Picture of two geese to illustrate my blog post on the 2024 budget
Yesterday, I listened to Rachel Reeves’ Budget speech so you don’t have to. Be particularly grateful, as this was the longest Budget I’ve ever heard, clocking in at almost 80 minutes.
I’ve never known so much panic about a Budget beforehand. The good news is that if you don’t earn much or own much, you should be absolutely fine. Some, such as carers or people on minimum wage, will even be better off.
But given Labour’s manifesto promises not to touch the big guns of income tax, VAT and National Insurance contributions for ‘working people’, it’s no surprise that a Labour Chancellor chose to target the wealthy with her tax rises. Apparently ‘working people’ doesn’t extend to richer ones, employers or landlords, who must obviously be lying around all day doing sweet FA. The comfortably off will now be sitting a little less comfortably.
I should say that I do support the idea that those with the broadest shoulders should bear the biggest burden. I’m delighted that Rachel Reeves has become the first ever woman as Chancellor of the Exchequer, to the sound of shattering Treasury glass ceilings. I’m also delighted that this Budget isn’t remotely as bat shit crazy as Kwasi Kwarteng’s mini budget back in September 2022. (Remember that? And the sky rocketing mortgage rates afterwards?) But there’s no doubt that this Budget is painful for me personally. I suppose if you set out to raise taxes by a frankly mahoosive £40 billion, then some of us are bound to feel the pinch.
Here are the changes that will affect the pounds in your pocket – particularly if you have some.
First the good news for those on lower incomes.
Table of Contents
Increase in earnings allowed on Carer’s Allowance
From April, carers will be able to work for longer before losing Carer’s Allowance. Currently, you can only earn max £151 a week and still claim the benefit, but that’s being pushed up to 16 hours at the national minimum wage, so £196 a week.
Lower debt reductions from Universal Credit
Currently, people on Universal Credit can have up to 25% of the standard amount taken off their payments, to repay outstanding debts, such as rent, Council Tax and utility bills. From April, this is being reduced to a maximum of 15%, so they’ll hang onto more of their benefit, but take longer to pay down relevant debts.
Confirmed rise in the State Pension
The Chancellor confirmed that the state pension will go up by 4.1% in April, so the full new state pension will increase to £230.30 a week (£11,975 a year) while the full whack of the old basic state pension will rise to £176.45 a week (£9,175 a year). However, a chunk of that will be wiped out by the previous decision to remove the Winter Fuel Payment, worth up to £300, from all but the poorest pensioners.
Increase in the National Minimum Wage
The minimum wage is set to rise 6.7% from April 25, from £11.44 to £12.21 an hour for those over 21. There’s an even bigger jump for those aged 18 to 20, up 16.3% to £10 an hour. Great for all the for example care staff, childcare workers, retail and hospitality employees among us – though an additional cost for their employers.
Income tax threshold supposedly won’t be frozen
Going into the budget, income tax thresholds were due to be frozen until 2028, with some muttering that they might be frozen for another two years. Freezing any tax thresholds is a stealth tax grab by any other name, because as inflation pushes up pay and prices, more people are pushed into paying higher rates of tax and bigger tax bills. Anyway, Rachel Reeves said that she wouldn’t extend the freeze, but after 2028, income tax thresholds will go back to rising with inflation. I say, I’ll believe it when I see it. It will be good news if it actually happens.
Here’s where it starts getting sticky for employers and the well off.
Increase in employer’s National Insurance contributions
This is the big tax grab widely leaked before the Budget, and set to raise £25 billion.
From 6 April 2025, employers will not only have to make higher National Insurance contributions for their employees, up from 13.8% to 15%. They will also start paying them on lower earnings, with employer NICs kicking in on salaries from £5,000 a year rather than £9,100.
Coupled with the increase in the minimum wage, many employers are going to have to magic up a shedload of extra money.
Pushing up employer NICs may not seem like something that will immediately affect your pay packet. But that money has to come from somewhere. So brace yourself for either price rises or cost cutting, whether as lower pay, smaller pay rises, fewer jobs or slashing pension contributions to the legal minimum. Pity anyone who administers salary sacrifice schemes, as I reckon they’ve just become more attractive to employers, as for example any pension contributions paid by salary sacrifice don’t attract NICs.
Hike in capital gains tax (CGT)
The chancellor also pushed up capital gains tax, which is the tax on profit when selling assets. So from April, the lower rate oof CGT will go up from 10% to 18%, with a smaller rise in the higher rate from 20% to 24%.
Bad news if you have assets coming out of your ears and were hoping to sell them at a profit. The previous government had already cut the CGT allowance from £12,300 a year to just £3,000, and now you’ll pay a higher CGT rate too. If you were hoping to sail off into the distance on the profits from selling your own business, then allow for a bigger tax bill.
But for most of the population, this just isn’t an issue. No assets? No worries.
Plus if you want to protect investments from CGT, make sure you take advantage of individual savings accounts (ISAs) and pensions. Any growth inside a ISA or pension remains untouched by the taxman. As most adults can stash away up to £20,000 a year in ISAs, and up to 100% of earnings each year, capped at £60,000, in pensions, there is plenty of scope.
Higher rates of stamp duty on second homes
Again, if you’re struggling to afford one home, this isn’t going to trouble you. But it’s bad news for landlords and aspirant second home owners. Previously, if you bought a second or subsequent property, you faced paying an extra 3 percentage points in Stamp Duty Land Tax. Now, you’ll face an even bigger stamp duty bill, paying an extra 5 percentage points. The change kicks in right now, as of 31 October, rather than next April.
Higher private school fees
The government confirmed that it will be imposing VAT on school fees from January 2025, and removing charitable business rate relief from private schools from April 2025. This affects families of the approximately 7% of school age children who attend fee paying schools.
Freezing inheritance tax thresholds
IHT generates a lot of sound and fury, out of all proportion to the number of people who actually pay it. I’m used to reeling off the stat that only 4% of estate pay IHT (and on checking, the latest figures from the Office for National Statistics put it at 4.39% of UK deaths for 2021/22).
Don’t get me wrong – if you are hit by inheritance tax at 40%, the bills tend to be big. And there’s no doubt that more people pay IHT than ever before, and that will only increase. The £325,000 nil rate band for IHT hasn’t changed since 2009, and Rachel Reeves announced that she will be freezing it for an extra two years on top of previous arrangements, right through until 2030.
As mentioned in the context of income tax, freezing thresholds remains a sneaky way to push up the tax take. I noticed that Rachel Reeves referred to 6% of estates this year paying IHT – that’s already a chunky increase from 4.39%, albeit from a small base, so the combination of rising house prices and frozen thresholds continues to have an impact. But fundamentally, if you’re married and leave your home to your kids, you can pass on up to £1 million pound free from IHT. So most people don’t have to worry about IHT.
However, farmers are now more likely to be hit because the Chancellor announced that from April 2026 only the first £1 million of business and agricultural assets will be exempt from IHT, with 50% relief above that, resulting in a 20% IHT bill on the extra. This will hurt anyone trying to pass on family farms, as their beneficiaries could be forced to sell land and equipment in an attempt to cover the IHT bills.
Inflicting inheritance tax on pensions
Just to reassure people after all the scaremongering before the Budget: there is no change to income tax relief on pensions and there are no changes to the 25% tax free lump sum you can take from your pension pot. ISAs aren’t touched either.
But sadly my favourite pensions loophole is being closed. Previously, defined contribution pension pots did not get hit by inheritance tax (IHT). As I said in my post about the 2023 Budget, this meant you could shovel money into your pension, take it out if needed, or leave it in your pension to pass to your nearest and dearest untouched by IHT. After Jeremy Hunt abolished the lifetime allowance, I described this inheritance tax loophole for pensions as particularly generous – ‘until another Chancellor moves the goal posts, of course’.
Well, Rachel Reeves has now moved the goal posts and gone home with the ball. From April 2027, pensions will no longer be exempt from IHT. Plus, beneficiaries may still have to pay income tax on any pension withdrawals, which would result in a pretty hefty effective tax rate. Currently income tax is only payable on inherited pensions if the person leaving the pension is 75 or older when they die.
Again, this is something that won’t affect most of the population. Few people are saving enough for retirement anyway, and can only dream of having any money left in their pension pots when they die.
But those of us able to pay more into our pensions face new decisions about how to spend it. Previously, there was a perverse incentive to spend money in ISAs first, and avoid touching money in dedicated retirement accounts for as long as possible, because only pensions escaped IHT. Now it’s back to the drawing board about what to spend when.
Child Benefit withdrawal will still be based per person not per household
Buried in the budget small print, rather than touted in the actual speech, was the announcement that Labour is quietly scrapping Conservative plans to reform the treatment of Child Benefit. Currently, Child Benefit is chipped away once the highest earner in the family brings in £60,000 per tax year, at a rate of 1% for every extra £200 in income. By the time one parent earns £80,000 a year, the ‘High Income Child Benefit Tax Charge’ has eaten it all up. This means that a family with two parents could earn up to £59,999 each and still keep all their Child Benefit, while a family with one parent earning £80,001 lost all of it. The Tories touted changing the system to look at overall household income, which would have been painful to put into practice. Labour have decided not to bother.
Fuel, flights, fags, booze and buses
Other bits and bobs included:
Fuel: fuel duty, including the previous 5p cut, remains frozen until March 2026. So good news for drivers filling their tanks.
Flights: Air passenger duty is also being increased from April 2026 by £2 a trip for short haul travel, up to £17 per passenger per flight, and by £12 for long haul flights, up to £96 per passenger. Rates for premium economy, business class and first class seats will increase even more. In a dig at Rishi Sunak, and his rumoured future career in America, the Chancellor also pointed out that the duty for passengers on private jets will increase by 50%, hiking it up to £450 per passenger on a private jet to California.
Alcohol: The duty on draught beer and cider goes down by a penny a pint from 1 Feb 2025. This got the biggest cheer of the day from MPs. Duty on other alcohol goes up by inflation, as does the tax on sugary soft drinks.
Smoking: Duty on tobacco goes up by 2p on top of inflation immediately, and there will also be an increase in duty on vaping fluids from October 2026.
Buses: fares in England, which had been capped at £2 until the end of 2024 for a single fare outside London, will remain capped but at higher level of £3 throughout 2025.
Now – over to you. Any particular shocks or surprises? Was the Budget as bad as you feared or not such a big deal after all? Do share in the comments, I’d love to hear.
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