In her first Budget speech as Chancellor, Rachel Reeves introduced a series of tax reforms aimed at addressing the UK’s fiscal challenges. Faced with Labour’s manifesto pledges to avoid increasing income tax, national insurance, and VAT, Reeves focused on other areas such as capital gains tax (CGT), inheritance tax (IHT), and non-domiciled individuals (non-doms). These changes, along with a targeted increase in employer’s national insurance contributions, mark significant shifts in the government’s tax strategy, as Reeves aims to balance promises with fiscal responsibility.

Tax measures

Among the tax measures announced in the 90-minute-plus Autumn Budget speech were:

• increasing employer’s national insurance by 1.2 percentage points to 15% from April 2025
• reducing the secondary threshold on each employee’s salary from £9,100 a year to £5,000
• increasing the employment allowance from £5,000 to £10,500
• further investment and modernisation for HMRC
• freeze fuel duty at 5p for another year
• increasing the lower rate of CGT from 10% to 18% and the higher rate from 20% to 24%
• business asset disposal relief will remain at 10% this year, before rising to 14% in April 2025, and to 18% from 2026/27
• confirmed VAT on school fees
• no extension to the personal tax threshold freeze
• an increase to national living wage from £11.44 to £12.21 an hour from April 2025
• a confirmation that the VAT on private-school fees was going ahead
• increasing the energy profits levy on oil and gas companies to 38%
• increasing alcohol duty rates on non-draft products in line with RPI from February
• removing the “outdated concept” of domicile from the tax system from April 2025
• increasing the rate of air passenger duty by a further 50%
• increasing capital gains rates on carried interest to 32% from April 2025
• increasing the stamp duty land tax surcharge for second homes to 5%.

Reeves said the tax-and-spend Budget was necessary to reverse the dire state of the public finances the government inherited and to “fix the foundations to deliver change”.

“This government was given a mandate to restore stability to our economy and to begin a decade of national renewal, to fix the foundations and deliver change through responsible leadership in the national interest. That is our task. And I know that we can achieve it,” said Reeves at the start of her Budget statement.

CGT, IHT and non-doms

The Chancellor confirmed pre-Budget speculation by announcing an increase to capital gains tax as part of Reeves’s fiscal plans. This means the lower rate of CGT will increase from 10% to 18% and the higher rate from 20% to 24% while the rates for residential property will be maintained at 18% and 24%.

She also announced that business asset disposal relief would remain at the current level this year. As set out in Labour’s manifesto, Reeves explained that there “needs to be a fairer approach to the way that carried interest is taxed”, introducing an increase to capital gains rates on carried interest to 32% from April 2025. Then from April 2026, Labour plans to deliver further reforms “to ensure that the specific rules for carried interest are simpler, fairer and better targeted”.

She then turned her attention to inheritance tax. She confirmed that she will continue the IHT freeze until 2030. “I will extend that freeze for a further two years until 2030. That means the first “£325,000 of any estate can be inherited tax free, rising to “£500,000 if the estate includes a residence passed to direct descendants, and £1m when a tax-free allowance is passed to a surviving spouse or civil partner.”

She also announced that the government will close the measures created by the previous government made even bigger when the lifetime allowance was abolished by bringing inherited pensions into inheritance tax from April 2025. She also announced the scrappage of the “outdated concept” of domicile from the tax system from April 2025.

Fiscal responsibility amid economic challenges

Reeves’ first Budget comes at a time of significant economic challenges for the UK. With inflationary pressures, rising interest rates, and ongoing uncertainties in global markets, the Chancellor faced a delicate balancing act. The tax increases announced are designed to raise revenue while avoiding the politically sensitive areas of personal income tax, VAT, and employee national insurance.

Despite these challenges, Reeves was keen to present her Budget as one that prioritises fairness and fiscal responsibility. By targeting wealthier individuals and businesses, the government aims to raise revenue without placing undue burden on lower- and middle-income households. However, critics argue that the measures could deter investment and place additional strain on businesses at a time when the UK economy is still recovering from the impacts of the pandemic and Brexit.

Reception and criticism

The response to the 2024 Autumn Budget has been mixed. Supporters argue that the measures represent a fair approach to taxation, ensuring that those with the broadest shoulders contribute the most. They praise the Chancellor for avoiding regressive tax increases that would disproportionately affect lower-income households.

However, critics from the business community have raised concerns about the impact of increased employer NICs and the potential for capital flight among non-doms. They warn that these measures could stifle economic growth and harm the UK’s competitiveness on the global stage.

Opposition parties have also voiced concerns, with some arguing that the Budget does not go far enough to address the cost-of-living crisis facing many households. While the government has committed to protecting public services and investing in infrastructure, there are fears that the tax increases could dampen economic recovery.

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