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Budget 2024 predictions: potential announcements from Rachel Reeves

September 25, 2024

The UK’s borrowing bill once again exceeded expectations in August, adding pressure on Chancellor Rachel Reeves ahead of Labour’s first budget on 30 October.

As Rachel Reeves prepares to deliver her first budget on October 30, several key predictions have emerged regarding how she might tackle the £22 billion deficit left by the Conservatives.

Reeves has ruled out a return to austerity, promising real-term growth in public spending, likely funded by tax increases and selective borrowing. Here’s a breakdown of potential budget announcements:

Income tax adjustments

While the main income tax rates (20%, 40%, and 45%) are off-limits for increases, Reeves could adjust thresholds, pulling more earners into higher brackets. The Institute for Fiscal Studies (IFS) estimates that reducing the personal allowance or basic-rate limit by 10% could yield £10 billion and £6 billion annually, respectively.

Pension tax relief reform

Limiting pension tax relief to the basic rate of income tax could raise £15 billion per year. Alternatively, making employers pay National Insurance on pension contributions could generate £12 billion over five years. Such reforms would target those benefiting from 40% or 45% relief but only paying 20% tax when withdrawing pensions.

Capital gains tax (CGT) increases

Raising CGT rates or broadening the base of taxable assets could increase revenues. Aligning CGT more closely with income tax could blunt investment, but introducing inflation indexation may soften the impact.

Inheritance tax (IHT) changes

Reeves may reform IHT by capping exemptions on pension wealth, business assets, and agricultural land, potentially raising £2 billion annually. Abolishing relief on Alternative Investment Market shares, which are currently IHT-free, could yield another £1.1 billion.

Fuel duty increases

Fuel duty has been frozen since 2011, but Reeves could end that tradition, potentially raising £6 billion annually. This move would align with environmental goals by encouraging a shift to electric vehicles.

Stamp duty reform

Economists have long criticised stamp duty as inefficient. Abolishing it would cost £13 billion, but Reeves may opt for reforms rather than outright removal to make the property market more efficient.

Private equity profits tax

Taxing carried interest at income tax rates rather than the current 28% CGT rate could generate £2 billion. However, potential behavioural changes in the private equity sector could reduce the overall impact.

Windfall tax on banks

Reeves could introduce a one-off tax on banks, targeting the widened net interest margins that have allowed them to benefit from rising interest rates without passing the full gains onto savers.

New or revised fiscal rules

Reeves may tweak fiscal rules to create additional fiscal space. Adjustments could minimise the impact of the Bank of England’s bond sales, potentially freeing up £15 billion for investment.

With these potential measures, Reeves faces the challenge of balancing fiscal responsibility with the need for growth, while avoiding measures that could stifle investment or consumer spending.