The Budget 2024: One Of The Biggest Tax Hikes In History

🕰️ The Backdrop of The Budget

This is Labour’s first budget since taking office, and PM Keir Starmer’s popularity has plummeted - from a high of +11 post-election to -38 on the eve of this announcement. That is the fastest decline in popularity of any Prime Minister.

Enter Rachel Reeves, Chancellor of the Exchequer, with a CV that includes a stint as a Bank of England economist, and family ties all over British politics. Her sister, Ellie, is an MP, and her husband, Nicholas Joicey, was the speechwriter for former Labour PM Gordon Brown. Reeves is also the UK’s first-ever female Chancellor in over 800 years of parliamentary history. A long-overdue milestone.

Looking at the bigger picture, the economy is in a much better shape than it was for last year’s budget. UK inflation has fallen below 2% for the first time since 2021. This is a good sign for Reeves. However, the cost of living crisis is still casting a long shadow over many in the UK.

🔢 What Has Been Announced

The headline? Just over £40 billion in tax rises. But that’s only part of the story. This budget comes with a range of changes that will impact businesses, workers, and everyday expenses. Let’s break down what’s been announced - and what it could mean for you.

Employment & Wages

• Minimum Wage - Increase ⬆️
  What: Rising from £11.44 to £12.21 per hour starting in April 2025.
  In Real Terms: For a standard 37.5-hour workweek, annual earnings will rise from £22,368.06 to £23,873.60.
  Reaction: Positive for workers but could pressure employers, especially small businesses, with higher labour costs.

• National Insurance for Employers - Increase ⬆️
  What: Employer National Insurance rate increases from 13.8% to 15%, with the threshold for payments lowered from £9,100 to £5,000. Expected to raise £25bn annually by the end of the forecast period.
  In Real Terms: Higher tax burden for businesses, especially those with lower-wage employees.
  Reaction: This will be hugely unpopular among employers as it raises operating costs, impacting hiring and wage growth.

• Employment Allowance - Increase ⬆️
  What: Increases from £5,000 to £10,500, meaning 865,000 employers won’t pay any National Insurance next year, and over 1 million will pay the same or less.
  In Real Terms: Relief for smaller businesses, offsetting some of the impact from the increased NI rate.
  Reaction: A welcome move for small businesses, as it reduces payroll tax pressure.

• Minimum Wage for 18-20 Year-Olds - Increase ⬆️
  What: Increase by 16.3% from April 2025.
  In Real Terms: Younger workers will see a more significant boost to their hourly wage, reducing the gap between age groups.
  Reaction: A positive step for youth employment, though it may impact hiring if employers struggle with higher costs.

Taxes

• Capital Gains Tax - Increase ⬆️
  What: Capital Gains Tax will rise from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers on profits from selling assets like second homes and investments
  In Real Terms: Higher tax bills for those selling investments or property, impacting property investors and share traders.
  Reaction: Will be unpopular amongst property investors and high-net-worth individuals but aligns with Labour’s approach to tax wealth.

• Inheritance Tax Threshold - Unchanged ➖
  What: The inheritance tax threshold remains frozen for two more years, with the first £325,000 remaining tax-free. This increases to £500,000 for property passed to descendants and up to £1 million for estates transferred to a spouse or civil partner.

  In Real Terms: No immediate increase, but inflation will erode value over time, impacting more estates.
  Reaction: Neutral but may be seen as stealth taxation by those affected by rising asset values.

• Abolishing Non-Dom Status - Eliminated 🚫
  What: Non-dom tax regime to be abolished from April 2025, expected to raise £12.7bn over five years.
  In Real Terms: Higher taxes on wealthier residents previously benefiting from non-dom status.
  Reaction: Somewhat controversial - hailed as a fairness measure by some, but critics warn it may deter high-income individuals from residing in the UK.

Public Services & Welfare

• Funding for "Get Britain Working" Initiative - Increase ⬆️
  What: £240m allocated to support local services aimed at reducing unemployment, with a white paper outlining strategies to bring more people back into work
  In Real Terms: Targeted support to reduce reliance on welfare and address skills shortages.
  Reaction: Generally positive; this could relieve pressure on the benefits system while improving workforce participation.

Transport & Energy

• Fuel Duty - Unchanged ➖
  What: Fuel duty will remain the same next year, contrary to expectations of an increase.
  In Real Terms: No immediate increase in fuel costs, beneficial to drivers and transport companies.
  Reaction: Will be welcomed by motorists and the logistics sector, especially amid high living costs.

• Bus Fare Cap - Increase ⬆️
  What: The single bus fare cap will increase from £2 to £3, with the cap extended until December 2025.
  In Real Terms: This increase means higher costs for regular bus users, although the cap still keeps fares more affordable than they might be without it.
  Reaction: Generally bad news for commuters - while the fare cap helps limit costs, the increase will put extra pressure on low-income riders, especially in rural areas where routes may be limited.

Education

• VAT on Private School Fees - Increase ⬆️
  What: VAT will apply to private school fees starting January 2025.
  In Real Terms: Expected rise in private school costs, which may reduce affordability for middle-income families.
  Reaction: Mixed; some see it as fair, while others argue it could put additional pressure on the state school system.

• Special Educational Needs and Disabilities Funding - Increase ⬆️
  What: £1bn increase for special education needs and disabilities (SEND).
  In Real Terms: Expanded support for SEND students, potentially reducing waiting times and improving resources.
  Reaction: Positive for families and education advocates as SEND funding has been historically under-resourced.

Housing

• Stamp Duty Surcharge for Second Homes - Increase ⬆️
  What: Increases from 2% to 5% on second homes.
  In Real Terms: Higher costs for buying second properties, which may deter investment in rental properties.
  Reaction: May cool the buy-to-let market but could limit housing options in areas with housing shortages.

• Home Cladding Removal - Increase ⬆️
  What: £1bn allocated to accelerate dangerous cladding removal on residential buildings.
  In Real Terms: Increased safety measures following Grenfell, supporting safer housing for residents.
  Reaction: Positive for affected residents; long-awaited funding to address serious safety issues.

Business & Economy

• Investment in HMRC - Increase ⬆️
  What: Increased funding allocated to modernise systems and pursue tax avoidance, expected to raise an additional £6.6bn by the end of the forecast period.
  In Real Terms: Improved tech and staffing for tax compliance, targeting avoidance schemes.
  Reaction: A welcome move to push for tax fairness and even the playing field for many businesses.

• Business Rates - Increase ⬆️
  What: The current 75% discount on business rates for retail, leisure, and hospitality businesses will drop to 40% (capped at £110k) in April 2025.
  In Real Terms: This reduction in relief means many businesses will see their business rates bills significantly increase - effectively almost doubling in some cases, which could strain finances for smaller high-street businesses.
  Reaction: Likely to be challenging for smaller businesses already facing tight margins. While larger firms may be able to absorb the extra cost, many SMEs could struggle with the steep increase.

Health & Social Care

• NHS Budget - Increase ⬆️
  What: £22.6bn increase for day-to-day NHS spending and a £31bn increase in the capital budget - the largest since 2010 (outside of Covid funding).
  In Real Terms: Major boost for healthcare services, potentially reducing wait times and improving infrastructure.
  Reaction: A huge positive for healthcare and the NHS, but will raise questions about sustainable long-term funding.

• Carer’s Allowance Earnings Limit - Increase ⬆️
  What: The weekly earnings limit for Carer’s Allowance will be raised to align with 16 hours per week at the National Living Wage.
  In Real Terms: Carers can now earn slightly more without losing eligibility for the allowance, providing a bit of financial relief for those balancing work and caregiving.
  Reaction: A much-needed positive for carers, offering more flexibility to work part-time while caring for loved ones.

   

Justice & Scandals

• Compensation for Victims of Scandals - Increase ⬆️
  What: £11.8bn allocated for those affected by the infected blood scandal, plus £1.8bn for victims of the Post Office scandal.
  In Real Terms: Significant funds to support those impacted by two major public health and legal scandals, offering long-awaited financial relief.
  Reaction: A welcome positive step towards some form of justice, though critics will argue that it took too long for victims to receive support.

Defence & Infrastructure

• Defence Budget Increase - Increase ⬆️
  What: £2.9bn increase to the Ministry of Defence budget next year.
  In Real Terms: Enhanced funding for defence, aimed at strengthening the UK’s military capabilities.
  Reaction: Seen as necessary by defence advocates, though critics will argue resources are better allocated to domestic needs.

• HS2 Funding Commitment - Increase ⬆️
  What: Funding for tunnelling work from Old Oak Common to Euston in London, reviving part of the HS2 project scrapped by the previous government.
  In Real Terms: High-speed rail connection from Birmingham to central London is back on track, saving commuters time and boosting connectivity.
  Reaction: A decisive topic, but this will be popular amongst HS2 supporters, though critics will point to ongoing budget concerns with HS2.

• Road Maintenance Budget Increase - Increase ⬆️
  What: £500m allocated to repair an additional 1 million potholes next year.
  In Real Terms: Improved road conditions nationwide, aiming to reduce vehicle damage and improve safety.
  Reaction: A positive for motorists and local councils.

Energy & Environment

• New Government-Owned Energy Company - Increase ⬆️
  What: GB Energy is to be established in Aberdeen, focusing on renewable energy initiatives.
  In Real Terms: A key point in Labour manifesto, with a focus on boosting renewable energy production and reducing the UK’s dependence on imported energy sources.

• Reaction: Seen as a positive move for energy independence and environmental goals, though some question the cost and viability. Let’s wait and see.

• Windfall Tax on North Sea Oil and Gas Producers - Increase ⬆️
  What: Tax rate increased from 35% to 38% on oil and gas companies, with an extension of the levy.
  In Real Terms: Additional tax burden on fossil fuel producers, raising revenue for public spending.
  Reaction: Supported by climate advocates, but oil and gas companies argue it may discourage investment.

Public Health

• Increase in Tobacco and Vaping Duties - Increase ⬆️
  What: Tobacco duty will rise by RPI +2%, with an additional 10% increase on hand-rolled tobacco and a new flat-rate duty on vaping liquid from 2026.

  In Real Terms: Higher costs for tobacco and vaping products, intended to discourage smoking and vaping.
  Reaction: Likely seen as positive for public health, though tobacco and vaping industries will likely push back.

Regional Funding

• Additional Funds for Devolved Governments - Increase ⬆️
  What: £3.4bn for the Scottish government, £1.7bn for Wales, and £1.5bn for Northern Ireland in 2025-26.
  In Real Terms: Increased resources for devolved governments to improve public services.
  Reaction: Positive for regional development and support.

📉📈 The Good, Bad and Ugly For UK Businesses

This budget’s been a bit of a bruiser for UK businesses, particularly for the smaller players trying to weather already tough times. Labour’s message? Public funding and fairness are the new order to drive growth, but it’s a costly one for the entrepreneurial crowd.

Of the £40billion this budget will raise, businesses will pay over half.

Let’s break it down:

The Good ✅

• No Changes to VAT, Employee NICs, Income Tax, or Dividend Tax: While the budget introduces a slew of tax hikes, businesses can breathe a small sigh of relief as these key taxes remain untouched, sparing companies from extra operating costs in these areas.

• Employment Allowance Increase: Small businesses benefit from a rise in the Employment Allowance from £5,000 to £10,000, with over a million paying the same or less National Insurance than before. This should provide some cushion against the steep NI rate increase.

• Tech and Tax Enforcement: Increased HMRC funding aims to modernise systems, crack down on tax evasion, and improve efficiency. This could level the playing field for businesses, as more will be done to prevent tax dodging through advanced technology and additional staff.

• Social and Financial Support: With a £1bn addition to the household support fund and a fairer repayment rate for Universal Credit overpayments, the government is trying to cushion the financial strain for lower-income households. For consumer-facing businesses, that means potentially steadier demand amid economic challenges.

The Bad ⚖️

• Minimum Wage Increase: Jumping to £12.21 for those over 21, this move is great for workers but tough for smaller businesses struggling with razor-thin margins. While this increase aligns with inflationary pressures, it’ll likely hit SMEs harder as they scramble to absorb wage costs or pass on costs to consumers.

• Flat Growth Forecast: The Office for Budget Responsibility (OBR) forecasts growth of around 1.5% for the foreseeable future. Labour argues this is part of a longer-term strategy for stability, but it’s hardly an inspiring growth outlook. Business confidence could falter, with entrepreneurs wondering where the real momentum will come from.

• National Insurance Increase for Employers: The employer National Insurance rate will jump to 15% next April, with the threshold for payments lowered to £5,000. The government expects this to raise £25bn, but it’s a hefty burden for employers, especially those with lower-wage employees. For many, it may feel like yet another barrier to growth in a challenging landscape.

• Business Rates Relief Reduction: The high street continues to take a hit as the current 75% business rates discount for retail, leisure, and hospitality businesses will drop to 40%, leaving smaller firms with even higher operating costs. It’s a big expense for those just hanging on, especially in a sector already fighting to stay relevant.

The Ugly ❌

• National Insurance and Business Costs: Lowering the National Insurance threshold to £5,000 means employers will be shelling out sooner. This is particularly punishing for smaller businesses, which are already under pressure to keep pace with higher costs and a challenging economy.

• Business Property and Agricultural Property Relief Changes: Starting April 2026, inheritors of business or agricultural property will face a 20% inheritance tax on these assets. This is especially harsh for small-scale farmers and family-run businesses, where passing down land or assets is critical for continuity. Many may be forced to sell off portions of their operations to meet tax obligations - a significant blow to generational businesses.

• Inheritance Tax Threshold Freeze: While the IHT threshold freeze might seem innocuous, it’s a stealthy increase as inflation erodes the real value of estates. Families with rising property values are more likely to be caught by IHT, especially in areas with high property appreciation, putting pressure on small businesses aiming to pass down assets tax-efficiently.

• Mixed Messaging on Competitiveness: Despite promises of making the UK a competitive destination, the budget lacks new incentives for business investment. Reeves is pushing a public funding-driven growth model, but beyond some tech initiatives and funding for fraud prevention, there’s little here to motivate businesses to stay or expand in the UK.

💼 My Final Thoughts & What’s Next

Rachel Reeves came across as strong, she delivered the budget well and, ultimately, I feel like she should be proud of being the first female chancellor to deliver such a fearless budget. Reeves has been bold, which I admire, but the implications are significant.

At its core, this is a Labour budget through and through, relying heavily on public funding and a higher tax regime to fuel growth. Reeves is putting trust in borrowing and higher taxes to pave the way forward, and while I don’t fully agree with that approach, there are aspects I can get behind, such as major investments in infrastructure and long-overdue compensation for scandals like the Post Office and infected blood crises.

But if there’s a clear downside here, it’s in the cost for businesses, especially SMEs. With the cost of living crisis pushing many companies to the brink, this budget piles on more financial strain. The jump in National Insurance contributions makes it harder for businesses to expand - or even to retain their current workforce. The reduced business rates relief will add to high-street pressures at a time when footfall is still fragile. While for family-run farms, changes to Agricultural Property Relief will have far-reaching impacts that may force some to sell off land just to manage inheritance tax.

In the near term, expect criticism from nearly every corner - journalists, business owners, employees. It’s a tough budget for a country looking to recover, and some reactions may well be justified.

Looking forward, though, could this budget lay the foundation for a stronger, more resilient country? Labour would certainly have us think so. This budget seeks to raise critical funding for the NHS, for carers, and for long-overdue infrastructure. It won’t be an easy few months for UK businesses, maybe not even an easy few years. But if these funds really do reach those who need them, and if this gamble on public spending pays off, it might just start to move the needle in the right direction.

So where do we go from here? The reality is, we won’t know if this budget’s vision holds water until it’s truly tested. Labour’s popularity will undoubtedly rise or fall on the results, especially as businesses and investors weigh whether to double down on the UK—or decide they’re better off looking elsewhere. The true test will be whether Reeves’s confidence can spark confidence in return. Only time will tell.

📬 The Budget HO Reader Q&A

Q: When do these changes take effect?
A: Most changes, like the National Insurance increase and minimum wage rise, kick in at the start of the new tax year in April 2025. Other measures, like the freeze on the inheritance tax threshold and stamp duty surcharge changes, come into effect sooner. So the answer is, ‘it depends‘ - but most will be fairly soon.

Q: Does the £22bn black hole even exist? Labour says it does, the Conservatives say it doesn’t, and the OBR claims it’s £9.5bn. Which is it?
A: Ah, the infamous “black hole.” This number depends on who you ask and how you calculate future debts and obligations. Labour’s estimate assumes that previous spending levels should be maintained, creating a larger gap. The OBR’s £9.5bn figure is based on more conservative assumptions. Ultimately, the “hole” is somewhat subjective, but Labour’s budget aims to fill it either way.

Q: Why wait for (the) Budget to make changes to tax?
A: The Budget is when the government formally announces spending, tax policies, and financial plans for the country, so changes are bundled together for transparency and cohesion. Major tax changes mid-year can create instability, so the annual Budget keeps things predictable - at least in theory…

Q: How will the new National Insurance rate impact small businesses?
A: For small businesses, especially those operating on tight margins, the increase to 15% with a lower threshold is tough. Labour’s increased Employment Allowance will soften the blow slightly, but the jump could mean tighter budgets, hiring freezes, or even price adjustments for customers.

Q: With slow growth forecasts, is the budget doing enough to keep the UK competitive?
A: This is a real concern of mine. While Reeves argues this budget will stabilise and strengthen the UK, there are limited new incentives for businesses and investors. With growth expected to stay around 1.5%, businesses may hesitate to expand here if other countries offer better prospects.

Q: Are high-street businesses getting any help?
A: Not much, unfortunately. Business rates relief will drop from 75% to 40%, which means many high-street shops could face larger bills. Combined with lower footfall, this makes it an even tougher climate for local retail, and likely for hospitality, too.