Home / Latest News And Updates / Labour's first Autumn budget: A brief review of the likely tax changes
29 Jul 2024
The general election took place on 4 July, and since the new Labour government were elected, Prime Minister Keir Starmer has been busy selecting cabinet ministers. Rachel Reeves made her first official speech as the UK’s first female Chancellor on Monday 8 July.
In her speech she outlined plans for the future, focusing on reform of the planning system and housing targets. She emphasised the need for cooperation between local councils and central government, particularly in seeking a long-term financial settlement.
This was followed up with a Ministerial statement on Labour’s ‘spending inheritance’ on 29 July 2024, as a precursor to an Autumn budget. In the statement, the Chancellor set out an inherited projected overspend of £22million from the Conservative party. This was strongly disputed by the Conservative party but, regardless, lays the foundation for spending cuts and probable tax rises.
Some initial tax documentation was also published on 29 July 2024.
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The first budget of the Labour government is set to take place on Wednesday 30th October 2024. Historically, the Chancellor stands up to speak at 12.30pm but the exact timing will be confirmed nearer to the time.
On being elected, Rachel Reeves announced that she would allow 10 weeks for the Office for Budget Responsibility (OBR) to prepare forecasts. This is factored into the chosen budget date.
The Labour Party manifesto gives us the strongest idea of what the budget will contain. Indeed, in her speech on 8 July, Rachel Reeves reiterated her commitment to implementing Labour’s manifesto pledges.
As part of the expected announcements, the budget is likely to include a modern industrial strategy, which is aimed at improving living standards and economic growth.
In addition, Labour’s ‘Business Partnership for Growth’, published in January 2024, gives us an idea of what the Chancellor’s announcements might be.
The Ministerial statement of 29 July 2024 is also key and we can expect the 'spending inheritance' to be reflected in the choices made.
In Rachel Reeves' 8 July speech, she confirmed her party's commitment to not raising National Insurance, VAT or 'the basic, higher and additional rates of income tax'.
It should be noted that she has committed to not raising the rates of income tax; this could indicate potential changes to banding thresholds or even the personal allowance.
Even if the personal allowance and banding thresholds remain the same, the effect of inflation means that their value is worth less. This is known as 'fiscal drag'; in other words, keeping allowances at the same level is effectively increasing an individual's tax burden.
Given the news of 29 July which outlined the spending inheritance, we can be fairly certain that there will not be cuts to any tax.
Labour has not ruled out tax rises to capital gains tax and inheritance tax. Such increases may be announced in the 2024 Autumn Budget or at a later date.
The 'carried-interest' loophole, which is a capital gains tax relief for private equity fund managers, is set to be removed.
We expect Labour to set out a business tax roadmap for the next term of parliament, which should encourage investment and promote economic growth through a robust industrial strategy. In addition, Labour has committed to retaining both Full Expensing and the Annual Investment Allowance.
Labour has stated that the main rate of corporation tax (currently 25%) will remain. However, this statement has led to some speculation that the small profits rate of corporation tax (currently 19%) and marginal relief may change or be abolished.
The Labour party included plans to make Britain a clean energy superpower in their manifesto. Legislation was announced during the King's Speech that will allow for the creation of Great British Energy, a new publicly owned clean energy company, with the mission of increasing access to clean energy for the UK grid and cutting energy bills.
To pay for this, the Labour manifesto shows that they plan to extend the sunset clause on the Energy Profits Levy until the end of the next Parliament (this is currently due to end on 31 March 2028), and raise the rate of levy by three percentage points. They also plan to tackle tax avoidance by closing loopholes in the windfall tax on oil and gas companies. It seems likely that at least some of these changes will be reflected in the Budget.
One of the key Labour manifesto pledges was to make private school fees subject to VAT. A Technical Note was published on 29 July, detailing the proposal. The note confirms that any fees paid from 29 July 2024 pertaining to the term starting in January 2025 onwards will be subject to VAT.
The Conservatives announced the abolition of the furnished holiday lettings (FHL) regime in their March 2024 Spring Budget. Labour have announced that they will abolish FHL status from April 2025 so that FHLs become subject to the same tax rules as non-FHL properties. Draft legislation was published alongside the 29 July 2024 statement and a more detailed blog just on this topic will follow soon.
In their 2024 Spring Budget, the Conservatives announced a new "Foreign Income and Gains" (FIG) regime that would replace the remittance basis for non-domiciled individuals from 6 April 2025.
On 29 July, the Chancellor confirmed that Labour will implement the FIG regime announced by the previous government but they will first review some of the key areas of the reforms to ensure the new regime is both fair and competitive as possible. This can also be read as ensuring that all advantages for non-domiciled individuals are ended.
The current stamp duty land tax (SDLT) surcharge for purchases of residential property by non-UK residents is 2%. Labour plan to increase the surcharge to 3%.
The Labour government is planning pensions reform and there is scope for Rachel Reeves to change the pensions tax framework. This could involve changing the annual allowance rules, reintroducing the lifetime allowance rules, reviewing the tax-free lump sum or even reforming the tax relief available in respect of pension contributions. This area is certainly one to watch!
It is likely that Making Tax Digital (MTD) for Income Tax will still go ahead. Labour have previously published their 'Plan to Close the Tax Gap', in which their stated aims align with those of the MTD for Income Tax project. It may be, however, that timescales may change - Labour state that their plan for modernising HMRC is ambitious and will involve greater use of artificial intelligence (AI), which will require delivery timescales that are new and achievable.
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