of the new Labour government. It will impact taxation, growth, inflation, and unemployment, affecting individuals, businesses, and investors alike.

What are the key economic challenges facing the UK right now?

The UK faces several economic challenges including slow growth, low productivity, high government debt (around 100% of GDP), persistent inflation in services, and a skills shortage in certain sectors like construction and manufacturing.

Which three taxes generate the most revenue in the UK?

Income tax, Value Added Tax (VAT), and National Insurance are the three biggest revenue-generating taxes in the UK, accounting for a significant portion of the total tax revenue.

What has Labour ruled out in terms of tax increases?

Labour has ruled out increases in the basic, higher, or additional rates of income tax, National Insurance, and VAT. They have also promised to cap corporation tax at its current level for the duration of this Parliament.

Which tax changes are most likely to happen under the new Labour government?

Labour is likely to target capital gains tax and inheritance tax, increasing rates or reducing exemptions. Changes to council tax, stamp duty, and potential pension reforms are also possibilities.

How might capital gains tax change?

Labour could reduce or eliminate the capital gains tax-free allowance, currently £3,000, or increase the tax rate, possibly to align with the 45% income tax rate for additional rate taxpayers.

How might inheritance tax change?

Labour could increase the inheritance tax rate, reduce the tax-free threshold (currently £325,000), or eliminate certain exemptions, such as the ability to transfer unused allowances between spouses.

What changes to council tax are expected?

Council tax reform is likely, especially because the current system uses property valuations from 1991. Labour may seek to adjust this to make the system more progressive, ensuring wealthier property owners pay more.

Are there likely to be any new taxes introduced?

Labour may introduce new taxes, such as those targeting electric vehicles (since they are exempt from fuel duty) or environmental levies. There could also be a return of taxes like the Health and Social Care Levy.

Is there likely to be a change to fuel duty or ISAs?

Fuel duty increases are unlikely due to public sensitivity around fuel prices. Similarly, changes to ISAs, such as capping the total amount you can save tax-free, are also considered low probability.