Your October Budget Summary: All You Need to Know

Earlier today, the Chancellor delivered Labour’s first Budget for almost 15 years. Speaking as the first female Chancellor in British history, Rachel Reeves used the Budget to outline her party’s key principles, which were to ‘restore fiscal credibility, increase investment, tackle economic inactivity, and expand opportunities for small businesses’.

Announcing £100bn of investment in capital spending over the next five years, Reeves also revealed a raft of tax rises to the tune of £40bn.

If you missed this afternoon’s address to the House of Commons, we’ve broken down the major policy announcements and analysed how they’re likely to impact you, your business, and your personal finances.

 

Tax

In the build up to today’s Budget, much had been made of what distinction Labour would make – if any – between employers and employees when it came to tax rises, specifically surrounding the much-scrutinised term, ‘working people’.

Firstly, while there was no increase to income tax rates, it was revealed that personal tax thresholds will be uprated in line with inflation from 2028.

One area where the government did draw lines in the sand on taxing ‘workers’ was national insurance. There was no increase in Employee’s NI, however Employer’s NI is set to rise by 1.2% to 15%. In perhaps an even bolder move, the threshold at which businesses start paying national insurance on a workers’ earnings will reduce significantly from £9,100 to £5,000. The Treasury anticipates that this will raise £25bn, but detractors suggest it could also have a significant impact on the financial impact of a small business, particularly in relation to hiring new employees.

If you’re a contractor, umbrella company employee, or business owner and you need advice on how to navigate this additional cost, please get in touch.

Elsewhere, the main rate of corporation tax, paid by businesses on taxable profits over £250,000, is to remain at 25% until next election.

Meanwhile, capital gains tax, which is the tax charged on profits made from selling assets such as a second homes or investments including stocks and shares, is also to increase. The lower rate will rise from 10% to 18%, while the higher rate goes from 20% to 24%. Rates on residential property will remain at 18% and 24%, respectively.

The threshold freeze for inheritance tax will be extended for a further two years. In practical terms, this means the first £325,000 of any estate can be inherited tax-free. This rises to half a million pounds for estates passed to direct descendants, and £1m when a tax-free allowance is passed to the deceased’s surviving spouse or civil partner. Furthermore, the government will increase capital gains tax rates on carried interest to 32% from April 2025, delivering additional reforms from April 2026. Similarly, tax paid by private equity managers on shares of profits from successful deals will also go up to 32% next April, from 28% currently.

Elsewhere, in a move which the OBR suggest will raise almost £13bn in five years, the government are abolishing the ‘non-dom tax regime’, removing the practice of domicile from the tax system from April 2025. This targets UK residents whose permanent home (domicile) is outside the UK – for tax purposes.

The oil and gas ‘windfall tax’ will also rise to 38%, expiring in 2030.

Agricultural property relief and business property relief are due for reform too, according to the Chancellor. The first £1m of combined business and agricultural assets will continue to attract no inheritance tax at all but, from April 2026, inheritance tax will apply with 50% relief, at an effective rate of 20% for assets over £1m.

The Chancellor also said the government would ‘increase the interest rate on unpaid tax debt to ensure that people pay on time’ as well as going after the promoters of unscrupulous tax avoidance schemes.

 

Business

To help smaller businesses, the Chancellor said she was increasing the employment allowance from £5,000 to £10,500. This relief is important to those SMEs, franchises, and businesses which are heavily reliant on part-time staff. It means that over 850,000 employers won’t pay any National Insurance at all next year. Meanwhile, over one million will pay the same or less as they did previously.

The existing 40% relief on business rates for the retail, hospitality and leisure industries will continue, up to a cap of £110,000 per business.

Business asset disposal relief was speculated to be up for the scrap. Instead, it will stay at 10% this year before rising to 14% in April 2025 and 18% from 2026.

An increase in the national minimum wage had already been confirmed before the Budget, with rates rising by 6.7% to £12.21 per hour for all over 21s from 2025. For those aged 18-20, the minimum wage will hit double digits for the first time, reaching £10 from April next year. It is currently £8.60, up from £7.49 at the beginning of the year. Apprentices, meanwhile, will get the biggest pay bump in percentage terms, rising from £6.40 to £7.55 an hour.

 

Personal Finances

As expected, VAT on private school fees will be introduced from January 2025. The government will also soon introduce legislation to remove public schools’ business rates relief from the start of the next tax year. This may impact families and trust funds involved with private education or estate planning for dependents.

Fuel duty will remain frozen at five pence per litre, with Ms Reeves resisting the option to increase.

On the other side of the coin, the Treasury will maintain existing incentives for electric vehicles in company car tax. Beginning in April 2025, the differential between fully electric and other vehicles in the first rates of Vehicle Excise Duty will also increase.

Alcohol duty will be cut to the tune of ‘a penny in the pint’, while rates on non-draught products will increase in line with inflation from next year.

The tobacco duty escalator will be renewed, meaning taxes will rise by 2% as well as the Retail Price Index’s measure of inflation.

Duty on hand-rolled tobacco will increase by 10% this year. Furthermore, from 2026, there will be a flat-rate duty on all vaping liquid, as well as an increase in tobacco duty overall.

 

Pensions

Following their commitment to the triple lock in their manifesto, spending on the state pension is forecast to rise by over £31bn by 2029. In real terms, the basic state pension will be uprated by 4.1% in 2025-26. That means that over twelve million pensioners will gain almost £500 next year, more than double the increase they would have seen had it been uprated as per inflation.

The Chancellor used the Budget to announce the scrapping of a somewhat controversial arrangement that saw the government receive hundreds of millions of pounds in a pension scheme for mineworkers.

The government had been entitled to 50% of the surplus cash from the scheme under an agreement signed three decades ago. Reeves’s announcement today means that around £1.5bn will instead be transferred into the pension pots of 112,000 former coalminers.

Further down the line, from April 2027, inherited pensions will be brought into the auspice of inheritance tax. This is a substantial shift for pensioners and savers planning for generational wealth transfers.

To find out how we can we help you with your pension arrangements, click here.

 

Housing

The big news in property is that, from tomorrow (Thursday 31^st), the government will increase the stamp duty land surcharge for second homes, from 2% to 5%.

The government is pushing ahead with its plan to make the mortgage guarantee scheme permanent to help first time buyers. However, they will be reducing right to buy discounts.

The government will also invest more than £5bn to deliver their ambitious housing plan. The Affordable Homes Programme will increase to £3.1bn, providing £3bn worth of support and guarantees to increase the supply of homes and support small housebuilders. This move saw the markets respond almost immediately, with share prices rising in UK housebuilders.

Elsewhere, following the Grenfell Tower report, there will also be £1bn to accelerate the removal of dangerous cladding on homes.

For more information on our mortgage advisory services, click here.

 

Spending

A core part of Labour’s manifesto centred around health spending. While there will be a 10-year plan to address the health system unearthed in the spring, the Chancellor today announced a £22.6bn increase in the day-to-day health budget, and a £31bn increase in the capital budget, in the aim of bringing down waiting lists and increasing the capacity for procedures in the NHS.

Defence spending will rise to £2.9bn from next year, as well as specific funding for VE and VJ commemorations, and £3bn a year in support of Ukraine.

Reeves promised an additional £6.7bn to the Department for Education next year, which is a 19% real-terms increase on this year. This includes over £1.4bn to rebuild 500 schools which are ‘in the greatest need’.

There was also £3.4bn for the Scottish government, £1.7bn to the parliament in Wales, and £1.5bn to the Northern Ireland executive in 2025-26.

Investment into breakfast clubs will be tripled, while there will also be a £2.3bn increase into schools’ core budgets.

Funding will be provided to eleven new green hydrogen projects across England, Scotland and Wales.

Additional spending pledges include: £1bn for the aerospace sector, over £2bn for the automotive sector, up to £520m for a new Life Sciences Innovative Manufacturing fund, and a £500m increase for road maintenance next year.

 

Other Announcements

In transport, the Chancellor committed to fund tunnelling work to take HS2 high-speed rail line to Euston station, as well as delivering an upgrade to trans-Pennine rail line between York and Manchester, running via Leeds and Huddersfield.

The single bus fare cap applied to many routes in England will also be raised from £2 to £3.

When it comes to air passenger duty, Reeves announced an increase of no more than £2 for economy-class short haul flights. However, turning to private jets, she increased the rate of air passenger duty by a further 50%, the equivalent of £450 per passenger.

The government also confirmed it will establish GB Energy, setting up the institution at its new home in Aberdeen.

And finally, £11.8bn will be allocated to compensate the victims of the infected blood scandal, with a further £1.8bn set aside for those prosecuted in the Post Office Horizon scandal.

To read the government’s Budget in full, click here.