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By Johanna Gardener •
Published: 30 Oct 2024 • 21:41
• 6 minutes read
Rachel Reeves, the Chancellor of the Exchequer, introduced a £40 billion budget aimed at stabilizing and revitalizing the UK’s public services amidst investor caution and turbulent economic backdrop.
Rachel Reeves, Chancellor of the Exchequer unveiled a £40bn budget, which she hopes will stabilise and recuperate public services. Following a dip in the FTSE 100 by 0.5% this morning, it was clear that investors feared the worst ahead of the tax-raising budget announcement. Aware of negative anticipation among investors, Reeves had pledged to take the opportunity to boost confidence,” as uncertainty grew in the build up to the budget announcement.
For several months now, fears have been growing regarding Reeves’ planned budget announcement for the Labour government. The much-feared budget increase would ultimately have a knock-on-effect effect on National Insurance contributions and across the UK, the expectation that other taxes would increase was a question in everybody’s minds.
Reeves promised to prioritise investment in public services as part of £40bn budget
Across a series of promises made under the £40bn budget , Reeves claims to be prioritising investment where it needs to be. She will be borrowing money in order to focus on rebuilding schools, hospitals and prisons. Ms Reeves commented on X this morning: Politics is about choices. This Labour government chooses investment over decline. Her promise was delivered to Members of Parliament this morning: My belief in Britain burns brighter than ever. And the prize on offer to today is immense. More pounds in people s pockets. An NHS that is there when you need it. An economy that is growing, creating wealth and opportunity for all. Because that is the only way to improve living standards. She added: And the only way to drive economic growth is to invest, invest, invest.
Double-edged sword: budget plans see minimum wage increased
However, nationwide optimism and motivation were dampened as the budget announcement introduced a range of new implications for British citizens. What also remains certain is that many of the changes are a double-edged sword, offering benefits yet also more expenses for individuals. One example is the increase to the minimum wage. According to the reform, this will be raised by 6.7 per cent to £12.21 an hour next year. John Foster, chief policy and campaigns officer at the Confederation of British Industry (CBI), said the national living wage was a valuable tool for protecting the incomes of the poorest in society but with productivity stagnant, businesses will have to accommodate this increase against a challenging economic backdrop and growing pressure on their bottom line . He added: That pressure will make it increasingly difficult for firms to find the headroom to invest in the tech and innovation needed to boost productivity and deliver sustainable increases in wages.
Income tax thresholds to be frozen until 2029 impeding personal financial growth
A further catch-22 situation was the freezing of income tax thresholds until 2029. Reeves claimed that keeping thresholds frozen would hurt working people. However, despite their being more stability with the freeze, it also means that workers will have to face a further four years suffering the effects of “fiscal drag.” Currently, those paying income tax need to be earning more than £12,750 a year. This increases to 20 per cent when earning between £12,570 and £50,270 and to 40 per cent when earning between £50,270 and £125,140. A surplus of 5 per cent is applied for workers earning more than this sum. However, if income tax thresholds are frozen, fiscal drag creates a situation whereby if allowances and thresholds do not rise in accordance with inflation or wages, the government will accumulate more money while workers earn less money tax-free. This will affect both ends of the scale – low earners and high earners. Inflation will make prices surge and people will most probably be worse off than before.
Inheritance tax will also be affected with tax thresholds in this domain being frozen until 2030. Rachel Reeves claimed: Only 6% of estates will pay inheritance tax this year. I understand the strongly held desire to pass down savings to children and grandchildren, so I am taking a balanced approach in my package today.” Various conditions were placed on inherited residential properties and agricultural properties.
Reeves promises little or no change for income tax, national insurance or VAT
Another element of Reeves’ budget announcement concerned the promise of no increments on income tax, national insurance or VAT for employees. Responding to questions regarding the cuts made by the Conservative government, Reeves said: Since July, I have been urged on multiple occasions to reconsider these cuts. To increase the taxes that working people pay and see in their payslips. But I have made an important choice today: To keep every single commitment that we made on tax in our manifesto. So I say to working people: I will not increase your national insurance, your VAT, or your income tax.”
For those owning businesses, employers national insurance contributions will face a rise of 1.2 percentage points to 15% in April 2025, and the payment threshold will fall from £9,100 per year to £5,000. However, Employment Allowance for small businesses has increased to allow them to flourish without having to pay national insurance on workers’ wages.
What about the NHS and victims of the infected blood scandal?
Not only did the budget affect taxpayers but also responded to a need for investment and social support. The NHS would also benefit from the £40bn budget. The Labour Giovernemtn pledged to invcrease day-to-day spending on the NHS to £22.6bn plus an additional £3.1bn in capital spending. This represents the largest real term growth in NHS funding since 2010.
Of the total budget, Reeves pledged to set more than £13bn aside for infected blood and Post Office Horizon scandal victims. The public inquiries into the two scandals have pushed the governement to offer generous compensation deals for victims. Reeves claimed the previous Conservative government had not budgeted to cover unprecedented incidents such as these and therefore, further borrowing was required. The infected blood scandal involved 30,000 NHS patients who were given HIV or hepatitis C- contaminated blood products between the 1970’s to early 1990’s. This not only provoked thousands of deaths but also long term impacts on victims and their families. The Post Office Horizon scandal involved thousands of subpostmasters being falsely accused of fraud due to faulty software leaving themselves and their families alientaed and harrassed unnecesarily.
How will pensioners be affected by the new Labour budget and reforms?
Pensioners will also feel the pinch of frozen tax thresholds, as those receiving the full state pension of £11,502.40 with supplementary private pension income will likely surpass the personal allowance threshold of £12,570 meaning they will be eligible to pay taxes. HMRC figures already show that the numbers of pensioners paying income tax are higher than ever with an increase of half a million between 2023/24 and 2024/25. In comparison to 2010-2011, there are nearly double the number of pensioners (nearly nine million), paying tax on their income. Those whose pensions are not supplemented by a private scheme income, could still be affected as the state pension has increased and tax thresholds remain frozen – eventually all pensioners may need to be paying income taxes. Ex-Prime Minister Rishi Sunak criticized Labour, saying that it was targeting, Britain s poorest pensioners.
The silver lining: crackdown on welfare fraud
With the exponential growth of fraud in the welfare system, Reeves has promised a crack down through new measures. She proposed reforming the work capability assessment for those in need of health and disability allowance. She also committed to crackdown on fraud on behalf of criminal gangs. A further announcement proposed the launch of the Get Britain Working project, aiming to tackle inactivity. She said: We will provide £240 million for 16 new trailblazer projects targeted at those who are economically inactive and most at risk of being out of education, employment or training to get people into work and reduce the benefits bill.
Mixed feelings in Parliament as budget announced by first-ever female Chancellor of the Exchequer
The first budget to be announced by the recent Labour government was delivered and received with mixed feelings. Reeves described how she felt proud “to be Britain s first-ever female Chancellor of the Exchequer. To girls and young women everywhere, I say: Let there be no ceiling on your ambition, your hopes or your dreams.” She also added that Labour were committed to “rebuild(ing) Britain.”
However, John O’Connell, chief executive of the TaxPayers’ Alliance, opposed the plans, focusing mainly on implications for taxpayers: We were consistently told that there was no need for big tax hikes because of a focus on growth, so taxpayers will be disgusted by the whoops and cheers of Labour MPs celebrating the fact that Rachel Reeves has just condemned the country to a record high tax burden.” He added: If the government ever wants to regain the trust of taxpayers it will need to rapidly find a way to halt the growing tax burden.
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Written by
Johanna Gardener
Originally from Manchester, UK and with a degree in English with Modern Foreign Languages, she has been a permanent resident in Spain for the past 12 years. Many of these years, she has spent working as a secondary school teacher, as well as in journalism, editing and marketing. She currently lives in the historic centre of Malaga, where she enjoys writing, walking and animals.
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