Autumn Budget 2024 – predictions
by Ian Kelly, Tax Partner
It only seems like yesterday that Labour swept to power and the Chancellor of the Exchequer, Rachel Reeves, announced that Wednesday 30 October 2024 would be Budget Day.
In the intervening period, Reeves, the first female Chancellor and in charge of Labour’s first Budget for 15 years, has played a bit of a watching brief whilst commentators have tried to second-guess what is going to be in her Budget.
During this period, the Labour leader, Sir Keir Starmer, has warned that the Budget will be “painful” as Reeves wrestles with the alleged £22bn “black hole” in public spending.
We have been told of Labour’s intention to introduce a 20% VAT charge on private school fees and of major means-testing of the winter fuel allowance. There has been some conjecture as to whether the 1 January 2025 start date for that VAT exposure can be met and a fair amount of bad publicity regarding the heavily restricted entitlement to the winter fuel allowance.
There has also been a rumour that the fuel duty escalator, habitually frozen in every Budget since 2011/12, might be under threat.
Labour have said that there is an absolute commitment to not raising income tax, national insurance or VAT which comprise the three main producers of Reeve’s revenue.
Which of the following might find its way into Reeve’s Budget statement?
Income Tax
Labour have inherited a “stealth tax” scenario with personal allowances and tax thresholds frozen until April 2028 and which has been criticised as sucking more taxpayers into paying tax or becoming exposed to the 40% higher rate of tax.
Recent increases in the rate of the state retirement pension has been such that many pensioners with only that source of income have found themselves paying 20% basic rate tax on some of their pension. Might Reeves, somewhat radically, link the personal allowance to the standard rate of retirement pension?
The last Conservative Chancellor, Jeremy Hunt, lowered the threshold at which 45% tax becomes payable to £125,140, could this be cut further?
The dividend allowance which has fallen to £1,000 could also be under threat whilst close company dividends becoming subject to national insurance is a long-term pre-Budget favourite.
Capital Gains Tax
With what are seen as favourable rates when compared to income tax rates after several false alarms might we see a closing of the gaps or the introduction of a hybrid rate, say 30%.
The annual exemption which has fallen from £12,300 to £3,000 might be under threat of abolition.
Inheritance Tax
The IHT threshold and the IHT rate of 40% are also frozen until April 2028 and which have seen more estates facing an IHT bill. Will this freeze and existing IHT reliefs remain by the end of Reeves’ speech?
Pensions
There has long been talk of cutting the higher rate tax relief obtained on pension contributions; might Reeves abolish this, restrict relief to the basic rate of tax or possibly introduce a hybrid rate of, say, 30%.
There are rumours that Labour will look at changes to the annual and lifetime allowances and/or the 25% tax free lump sum allowance currently available when taking one’s pension.
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Look out for our Budget Day commentary as soon as possible.