Budget Update: Chancellor Announces £40bn Tax Increase in New Plan. The chancellor has presented the largest tax-increasing budget since 1993, alongside the confirmation of an increase in employers' national insurance contributions.

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Reeves celebrates the 'biggest real-terms funding agreement since devolution

Reeves celebrates the "largest real-terms funding agreement since devolution." She emphasizes that the government is committed to bolstering public services in Scotland, Wales, and Northern Ireland, highlighting that this Budget offers devolved governments the most substantial real-terms funding since devolution began. Reeves announces a provision of £3.4 billion for the Scottish government to enhance public services in Scotland, along with £1.7 billion for the Welsh government and £1.5 billion for the Northern Ireland executive for the fiscal year 2025-26.

Reeves believes that achieving economic stability will foster an environment conducive to investment. She points out that the previous government's strategy was likely to reduce public investment, but this Budget aims to increase it. "I am reaffirming our investment guidelines," Reeves states, emphasizing her commitment to ensuring that investments yield benefits for taxpayers. Additionally, she mentions that the government intends to implement safeguards to guarantee that spending is done "wisely."

Countries received the biggest funding agreement in real terms since devolution

Nations receive 'largest real-terms funding package since devolution' Chancellor Rachel Reeves has announced an increase in funding for the devolved nations during her budget presentation this afternoon. She stated that this represents the "largest real-terms funding package since devolution" for Scotland, Wales, and Northern Ireland. The Scottish government will receive £3.4 billion in funding, which Ms. Reeves emphasized "must be utilized effectively to enhance public services." She further mentioned, "This budget allocates £1.7 billion to the Welsh government and £1.5 billion to the Northern Ireland Executive for the 2025-26 period. "I promised there would be no return to austerity, and that is the decision I have made today."

Business rates

The sharp increase in business rates has been eased a bit. The existing 75% discount on business rates, set to end in April 2025, will transition to a 40% discount, capped at £110,000. While this change is an improvement, many businesses will still face nearly double their current rates instead of a fourfold increase.

Manchester and the West Midlands are set to be the first recipients of a boost in local government funding

Manchester and the West Midlands are set to be the top recipients of a local government funding increase. The chancellor has announced that next year, the government will provide a substantial boost in funding for local authorities. Reeves mentions that Greater Manchester and the West Midlands will be the initial mayoral regions to benefit from integrated settlements starting next year. She emphasizes that this will empower mayors with "meaningful control over the funding for their communities."

Defence spending boost and Ukraine support £3bn budget increase

Reeves has announced an increase in defense spending and support for Ukraine. They plan to allocate an extra £2.9 billion to the Ministry of Defence. This funding will ensure that Ukraine receives military assistance of £3 billion annually for "as long as necessary." Additionally, there will be funding set aside for the 80th anniversary of VE and VJ Day in 2026 to pay tribute to those who have served both at home and overseas.

No return to austerity

There won't be a return to austerity, according to Reeves. However, she acknowledges that we will still face tough choices ahead due to the significant challenges in our public services. Reeves highlights that investment in breakfast clubs will be tripled, and there will be a £2.3 billion boost to the core school budget to support the hiring of teachers in essential subjects. Additionally, she mentions an extra £300 million allocated for further education.

Chancellor increases the school budget by £2.3 billion for the upcoming year

Chancellor Rachel Reeves has announced a £2.3 billion increase in the schools budget for the upcoming year, 2025. This boost aims to fulfill the commitment to recruit thousands of additional teachers in essential subjects, according to Ms. Reeves. She also revealed that an extra £300 million will be allocated to further education. In addition, a £1 billion increase will be dedicated to special education, representing a 6% real terms rise compared to this year. "I want every child to have the best start in life and a great beginning to their school day," Ms. Reeves stated. "Therefore, I am tripling the investment in breakfast clubs to support them in thousands of schools."

Reeves says windfall tax will increase

Reeves announces an increase in the windfall tax on oil and gas profits to 38%, which is set to last until March 2030. She also mentions that the government will eliminate the 29% investment allowance, aiming to help the oil and gas sector safeguard jobs and bolster the UK's energy security.

Chancellor says income tax threshold freeze will not be extended

The Chancellor has confirmed that the freeze on income tax thresholds will not be prolonged. As you may know, the levels at which individuals begin to pay certain income tax rates have remained unchanged since 2022. This means that the income you can earn before incurring tax, or before moving into a higher tax bracket, has not kept pace with wage increases. There were speculations that the Chancellor might consider extending this freeze beyond 2028 to generate additional tax revenue.

However, Rachel Reeves has made it clear in the House that she intends to honor all tax commitments outlined in their manifesto. She stated, "There will be no extension of the freeze on income tax and national insurance thresholds beyond the previous government's decisions. Starting from the 2028-29 fiscal year, personal tax thresholds will be adjusted in accordance with inflation once more. When it comes to tax decisions, this government consistently prioritizes the protection of working individuals."

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Chancellor cuts duty on alcohol on draught

Chancellor Reduces Duty on Draught Alcohol The chancellor is now addressing the topic of alcohol duty, a key focus during the budget discussions. Rachel Reeves informs the House that duty rates for non-draught beverages will rise according to the Retail Price Index (inflation) starting in February next year. However, she adds, "Almost two-thirds of the alcoholic drinks consumed in pubs are served on draught. "Therefore, instead of increasing the duty on these products with inflation, I am reducing the draught duty by 1.7%, which translates to a penny off a pint in the pub." This announcement brings cheers from MPs throughout the House.

Relief for drivers on fuel duty freeze

It seemed for a brief moment that Reeves might increase fuel duty, but both drivers and businesses can relax now. Had she chosen to undo the current 5p per litre reduction and allow petrol and diesel duties to increase with inflation, it could have generated an additional £3 billion. However, she has decided to hold off for now.

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Labour to abolish non-dom tax regime in April

Labour Plans to Eliminate Non-Dom Tax System in April In a significant announcement, Chancellor Rachel Reeves has declared that the non-dom tax regime will be abolished in April 2025. She emphasized that this move will eliminate the outdated domicile concept from the tax framework. The Chancellor also mentioned that Labour will implement a new residence-based tax system, which will feature "internationally competitive arrangements for those temporarily residing in the UK, while addressing the loopholes created by the opposing party's scheme." Additionally, she stated, "To further stimulate investment in the UK, we will extend the Temporary Repatriation Relief to three years and broaden its scope, which is expected to bring billions of pounds into the country." According to the independent Office for Budget Responsibility, this set of measures is projected to generate £12.7 billion over the next five years.

Air Passenger Duty

The chancellor makes a light-hearted jab at Sunak while discussing air passenger duty. Reeves shifts her focus to air passenger duty, noting that it hasn't kept pace with inflation. As a result, they plan to raise the fee by no more than £2 for short-haul economy flights. However, for private jets, she proposes a 50% hike in the air passenger duty, bringing it to £450 per passenger. "To say, California?" she quips, indirectly alluding to Sunak.

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Electric Vehicles

Reeves mentions that Labour aims to encourage the adoption of electric vehicles. The Budget will keep the current incentives for electric vehicles in company car tax starting in 2028. Additionally, it will enhance the difference in rates between fully electric vehicles and others in the initial Vehicle Excise Duty rates, which will take effect in April 2025, she explains. This initiative is expected to generate approximately £400 million by the conclusion of the forecast period, she notes.

Chancellor scraps controversial mineworkers' pension scheme arrangement

Chancellor abolishes disputed mineworkers' pension scheme deal The chancellor has decided to abolish a disputed deal that allowed the government to collect hundreds of millions of pounds from a pension scheme meant for mineworkers. Under a 30-year-old agreement, the government was entitled to half of the surplus funds from the scheme. This change is expected to result in approximately £1.5 billion being redirected into the pension accounts of 112,000 former coalminers. In her Budget announcement today, Rachel Reeves stated that this decision ensures “working people who powered our country receive the fair pension they are owed.”

The government plans to reinstate the tobacco duty escalator

The government plans to reinstate the tobacco duty escalator, with Reeves announcing an increase of RPI +2%. This year, there will also be a 10% hike in duty on hand-rolled tobacco. Starting in 2026, a flat-rate duty will be applied to all vaping liquids, along with a one-time increase in tobacco duty aimed at encouraging smokers to quit.

Inheritance tax threshold freeze extended

Inheritance tax threshold freeze extended Reeves has announced that the freeze on the inheritance tax threshold will be prolonged for an additional two years, now lasting until 2030. This means that the initial £325,000 of any estate can be passed on without incurring tax. If the estate includes a home that is inherited by direct descendants, this amount increases to £500,000, and it can reach £1 million when a tax-free allowance is transferred to a surviving spouse or civil partner. Additionally, starting in April 2027, inherited pensions will be subject to inheritance tax. Reeves also mentioned plans to reform Agricultural Property Relief and Business Property Relief. From April 2026, the first £1 million of combined business and agricultural assets will remain exempt from inheritance tax. However, for assets exceeding £1 million, inheritance tax will apply with a 50% relief, resulting in an effective rate of 20%.

Tax on vapes to be introduced in 2026

Capital gains tax increases to 18% on lower rate and 24% on higher rate

Capital gains tax is set to rise, with the lower rate increasing to 18% and the higher rate to 24%. Reeves announced in the Commons that there will be an increase in capital gains tax (CGT). This tax applies to the profits earned from selling assets like a second home or investments, including stocks. According to her, the lower rate of Capital Gains Tax will go up from 10% to 18%, while the higher rate will increase from 20% to 24%. The CPA on residential property will stay at 18% and 24%.

Chancellor pledges increase in employment allowance

Chancellor announces boost to employment allowance Reeves has stated that she will raise the employment allowance to support smaller businesses. The allowance will rise from £5,000 to £10,500, allowing 865,000 employers to avoid paying any National Insurance next year. Additionally, she mentioned that over a million employers will either maintain their current payment levels or pay less than before.

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National Insurance to rise to 15% for employers

Rachel Reeves has announced an increase in the national insurance contributions that employers are required to pay. She informed the House that this will rise by 1.2 percentage points, bringing the total to 15% starting in April 2025. Additionally, the secondary threshold—the point at which employers begin to pay national insurance on an employee's salary—will decrease from £9,100 annually to £5,000. According to the chancellor, these changes are expected to generate £25 billion each year. "I understand that this is a tough decision, and I do not take it lightly," she stated. "We are asking businesses to contribute more, and I recognize that the effects of this decision will extend beyond just businesses, as highlighted by the Office for Budget Responsibility today. "However, given the circumstances I have inherited, I believe this is the right decision to make."

The chancellor announced a 1.2% rise in employers' National Insurance (NI) and a decrease in the threshold for payments from £9,100 to £5,000. However, she also mentioned that the amount employers can reclaim from their National Insurance contributions will increase from £5,000 to £10,500.

Fuel duty freeze will continue into 2025

Fuel duty will remain frozen through 2025. Chancellor Rachel Reeves has announced that the freeze on fuel duty will extend for another year. She stated, "There will be no increase in taxes at the petrol pumps next year." "Given the challenging fiscal situation, I must be honest with everyone that this is a significant commitment. "I believe that, in these tough times, with the cost of living still high and global uncertainties on the rise, raising fuel duty next year would not be the right decision for working families. "This would result in a 7p per litre increase in fuel duty. "Therefore, I have decided to keep fuel duty frozen for the coming year and will also uphold the current 5p reduction for an additional year."

Reeves reveals a plan aimed at helping children escape poverty

Reeves reveals initiative aimed at 'lifting children out of poverty' Rachel Reeves has introduced a "new Fair Repayment rate" designed to "lower the amount of debt repayments deducted from a household's Universal Credit payment each month from 25% to 15% of their standard allowance." According to her, this change will allow 1.2 million of the most disadvantaged households to retain a larger portion of their benefits each month, effectively "lifting children out of poverty." She further states, "Those who benefit will see an average increase of £420 annually."

Minimum wage to rise by 6.7%

Chancellor announces a 6.7% increase in minimum wage The chancellor has announced that the national minimum wage will increase by 6.7%, reaching £12.21 starting in April next year. In a significant move, the minimum wage for individuals aged 18 to 20 will see a remarkable rise of 16.3%, bringing it to £10 per hour, as suggested by the Low Pay Commission. She emphasizes that this initiative is "a Labour policy aimed at safeguarding working individuals, implemented by a Labour government once more." Rachel Reeves also mentions that "the weekly earnings threshold" will be adjusted "to reflect the equivalent of 16 hours at the National Living Wage each week." This marks "the most substantial increase since the introduction of Carer's Allowance in 1976." "This means that a carer can now earn over £10,000 annually while receiving Carer's Allowance, enabling them to work more hours if they choose and retain a larger portion of their earnings."

Taxes to rise by £40bn, chancellor announces

Taxes set to increase by £40 billion, chancellor reveals The chancellor has announced a £40 billion tax increase in this budget. Rachel Reeves attributes the £22 billion "black hole in our public finances" to the previous Tory government, citing unfunded compensation payments and a lack of assessment regarding the challenges confronting our public services. "Any chancellor in my position would have to confront this situation," she stated to MPs. "And any chancellor with a sense of responsibility would take necessary measures." "That’s why today, I am committed to restoring stability to our public finances and revitalizing our public services."

Chancellor sets 2% productivity, efficiency and savings targets

Chancellor sets 2% targets for productivity, efficiency, and savings Chancellor Rachel Reeves is now focusing on enhancing efficiency and cutting down on unnecessary government spending. She has announced a goal for all departments to achieve a 2% target for productivity, efficiency, and savings in the coming year, emphasizing the importance of utilizing technology more effectively and integrating services across the government. Additionally, Ms. Reeves mentioned that a COVID Corruption Commissioner will soon be appointed to investigate companies that took advantage of the national emergency for personal gain. She stated, "That money should be directed back into our public services, as taxpayers rightfully expect it to be returned." Furthermore, she confirmed the appointment of David Goldstone as the Chair of the new Office for Value for Money, which aims to maximize the benefits from every pound spent in the public sector.

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Borrowing to hit £127bn this year

Government borrowing is projected to reach £127 billion this year, according to the Office for Budget Responsibility (OBR), as stated by the chancellor in the House of Commons. Rachel Reeves pointed out that this amount reflects the legacy left by the Conservative Party. She further noted that due to the measures being implemented, borrowing is expected to decrease from 4.5% of GDP this year to 2.1% by the end of the forecast period. She also provided estimates for public sector net borrowing, predicting it will be £105.6 billion in 2025-26, £88.5 billion in 2026-27, £72.2 billion in 2027-28, £71.9 billion in 2028-29, and £70.6 billion in 2029-30.

Budget will 'boost long-term growth' in the UK

The budget is set to enhance long-term growth in the UK. Chancellor Rachel Reeves highlights a forecast from the Office for Budget Responsibility, which anticipates real GDP growth over the next five years. She emphasizes that her budget aims to put an end to "short-termism." "I am excited that, for the first time, the OBR has not only provided five-year growth forecasts but also a comprehensive evaluation of how our policies will impact growth over the next decade," Ms. Reeves states. "The new Charter for Budget Responsibility, which I am unveiling today, ensures that this will be a consistent part of our framework." The OBR projects real GDP growth of 1.1% in 2024, 2.0% in 2025, 1.8% in 2026, 1.5% in both 2027 and 2028, and 1.6% in 2029. "The OBR is clear: this budget will permanently enhance the economy's supply capacity, fostering long-term growth."

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