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.

Outlines

00:00

📅 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.

05:00

📉 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.

10:01

💼 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.

15:03

🏠 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.

20:04

💰 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.

Keywords

💡Fiscal Plans

Fiscal plans refer to the government's strategy for managing public revenue and expenditure. In this video, it focuses on the upcoming budget by Rachel Reeves, which is expected to outline the Labour government's approach to taxes, spending, and debt management. The prime minister warns that this budget will be 'painful,' meaning significant adjustments may be needed to address economic challenges like high inflation and public debt.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. The video mentions inflation as a key issue affecting both businesses and households in the UK. It highlights that while goods inflation is decreasing, services inflation remains sticky, meaning it is not falling as expected, which could complicate the budget’s economic goals.

💡Productivity Growth

Productivity growth refers to the increase in the output of goods and services per unit of labor. The video stresses that one of the UK's structural problems is low productivity growth, which impacts the country’s overall economic health. The Labour government is likely to address this through budget policies aimed at increasing productivity to stimulate growth.

💡Government Debt

Government debt refers to the total amount of money that the UK government owes, which is currently around 100% of GDP. The video explains how high debt levels restrict the government's ability to borrow and spend, making tax increases more likely to fund public services. This context is important for understanding why the budget might focus on raising revenues.

💡Capital Gains Tax (CGT)

Capital Gains Tax is a tax on the profit when you sell an asset for more than you paid for it. The video suggests that CGT is a likely target for increases in the new budget as the Labour government aims to tax the wealthier sectors of society more heavily. Currently, the tax-free allowance is £3,000, but this could be reduced to zero, or the rates could be increased.

💡Inheritance Tax

Inheritance tax is a tax paid on the estate (property, money, and possessions) of someone who has died. The video points out that although it generates relatively little revenue, Labour may target this tax for increases, possibly by lowering the current threshold of £325,000 or increasing the tax rate from 40%. It's another example of Labour's focus on taxing wealthier individuals.

💡Stamp Duty

Stamp duty is a tax on the purchase of property in the UK. The video mentions that the Labour government may raise stamp duty, especially for higher-value properties or foreign buyers. This is one of the taxes that could be adjusted to increase public revenue without affecting middle or lower-income households.

💡Council Tax

Council tax is a local tax on domestic property, with rates based on the property's value. The video highlights that the system is outdated, using 1991 property values, which disproportionately affects lower-value properties. Labour may reform this tax by updating the property bands, ensuring that wealthier homeowners pay more.

💡Pension Reforms

Pension reforms refer to changes in the rules governing tax relief and withdrawals from pension funds. The video suggests that Labour may introduce reforms to increase taxes on pensions, possibly by reducing tax-free allowances or capping the amount individuals can contribute tax-free. This could generate more revenue while targeting wealthier retirees.

💡Fuel Duty

Fuel Duty is a tax on petrol and diesel. The video states that while it is an important source of revenue, Labour is less likely to increase this tax because it directly affects consumers and is politically sensitive. However, the decline in revenue from fuel duty as more people switch to electric vehicles might prompt new taxes on electric cars.

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

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