There are so many Budget summaries available on the web these days and in newspapers that for me to summarise all the budget proposals here makes no sense. Instead, I am interested in the economic and social impact of what Rachel Reeves had to say today.
I have, in another post written before she even spoke, suggested that Rachel Reeves' Budget will be a disaster for small employers and the many more lowly paid people who depend upon them for their income. Some sectors, like nursery care, hospitality and social care for the elderly, will be especially badly hit by a combination of an increase in the minimum wage (which I stress I welcome) and a simultaneous significant increase in the overall effective rate of employers' national insurance that will be payable with regard to these employees. It is my suggestion that, by itself, this single move will make life very much harder for all those on lower levels of income in this country when I would have expected the exact opposite from the Labour Party.
The fact that this will also make it much harder for young people to find employment makes this all the more worrying when we already know that they are suffering significant rates of unemployment because of the very high levels of stress that they have suffered as a consequence of the Covid era. I cannot understand how a Chancellor could have been quite so unwise as to have made the simultaneous changes that she has delivered when those was regard to national insurance might be particularly harmful.
The idea that this budget was one for the wealthy, and not one for people on more normal levels of income, was very heavily reinforced by other changes that were made. In particular, this was apparent in the changes with regard to capital gains tax.
The rate payable on this tax by people with levels of income of less than £50,000 per year was increased from 10% to 18%, making the capital gains tax rate just 2% less than their income tax rate.
However, when it came to those with income above £50,000 per annum, who pay income tax at 40% or 45%, the rate of tax was increased from just 20% to 24%, meaning that the differential between the capital gains tax rate and their income tax rate is between 16 and 21% per cent, compared to just 2% for those on lower income. In other words, there remains every incentive for those on higher income to still try to use capital gains tax to avoid tax liabilities, which will make much of the tax avoidance industry very happy indeed.
If insult were to be added to injury, the capital gains tax rate on private equity funds was increased from 28% to 32%, which means that those people claiming that they make capital gains when undertaking their work that should be subject to income tax, in my opinion, will continue to obtain an enormous tax advantage. In opposition, Rachel Reeves had claimed that she would close this loophole. Nothing of the sort has happened.
It also looks as if the changes to the domicile rule will be largely cosmetic. Whilst the headline announcement that this role would go was made, it was made very clear that a new set of rules will be offered in its place, but the details have yet to be announced for reasons that elude me. I think we can safely assume that something close to the domicile rule will replace that rule and, yet again, Rachel Reeves will have failed to deliver on a pre-election promise.
Likewise, the changes to inheritance tax were amazingly generous to the most wealthy. Whilst the freezing of allowances continues to bring more estates within the scope of this tax, demands that rules be changed so that the wealthy might be required to contribute fairly with regard to the inheritance tax were largely ignored. Admittedly, caps were introduced on the amount of business property relief and agricultural property relief that an estate might claim, but each has a £1 million tax-free allowance now, and above that sum, the rate of tax is 20% rather than the normal 40%. In other words, the wealthy will continue to pay inheritance tax rates much lower than those payable by estates where the largest asset is a family home. I think we can safely predict significant complaints on that point.
My conclusion is very simple: those with the broadest shoulders will not be those paying the most to quell Rachel Reeves' balanced budget paranoia. Those with the narrowest ability to bear the cost - including those on the lowest pay and their small business employers will pay the highest price, or their already struggling customers will. There was not a hint of social justice in this Budget. Rachel Reeves failed everyone who hoped there might be.
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Thanks Richard a perfect summary
Thanks for sharing this
Just had this Paul,
We’re fixing the foundations to deliver change.
Today’s Budget will cut NHS waiting lists and enable us to invest in Britain’s future by rebuilding our hospitals, schools and broken roads:
Over £25.6 billion of new funding which will deliver an extra two million NHS operations, scans and appointments a year, so waiting times are reduced for you and your family.
£1.4 billion to rebuild 500 schools to deliver classrooms that children can learn and thrive in.
£500 million to fix local roads and fill in an additional one million potholes a year.
These are just some of the steps this Labour Government is taking to deliver change.
And Paul, as promised, we’re doing all of this by making fairer choices, ensuring that working people don’t face higher taxes in their payslips.
We are choosing to protect working people with a pay rise for over 3 million earning the National Living Wage and have frozen fuel duty, while making fair choices to increase funding for public services.
We’re helping those most in need with essentials, announcing £1 billion to help those facing financial hardship with the Household Support Fund, and ensuring pensioners are protected in their retirement by confirming an increase of up to £475 in the state pension next year.
It hasn’t been easy. The £22 billion black hole that the Tories left in the public finances means that there are tough decisions on spending, welfare and tax.
Unlike the Tories, this Labour Government isn’t dodging those decisions. We’re cracking down on fraud, tax avoidance and waste, and making sure that every penny of taxpayer money is spent wisely.
We had a choice: five more years of Conservative decline with more austerity and working people picking up the bill, or change with Labour investing in Britain’s future.
Paul, we chose change. This Labour Government is fixing the NHS, rebuilding Britain and protecting the payslips of working people.
We’re fixing the foundations and setting the country on the path of change.
Thank you,
Rachel Reeves MP
Chancellor of the Exchequer
Paul,
We’re fixing the foundations to deliver change.
Today’s Budget will cut NHS waiting lists and enable us to invest in Britain’s future by rebuilding our hospitals, schools and broken roads:
Over £25.6 billion of new funding which will deliver an extra two million NHS operations, scans and appointments a year, so waiting times are reduced for you and your family.
£1.4 billion to rebuild 500 schools to deliver classrooms that children can learn and thrive in.
£500 million to fix local roads and fill in an additional one million potholes a year.
These are just some of the steps this Labour Government is taking to deliver change.
And Paul, as promised, we’re doing all of this by making fairer choices, ensuring that working people don’t face higher taxes in their payslips.
We are choosing to protect working people with a pay rise for over 3 million earning the National Living Wage and have frozen fuel duty, while making fair choices to increase funding for public services.
We’re helping those most in need with essentials, announcing £1 billion to help those facing financial hardship with the Household Support Fund, and ensuring pensioners are protected in their retirement by confirming an increase of up to £475 in the state pension next year.
It hasn’t been easy. The £22 billion black hole that the Tories left in the public finances means that there are tough decisions on spending, welfare and tax.
Unlike the Tories, this Labour Government isn’t dodging those decisions. We’re cracking down on fraud, tax avoidance and waste, and making sure that every penny of taxpayer money is spent wisely.
We had a choice: five more years of Conservative decline with more austerity and working people picking up the bill, or change with Labour investing in Britain’s future.
Paul, we chose change. This Labour Government is fixing the NHS, rebuilding Britain and protecting the payslips of working people.
We’re fixing the foundations and setting the country on the path of change.
BINGO!!
You should state that companies with an annual NI bill of less than £100k are exempt from the Budget increases in NI rate and threshold. At average earnings that means firms with less than about 50 FTE employees and those who work for them are not going to be affected in the way you say.
£10k
Would you normally a Labour Government in 2024 to make life economically worse for the a big chunk of the UK’s population? Not do very much that will impact economically on the wealthy?
Normally no, but this 2024 Labour government does.
Can’t see how Labour thinks it is going to win in 2029.
The Treasury’s distributional analysis suggests that the budget tax and spend measures are highly progressive – most impact falling on the top decile by income.
https://assets.publishing.service.gov.uk/media/672156834da1c0d41942a8c9/Impact_on_households.pdf
But then it doesnt seem to include the impact of the employer NI increase or the minimum wage etc
I disagree with that analysis – second orcder effects are clearly being ignored.
Can you clarify what you mean by this – aren’t first order impacts much more important. 2nd order effects are, by definition, 2nd order?!
No, second order effects are often bigger than first order effects
They are the beahvioural consequences of a tax change
I found her claim that she won’t extend the freeze on the tax-free allowance even more devious than the raise in employers’ NIC. It won’t be frozen beyond 2028, but that’s at least another 3 years (4 if it’s actually unfrozen in 2029).
It’s the most regressive tax feature, massively and disproportionately affecting the lower paid. And it will soon apply to people on even the basic state pension (and a lot of people’s state pension has extras, like old SSP, or deferred payment).
I find the idea that the somewhat meagre state pension should be taxable not merely absurd, but more like a sick joke.
Rather than removing the freeze it should be restored to what it would have been had it never been frozen.
That would be fair
And it is easy to adjust higher rate bands to deny benefits there
I was hoping to see some vitriol regarding the non event of equalising pension tax relief.
Give me time
There are so many failures I can’t do them all at once.
Are there significant announcements on climate change in the budget that I have missed?
Exeter University has just published ‘The Parliamentarians’ Guide to Climate Change’. It’s powerful stuff!
* Human activities, principally through emissions of greenhouse gases, have unequivocally caused global warming …
* … we can expect to see loss of food, water and energy security, leading to increased global conflict. If we don’t act fast to reduce emissions, billions of people across the globe may be living in areas which are moving outside the window of human habitability to date, driving mass involuntary migration.
* The extent to which current and future generations will experience a hotter and different world depends on choices now and in the near-term.
[https://greenfutures.exeter.ac.uk/wp-content/uploads/2024/10/2024EI075-Guide-to-climate-change-AW-V2.pdf]
A year and half ago, Professor Kevin Anderson of the Tyndall Centre for Climate Change Research wrote:
“We urgently require a Marshall Plan-style roll-out of low and zero carbon technologies – retrofitting houses, public transport, and massive electrification. These technologies are much more important than dreams of big EVs, electric planes, and future carbon dioxide removal.
But this can no longer be sufficient. We also need a rapid shift in mobilising labour and resources to deliver *a public good for all* – a stable climate with minimum detrimental impacts.
A few examples:
– An immediate moratorium on airport expansion and a plan to deliver a fair 80 per cent cut in all air travel by 2030.
– No new internal combustion engine cars would be built from 2025, and a huge shift away from private cars in cities and urban environments coupled with a shift towards public transport and active travel. Maybe rural communities would continue to use EVs, but with a rental rather than ownership model.
– Retrofit existing homes, … actually rolling it out street by street at mass scale. Passive house standards would be required.
– All new properties to have a maximum size threshold. Why are we building homes that are 200 to 400m2? Cut this to a maximum of 100 to 150m2 – still large homes – but with much less resource and material use, and of course less land! And when we sell existing very large houses, have them carefully and creatively divided into normal-sized homes.
– On top of all of this we need a massive expansion of electrification in the energy system.
I don’t think it is that hard to get the vast majority of the population behind such positive change; it requires honesty and candour. Most will be better off in virtually all aspects of their lives – less noise, more usable urban space for parks, cafes, playing fields and the many other facilities that make a thriving community.”
https://climateuncensored.com/what-would-serious-climate-action-look-like/
Many thanks for this Joe
[…] have already noted that this was a profoundly unfair budget in which the greatest burdens will fall on those with […]
A look at Inheritance Tax reveals that this is just for little people
Corporations Public sector & charities never die & the royals pays no inheritance tax
Also Aristocracy & Oligarchs use various tax avoidance mechanisms to avoid it
So who really is being targeted?
Here are some other land ownership statistics for the UK:
Oligarchs and City bankers: Own 17% of English land
Public sector: Own 8% of English land
Homeowners: Own 5% of English land
Conservation charities: Own 2% of English land
The crown and royal family: Own 1.4% of English land
It seems that the budget preserves the busted flush that is ‘trickle down’ to me.
Yet to listen to the media, something dramatic has happened.
Gruel is bad enough.
But this watered down gruel is an insult to our intelligence.
Richard,
You have pointed out quite rightly that Childcare and Social Care will be hit badly by this budget and I can understand why as there are limits on their ability to raise prices. But why Hospitality and some other sectors?
It seems to me that there is an issue with a lot of small business’s failing to make a living for their owners or staff.
While there are issues about rents, in particular in the Pub sector how can we tackle a lot of underperforming small business’s either allowing them to provide a proper living for those who run and work in them or giving them a decent burial?
As I noted to Robert Dawkins:
“ Almost no small businesses are viable in the sense that they make a profit. They pay their owners a wage. That’s it. But if you cut that wage for the owner by imposing costs like this something has to give. But let’s not pretend small businesses are viable. They simply make enough to keep their owners doing an activity they want to do which happens to be of benefit to others. You cannot apply microeconomic theory to a lot of that. It does not understand it.”