UK 2024 Budget

The first Budget from a Labour-led government since the late Alistair Darling’s in March 2010.

30 October 2024

We were promised pain, and we got it. The Labour government’s first Budget since assuming office began with a careful scene-setting exercise which depicted an economy whose public finances had been shattered by the previous Conservative government. Chancellor Rachel Reeves declared “Their austerity broke the National Health Service. Their Brexit deal harmed British businesses. And their mini-budget left families paying the price with higher mortgages.” With that done, the Budget moved onto setting out tougher day-to-day borrowing constraints, a GBP 40 billion rise in the overall tax burden and a sizeable national investment programme. While economic growth was emphasised as the only way to get out of the current mess, the Office for Budget Responsibility’s Gross Domestic Product (GDP) growth forecast of 1.1%, 2.0%, 1.8%, 1.5%, 1.5% and 1.6% for each year from 2024 to 2029 brutally articulated the challenge of achieving this given the state of the public finances and the need to immediately raise revenue.

And so onto those taxes. Fuel duty remained frozen while income tax, national insurance and VAT on working people were too. But that was the ‘good’ news. The increase in employers’ national insurance was confirmed, despite the fact that this could yet affect working people via firms curtailing hiring and pay in response. Capital gains tax (CGT) was raised, the inheritance tax threshold was left exposed to fiscal drag for another two years, pensions were brought into scope for said inheritance tax, the non-domicile tax regime was replaced, and VAT was imposed on private school fees, among a slew of other tax rises.

Overall, this was a tough Budget, with the announced penny off a pint of draught beer and the restoration of income tax threshold inflation-linking from 2028 providing scant consolation. The market reaction was only partly instructive. Gilt yields balked at the amount of borrowing still needed, rising towards 4.4%. After an initial dip, sterling recovered to reflect those higher gilt yields and was broadly flat on where it started the day by mid-afternoon, at USD 1.30. Finally, the FTSE 100 was softer but largely skirted a meltdown over CGT due to the fact that it could have been worse, but also that most UK equities are held by outside investors unaffected by the tax in the first place. While independent, an intriguing question now is whether the Bank of England could help offset the squeeze. Currently minded to lower interest rates, the Monetary Policy Committee will be keenly assessing the risk of whether this tax and spend Budget will crowd out private enterprise and push up prices in the future. This remains to be seen. For now though, businesses and the public will be looking to cut their respective cloths in this new fiscal landscape.