Budget expectations

Four weeks on from Rachel Reeves’s statement and we have had another political centrepiece telling us that the forthcoming Budget 2024 on 30 October will be “painful”. We were also told that “those with the broadest shoulders should bear the heavier burden” – but do we have any more detail on what to expect?

In short, no we don’t. What is clear is that tax increases will certainly feature. Rachel Reeves’s statement of 29 July was supported by around £8 billion a year of public expenditure cuts and contained no tax increases. Subsequent statements by Rachel Reeves and that by Keir Starmer confirm that taxes will feature.

Frenzied speculation about the Budget

There is currently frenzied speculation about what taxes will increase, usually with minimal objectivity. Before saying anything further, my firm’s position is that the likelihood of significant tax cuts is low, the current tax system is a known quantity, and if you are prepared to suffer current rates of taxation and there is something that you intend to do in the next couple of years, then you probably should consider doing it before 30 October. Time is running short, though.

What follows are some personal observations from me. At the moment we have little to go on, and I’m quite certain that Rachel Reeves hasn’t decided what she will do yet. My comments therefore remain speculation.

General observations

1. The implication is that the government is seeking tax rises of at least £10-15 billion a year above existing forecasts
2. There is already a forecast increase in fuel duty. The last Conservative government always raised other taxes in order to cancel the forecast fuel duty increase but I suspect this government won’t
3. The Labour manifesto contained few tax policies (non-doms, school fees, carried interest). The government policy to abolish the winter fuel payment has a similar feel to the manifesto policies. That is, uncomplicated, simple, easily communicated. I’m expecting the Budget tax announcements to be similar. That is to say that I think there might be fewer policies than currently speculated. I don’t think there will be lots of itsy bitsy fiddling. More “wham, bam, thank you ma’am” and in that context, there has, so far, been no significant transitional relief on winter fuel or school fees
4. The government wants fairly immediate tax revenue and not something in several years’ time. Assuming a typical electoral cycle, the government will want the tax rises in the first couple of years with the aim of a fiscal loosening as we head into an election in four or five years’ time
5. The government is looking to squeeze public spending, certainly as far as its supporters are concerned. Politically, it will need to have some policies that appear to target the rich
6. I think a 10% capital gains tax rate is politically unacceptable to this government in the current circumstances
7. The government will want to avoid tax increases that are inflationary – which goes against increasing fuel duty but that might be the one inflationary element that is acceptable, as it fits with the green transition agenda

What tax measures might we see in the Budget 2024?

My emphasis is on “might”.

Employer’s national insurance on pension contributions – there have been rumours of an increase in employer’s national insurance. The exemption of pension contributions from employer’s national insurance is an absolute tax break as there is no employer’s national insurance on pensions once they are drawn down on the fund. The exemption of pension contributions from national insurance has led to considerable salary sacrifice planning, which in the language of HM Treasury might be seen as “unfair”. It could also raise big money, perhaps £12.5 billion a year, and be introduced fairly quickly.

Bank levy – “broadest shoulders” might refer to a business sector as much as individuals. A short-term bank levy of some description could raise money now – perhaps hypothecated as providing short-term support for the NHS this winter. Maybe low billions of pounds for a couple of years.

Capital gains tax (CGT) – I think the 10% tax rate (business asset disposal relief) could well be abolished on 30 October. I’m less certain on the outlook for the main CGT rate but it’s probably up. Maybe an unindexed flat rate of 24% on everything, but possibly more. An increase in CGT does run counter to the government’s growth agenda, though. These changes could raise low billions of pounds (£1-3 billion maybe).

Inheritance tax (IHT) – I think some IHT changes are inevitable. These would take longer to generate revenue, though. Business property relief (BPR) on AIM shares looks unlikely to survive. A financial cap on BPR and agricultural property relief seems conceivable. The Institute for Fiscal Studies (IFS) has previously suggested a cap as low as £500,000. That seems too low to me. I also think that the seven-year survival period for gifts could easily extend to 10 years and that undrawn pension funds for those over age 75 could be subject to IHT. There are other possible changes but they are complex and fiddly and don’t fit with the overall vibe. Maybe £1 billion or so could be raised.

Income tax – I have wondered whether the additional rate of income tax could increase to 50%, and/or dividend tax rates increase. Certainly the basic rate of income tax on dividends of 8.75% looks like a low tax rate. I haven’t seen any indication on how much revenue could be raised from such changes and they feel potentially politically messy given manifesto commitments on income tax. Possibly we could see some kind of consultation document issued on improving disincentives within the income tax system, with the suggestion that any changes to income tax have to be self-funding.

There are plenty of other aspects that could arise and are probably under consideration. Capping of ISA funds seems conceivable, but wouldn’t be a quick money raiser.

Changes to pension tax relief for individuals seems fraught with complication and so doesn’t really fit the bill at the moment. That said, if you are going to make a pension contribution in 2024/25 or take benefits, then it is probably safer to do it before 30 October.

Changes to council tax are likely, but maybe a year or two away.

None of this is easy, and can never be a substitute for bespoke and personal advice. Our clients all have their own circumstances and what is appropriate for one client may well not be for another. We’re here to help.

Read more:

• What potential tax changes could be announced in the Budget on 30 October?
• Non-dom reforms where are we now following the release of the manifestos
• VAT exemption on private school education removed from 1 January 2025 – draft legislation and notes published by HM Treasury
• Furnished holiday lets – abolition of special tax rules