The Budget by Charles Sharp

Top 5 talking points from the 2024 Autumn Budget

National Insurance

One of the main talking points of the budget is the increase in the rate of employer’s national insurance, which will have a large impact on many employers. Employer’s national insurance is a tax paid by employers on the salaries they play to their staff. Under the previous Conservative government, the rate of employer’s national insurance was 13.8%, but the new Labour government have increased it to 15% in the budget, and this rate will come into force in April 2025. What might the consequences be?

The government claim the increase in the rate of employer’s national insurance will raise additional taxes of £25 billion every year. We are told that this money will contribute to plugging the £40 billion black hole in the public finances.

The government say that this increase to employer’s national insurance will not directly affect working people, and therefore it does not break its manifesto pledge to not raise taxes for working people. However, the increase means that companies will incur higher costs for employing people, and it is expected that this could in fact affect working people as they might not receive such high pay rises next year and companies try to offset the cost, and it could even lead to redundancies.

It is also likely that we will see an increase in the price of the goods and services, sold by companies, as they try to offset and balance out their additional costs. This will likely increase inflation and the cost of living.

Income Tax

Rachel Reeves has announced the current tax bands, that determine the rate of tax each proportion of their income is taxed at, will not be increased until 2028 or 2029. This means that the tax bands will not increase and be adjusted in line with inflation, which means that more people will fall into higher tax bands. In the short term, this will put pressure on some people as they might pay tax at higher rates than they currently do, which will add to the cost of living challenges.

Capital Gains Tax

Capital gains tax is a tax that people are required to pay on the profit of an asset (other than your main home) when you sell it; assuming they make more than £3,000 profit in a given tax year. The lower rate of capital gains tax has increased from 10% to 18%, and the higher rate of capital gains tax has increased from 18% to 24%.

Capital gains tax is said to raise £2.5 billion per year. The increase in the tax rates will likely have consequences for shareholders and investors, and it could dissuade overseas investors from investing in the United Kingdom.

Increase to minimum wage

The new Labour government has also announced an increase of the minimum wage, from £11.44 per hour to £12.21 per hour. This equates to a yearly increase of £1,400 per year for those on minimum wage working full time. Whilst this is naturally popular move for many workers, this could backfire because this will be an additional increase in costs for some companies, on top if the increase in employer’s national insurance, and it could mean that they will reduce on the number of jobs that they are hiring, or even result in redundancies.

Private schools fees

As outlined in their manifesto, Labour have confirmed that they will impose VAT on private school fees from January 2025. Parents of private school children will be forced to pay an additional 20% on top of their current fees, unless the schools can absorb of the costs to keep the increase in fees lower. There is a feeling that the risks of this have not been properly assessed by the government, and many think that potentially 35,000 school children will be forced to leave the private sector and move to the already strained state sector. This could lead to further overcrowding in state schools, whilst forcing some private schools to close because they will no longer be viable with reduced pupil numbers. The timing of the introduction has been criticised, as it has been deemed cruel to implement the change mid-way through the school year, rather than at the start of a school year. The timing does not give parents sufficient time to make alternative arrangements for their children’s education, if they are no longer able to afford the higher school fees. It seems particularly unfair for children who will need to move schools whilst approaching their A-levels or GCSEs in the summer.