In what has been her first budget since assuming the role, Chancellor Rachel Reeves has announced significant tax increases amounting to £40bn to fund the NHS and public services. Despite the increase, Reeves has assured working people they would not face any increase in income tax, National Insurance or VAT as promised by Labour during the general election. Employers would bear the maximum burden, experiencing a hike in National Insurance contributions, ultimately raising up to £25bn annually for the government.
However, Conservative leader Rishi Sunak accused Reeves of breaking promises to workers with the tax increases and impairing economic growth. “They’re taxing your job, they’re taxing your business, they’re taxing your savings. You name it, they’ll tax it,” Sunak told MPs in his final Commons appearance as leader of the opposition.
Reeves, in a marathon 76-minute speech, insisted that any “responsible chancellor” would be forced to take similar courses of action to “fix the foundations” of the economy. Labour pledged to “invest, invest, invest” to “drive economic growth” and achieve the highest rate of growth compared to any G7 country within five years. The Office for Budget Responsibility’s analysis, however, asserts that the measures would result in GDP being left mostly unchanged for five years.
Reeves froze petrol duty for the upcoming year, also retaining the 5p cut introduced by the Tories, which was set to end by April. She announced adjustments to Labour’s self-imposed borrowing rules, enabling billions to be invested into the country’s infrastructure, improving crumbling schools and hospitals. Despite the inheritable £22bn “black hole” from the previous government, Reeves resisted continuing the freeze on income tax thresholds beyond 2028, which would have led to millions of people being taken into the tax system or being compelled to pay higher fees.
In her address, the Chancellor also announced various tax changes, including the following:
– Capital gains tax paid on profits from selling shares would increase from up to 20% to up to 24%.
– The freeze on inheritance tax thresholds would be sustained beyond 2028 until 2030.
– VAT on private school tuition fees would apply from January 2025.
– Air Passenger Duty for private jet flights would increase by 50%.
– A new tax of £2.20 per 10ml of vaping liquid would commence from October 2026.
– The tax on non-draught alcoholic drinks would increase based on the higher Retail Price Index (RPI) measure of inflation, while the tax on draught drinks would decrease by 1.7%.
– The stamp duty land tax surcharge for second homes would increase by two percentage points to 5% from Thursday.
In what has been the first budget speech by a female chancellor in the country’s history, Reeves maintained that “this is a moment of fundamental choice for Britain” and made her responsible choices, including investing in the future and rebuilding Britain. Gross domestic product (GDP) is forecasted to increase, hitting 1.1% in 2024 and 2% in 2025. However, there are downgrades for subsequent years, with GDP plummeting to 1.5% in both 2027 and 2028. Borrowing is expected to reach £127bn this year.
While the Liberal Democrats approved the additional budget for the NHS to rectify the adverse impact inflicted by the Conservatives on health care services, the leader, Sir Ed Davey, asserted that “Raising employer’s National Insurance is a tax on jobs and high streets, and it will make the health and care crisis worse by hitting thousands of small care providers.” Scotland will receive an additional £3.4bn in Treasury funding, with the SNP government warning that without extra cash support, they would need to make tough choices in their tax and spending plans for the coming year
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