Labour’s First Budget Since 2010: £40 Billion Tax Hike to “Fix the Foundations”

In a historic first, UK Chancellor Rachel Reeves delivered Labour’s first budget since 2010 and the first ever delivered by a woman. Reeves announced a £40 billion tax increase, aiming to “fix the foundations” of the economy and repair the public finances.

Addressing the “Black Hole”

Reeves highlighted a £22 billion “black hole” in this year’s public finances, blaming the previous Conservative government for “hiding the reality of their public spending plans”. She emphasized that these issues would continue to recur in future years.

Compensation and Investment

The Chancellor also pledged £11.8 billion to compensate victims of the infected blood scandal and £1.8 billion to those affected by the Post Office Horizon scandal.

“Together, the black hole in our public finances this year, which recurs every year, the compensation payments which they did not fund and their failure to assess the scale of the challenges facing our public services means this Budget raises taxes by £40 billion,” Reeves stated.

Tax Increases Explained

The Chancellor confirmed a £25 billion raid on employers’ national insurance contributions, with higher rates and a lower starting threshold. The rate will increase by 1.2 percentage points to 15% from April 2025, with payments starting when an employee earns £5,000, down from the current £9,100.

“I know that this is a difficult choice. I do not take this decision lightly,” Ms Reeves said.

Other tax increases include:

• A £2.5 billion increase in capital gains tax, raising the lower rate from 10% to 18% and the higher rate from 20% to 24%.
• Changes to inheritance tax, including bringing pension pots within the tax from April 2027, and reforms to agricultural and business property reliefs, raising a total of £2 billion a year.

Economic Outlook

The Office for Budget Responsibility forecast predicts higher GDP growth in 2024 and 2025 than previously expected. However, there are downgrades in subsequent years.

Other Measures

The budget also includes measures such as:

• Continued freeze on fuel duty, including maintaining the existing 5p cut.
• A flat rate of duty on all vaping liquid from October 2026 alongside an additional one-off increase in tobacco duty.
• An increase in the soft drinks industry levy to account for inflation.
• An increase in alcohol duty rates on non-draught products in line with RPI inflation, with a 1.7% cut in draught duty.

What This Means for You

This Labour budget marks a significant shift in economic policy, with a focus on repairing public finances and investing in public services. Understanding these changes and their potential impact on your finances is crucial. Stay informed and engage in discussions about the budget’s implications for the UK.