Autumn Budget 2024: How “Painful” Will It Be?
Summary
TLDRIn 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.
Outlines
📅 The Upcoming Budget and Its Potential Impact
The video introduces the upcoming UK budget to be presented by Chancellor Rachel Reeves on October 30, 2024. It sets the context by highlighting how this budget will likely affect every UK resident, with potential changes in taxation, inflation, unemployment, and investment markets. The speaker also outlines the impact of the budget on businesses, asset prices, and government spending, emphasizing that the budget will solve some of the UK's pressing economic problems.
📉 UK's Economic Challenges and Government Debt
This section delves into the UK's current economic problems, especially slow growth and low productivity. It notes the country's high government debt, which limits spending options, and inflation concerns, particularly in the services sector. The speaker also touches on the skill shortage in specific sectors like construction and manufacturing. The need for the budget to address these issues while managing high debt levels is emphasized.
💼 Potential Tax Increases: Wealthier Individuals Targeted
The focus here is on the potential tax changes the Labor government might introduce, particularly targeting wealthier individuals. While the big three taxes—income tax, VAT, and National Insurance—are ruled out for increases, other taxes like capital gains tax and inheritance tax are highlighted as likely targets. The speaker explains how capital gains tax and its allowances have changed over time, with predictions of further increases or cuts in allowances to raise revenue.
🏠 Inheritance and Property Taxes: Likely Reforms
This paragraph explores the potential changes in inheritance tax and property-related taxes. Although inheritance tax generates relatively little revenue, its threshold or rate might be altered to raise more funds. The speaker also discusses possible changes to stamp duty and council tax, suggesting that thresholds could be adjusted or that foreign buyers might face higher taxes. The outdated council tax system is highlighted as a likely candidate for reform to make it fairer and more progressive.
💰 Pension Reforms and Potential New Taxes
Pension reforms are discussed, including possible changes to tax relief on pension contributions and taxes on pension withdrawals. The speaker predicts limited reforms due to the political sensitivity surrounding pensioners. Additionally, the possibility of new taxes being introduced, such as those on electric vehicles or reinstating scrapped levies like the Health and Social Care Levy, is explored.
Mindmap
Keywords
💡Fiscal Plans
💡Inflation
💡Productivity Growth
💡Government Debt
💡Capital Gains Tax (CGT)
💡Inheritance Tax
💡Stamp Duty
💡Council Tax
💡Pension Reforms
💡Fuel Duty
Highlights
Chancellor Rachel Reeves will present the first budget of the new Parliament on October 30, 2024, which will lay out the fiscal plans for the Labour government.
The prime minister has warned that the upcoming budget will be painful, affecting taxation, growth, inflation, and unemployment in the UK.
Three major sources of revenue for the UK government are income tax, VAT, and National Insurance, which together dominate the tax revenue.
Labour has ruled out increasing income tax, VAT, National Insurance, and corporation tax during the current Parliament, limiting options for raising tax revenue.
Slow productivity growth and high government debt (around 100% of GDP) are structural challenges facing the UK economy.
Sticky services inflation remains a concern for the Bank of England, which could lead to prolonged high interest rates.
Capital Gains Tax (CGT) is a likely target for tax increases, with the CGT-free allowance having already been reduced over recent years.
Inheritance Tax may also see changes, as it currently raises relatively little revenue and predominantly affects wealthier households in the South of England.
Stamp Duty and council tax are likely to see reforms, particularly focusing on properties in higher value bands and eliminating first-time buyer allowances.
Generous pension tax reliefs may be reduced, with limits on tax-free lump sums or annual contribution caps being potential targets.
There may be new taxes introduced or old ones resurrected, such as a tax on electric vehicles or reinstating the Health and Social Care Levy.
The likelihood of increasing Fuel Duty is low, given the public sensitivity to fuel prices and the government's need to maintain political support.
A cap on ISAs or reducing the annual allowance for ISA contributions is also considered unlikely, as it would disincentivize savings and be politically unpopular.
The video suggests that many people are taking action now, such as selling assets to avoid potentially higher capital gains taxes in the future.
Trading 212, a UK commission-free investment platform, is sponsoring the video and offers features like commission-free trading, fractional shares, and 24/5 trading on over 5,600 stocks.
Transcripts
the chancellor Rachel Reeves will
present the first budget of the new
Parliament on 30th of October 2024 and
this will lay out the fiscal plans for
the labor government the prime minister
has already warned that this budget will
be painful but just how painful will it
be in this video I'll look at the
options open to them and also discuss
what I think the most likely changes
will be this video is sponsored by
trading 212 a UK commission-free
investment platform form let's begin
with why this budget matters in the
first place I think the most important
point is that it'll affect you if you
live in the UK almost certainly so for
example how much tax are you going to
pay and what will you pay that tax on
that's one of the things we're going to
learn another thing that will almost
certainly affect you is growth in the UK
If growth is slow then that's going to
affect everyone inflation as we've
recently learned can also be painful and
it's felt by everyone in the country
both households and businesses and of
course if unemployment goes up then the
risk of losing your job could increase
now almost all of us work for a company
in the UK or we own a company in the UK
or both and if that's the case then
taxation is going to affect those
businesses what are their margins going
to be and also will they be favored by
changes in regulations and then finally
if you're an investor in the UK then
almost all asset prices will in some
some way be affected by what happens in
the budget so that could be directly via
their prices changing for stocks bonds
and for Sterling or it could be taxation
changes which affect the amount of the
returns which you get to keep so
there'll almost certainly be something
in this budget which affects you
directly now the reason that the
government has to raise money in taxes
is to be able to spend it and that can
solve economic problems so what economic
problems does a UK face right now
well one of the structural or long-term
problems that the UK faces is slow
growth and one manifestation of that is
low productivity growth and that's the
amount of goods and services that the UK
produces per year or per hour you can
see that that rate of growth has been
quite low for some time and if we
compare the UK to other large economies
you can see we're about in the middle of
the pack when it comes to GDP
productivity per hour so ideally as a
result of this budget and government
policy we'd move to the left of this
graph and become more productive but one
of the difficulties that the government
faces right now is that as a result of
the spending during covid the UK's
government debt relative to its GDP is
at very high levels it's at about 100%
now if we go back to wartime it was
certainly higher you can see that during
World War II it peaked at over 250%
however it is high and that means that
the government's restricted in terms of
how much debt it can issue in order to
spend and that means that a lot of the
money is going to have to come in by a
taxation at the same time what we can
see is that UK inflation remains quite
sticky for services in contrast Goods
inflation is now in a state of deflation
it's falling year on year but that
sticky Services inflation has got the
bank of England worried if inflation
does prove persistent then it's going to
have to keep rates higher for longer
furthermore if there's a huge amount of
government spending then that could be
inflationary as well and there is a
problem with the UK labor market in the
sense that we have a skills shortage
that depends on which sector you look at
so for example data in 2019 here shows
that in particular sectors like
construction and Manufacturing there's a
big skills Gap in terms of the demand
for workers with particular skills and
the supply of workers in the UK who have
the skills to service those roles so
what do we know about what's going to go
into the budget so far well this
beautiful infographic from Dan nidle of
tax policy Associates shows where
Revenue came from in the 2023 to 24 tax
year the total revenu is about 829
billion and of course current taxation
levels in the UK are at the the highest
they've been ever at about 30% of GDP
but you can see that three taxes really
dominate here in terms of how much
revenue they generate and that's income
tax vat and National Insurance those are
the big three so if you want to increase
the amount of tax you take in as a
government those are the ones which
you'd naturally be able to adjust by
quite small increments but still be able
to generate quite a lot of cash however
Labor's already ruled out
those big three so Rachel Reeves at the
labor Party Conference said we said we
would not increase taxes on working
people which is why we will not increase
the basic higher or additional rates of
income tax National Insurance or V
furthermore she said we will cap
corporation tax at its current level for
the duration of this Parliament now as
you can see that leaves a lot of small
categories of Revenue which The
Government Can now tap or it can maybe
think up new ones so what I'm going to
do now is go through what categories I
think are most likely to be the ones
where the government could raise more
Revenue what you'll see is that I've
ordered them by probability starting
with the ones which I think are most
likely down to the ones which I think
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description below so let's look at what
might change now ideologically the labor
party is most likely to go for things
which affect the more wealthy people in
society and they've already said that
they're going to increase tax mostly for
those who have the broadest shoulders so
I think capital gains tax is a very
likely Target of tax increases now
according to that infographic this
raised 15 billion in 23 24 and certainly
what's happened over time is that more
people are now paying capital gains tax
so for example the figure is doubled in
terms of individuals who paid it over
the last decade so in the last tax year
about 400,000 individuals had to pay cgt
now there is a capital gains tax-free
allowance which is
£3,000 but that's Fallen dramatically
over time in fact if you go back just as
as 2019 to 20 that tax year it was
£12,000 and then it was halved in
2324 and then cut to £3,000 for
2425 so one obvious thing to do would be
to cut that to zero so there's no
allowance whatsoever now capital gains
tax is a tax that you pay on things
which youve bought at a certain price
and sell at a higher price and it's
based on the difference between those
two prices so if you buy something for
£10,000 you sell it for
£20,000 the difference is £10,000 that's
your profit you subtract any allowances
you've got and then pay the capital
gains tax on whatever's left and if
you're a higher or additional rate
taxpayer the rate that you'd pay would
be 24% if it's a residential property
which isn't your primary property that
you live in so for example a buy toet
property if you're a private Equity Fund
manager you pay $20 8% on gains from
carried interest as it's called that's
certainly in the crosshairs we already
know according to Rachel Reeves and any
other chargeable assets such as stocks
outside an Isa or a sip for those you'd
pay 20% capital gains tax so an obvious
thing to do also would be simply to
increase that percentage so for example
you might increase it to 45% which is
the income tax paid by additional rate
taxpayers so that would raise a fair old
amount of money about 15 billion and I
think that could definitely be on the
cards there are also certain reliefs
which could be taken away for example
business asset disposal relief if you've
sold your business you don't have to pay
as high as 20% they could take that away
or as I said earlier they could simply
take away that £3,000 capital gains tax
allowance another tax which I think is
very likely to be raised by the labor
government is inheritance tax tax now
what surprises many people is that this
actually raises very little in terms of
Revenue and if we look at this map from
The Institute for fiscal studies you can
see that the percentage of households
that pay inheritance tax is Tiny
furthermore it's focused where most of
the wealth in the country is which is in
the South so inheritance tax only raised
about 7 billion in 2023 24 so one thing
that the government could do is increase
the rate that people have to pay from
its current 40% to something higher or
they could lower the Threshold at which
inheritance tax kicks in which is
currently £325,000 now there are some
very generous exemptions from
inheritance tax and by taking those away
it could generate more Revenue if you
live as a couple for example your spouse
will inherit any unused allowance from
you and if you give away your home to
your children or your grandchildren your
threshold can increase to 500k so it is
quite likely that you could end up with
a threshold of a million if you're
living as a couple so you can see why
very few deaths in the UK result in a
payment of inheritance tax another rule
which could be changed in the UK to
increase the inheritance tax revenue
would be about gifting if you give
someone a gift and you live more than
7even years after you gave that gift
then you're not liable for any
inheritance tax at all it kind of tapers
off from 40% if you die in the first
year all the way down to zero after 7
years so that could either be scrapped
the taper could be increased or the
rates could be changed I think taxes to
do with housing in particular stamp Duty
land tax or stamp Duty as we call it or
council tax I think both of those are
very likely to change so stamp Duty
generated about 13 billion in
2324 council tax generated about 45
billion for local government of course
how could this be altered well there are
thresholds for stamp Duty land tax so if
the value of the house is less than 250k
you're not liable for it at all you pay
5% between
250k and
925k 10% between 925 and 1.5 million and
then 12% above that so all of those
thresholds could be changed increased
and that could increase Revenue you
could also scrap the allowance for
firsttime buyers they don't have to pay
stamp Duty on properties up to
425k and only pay 5% on the portion
between 425 and
625 or alternatively something that
would be less politically contentious
would be to increase stamp Duty land tax
for foreign buyers of UK properties
turning now to council tax this is a
very odd system which The Institute for
fiscal studies for example has been very
keen on performing particularly as it
uses such an Antiquated system of
banding which is based on prices from
1991 so for example if you look at the
table beside me the reason why those
house prices are so low is because
they're from 30 years ago and the
drawback with using that methodology is
that the expensive houses in the top
band which is band H have increased in
value proportionately much more than the
ones at the cheaper end so while those
band H houses are worth eight times more
than the ones in band a you only pay
three times as much council tax on those
houses so this is a regressive tax it
really is the case that as a proportion
those more inexpensive houses are paying
the burden of council tax much more than
the houses which are most expensive so
ideologically I think this fits with
Labour's goal of raising more revenue
and raising it from people with a
broadest shoulders plus it's an
Antiquated system which is unfair now
we're going to move to the kind of
median probability in my opinion and
this is pension reforms now currently we
have pretty generous tax relief on
pensions in the UK you don't have to pay
tax if you put money into your pension
and that's up to 100% of your earnings
or 60,000 a year whichever is lower so
by changing those thresholds presumably
that could raise more tax so that's an
increase in Revenue based on money going
into a pension or alternatively you
could charge more tax while you withdraw
money from a pension So currently we
have a lumpsum allowance where you can
take 25% of your pension taxfree that is
capped it's capped at $268,700
reform is going to be strictly limited
due to the huge uproar about removing
winter fuel payments from UK pensioners
plus I think politically if you hit
pensioners they're are big voters and
that's always going to be at the back of
people's minds particularly politicians
alternatively the government could just
think up new taxes or take old ones
which were scrapped and reinstate them
was kind of interesting and I picked
this up from Paul Johnson of the instit
for fiscal studies his book called
follow the money which is excellent by
the way but he said that in
2024 more than 30 billion of Revenue
will be generated by completely new
taxes which have been created since 2001
and that ranges from the tax on sugary
drinks which raised just 300 million to
the various environmental levies which
are now charged on energy supplies and
that raised about 11.5 billion and he
said a recent example of this was the
Health and Social care Levy whose design
before it was scrapped under the brief
Premiership of Liz truss was almost
identical to that of National Insurance
contributions which the 2019
conservative Manifesto had pledged not
to increase so this was a bit of a
stealth tax which came in by just
renaming National Insurance but the
upshot of that new tax was that the
earnings of those over state pension age
were not exempt so Paul Johnson's says
that resurrecting that Levy would raise
around 15 billion a year if it was set
at a rate of 1% so for example one thing
that I think could be introduced as a
new tax is one on electric cars they're
not affected by Fuel Duty as more people
switch to Electric we get less fuel Duty
and that means that tax revenue will
fall so that could be one that Rachel
Reeves introduces and that brings us to
fuel Duty itself which now falls into
the low probability change es now this
was first introduced in 1908 it was
charged at 3 p per gallon that's about
1.3 P per liter but it used to be tied
to the rate of inflation so between 1993
and 1999 there was a fuel Duty escalator
that meant that fuel Duty would increase
by inflation plus 3% then 5% every year
then in 1999 the labor government
suspended the escalator and they moved
to just kind of random increases year to
year from from 2011 to 22 fuel Duty was
frozen at
57.95 P per liter and that's for petrol
and Diesel and then in March 2022 the
rate was cut by 5 P per liter to 52 P
that was supposedly temporary but then
that got extended in
2425 but I think people are really
exquisitely sensitive to fuel prices at
the pump it's one thing that people
always quote when they say oh prices are
going up because it's something that we
see regularly and we're always shocked
at how much it costs to fill up our cars
so I think this one is unlikely to be
increased and then finally another tax
which I think is unlikely to be imposed
is on Isis individual savings accounts
now these currently have a cap on how
much you can put into them every year
£20,000 as I make this video but there
isn't a cap on how much you can have
inside them so you could become an Isa
millionaire and still not have to pay
tax on those Isa savings ever again of
course it's p paid in after you've paid
tax so it' be a little bit unfair to
have to pay tax on it twice once before
you pay it in and once after you've
taken it out the resolution Foundation
however wrote a white paper called Isa
Isa baby and they estimate that it could
raise about a billion if you impose a
00,000 cap on Isis such that you'd pay
tax on anything above 100,000 however I
think this is unlikely to happen because
firstly it would be very unpopular
secondly it would also disincentivize
people from saving and in the UK we
don't save enough and thirdly I think it
would be very hard to implement it would
rely on those platforms presumably to
report any breaches above the 100K limit
alternatively Rachel Reeds could just
reduce that 20K annual allowance for
money that you can put into an iser now
I've spoken to quite a few people who
have already taken action to try and
circumvent these future changes
potential changes in how we're taxed for
example they've sold Assets in their
General investment account in order to
pay a lower capital gains tax in theory
then they'll have to pay in a few months
time however I think that's a bit of a
gamble because it might be that the
government doesn't change capital gains
tax and what you'll end up doing is
crystallizing gains which you needn't
have done so personally I'm not changing
anything in terms of my behavior before
the budget actually happens but
hopefully this video has given you some
ideas about how this budget could affect
your finances and whether you should do
something about it before that budget is
published now don't forget our offer
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you'll also find a link to that in the
description below and as always thank
you for listening
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