Autumn Budget 2024

In her first Budget, Labour’s Chancellor Rachel Reeves outlined her economic plan, aimed at delivering on the party’s manifesto and pushing forward the priorities of the Labour Government. The theme was very much one of 'stabilising a strained economy', and addressing 'long-term fiscal challenges'.??

Under the banner of “Fixing the Foundations to Deliver Change,” the Budget focused on a suggested “￡22 billion black hole” in the public finances, which has been widely briefed by Labour in the last couple of weeks.? The tone was aimed at reflecting a commitment to what they call “sensible government.”??

To address this, the Chancellor announced more than ￡40 billion in tax increases and significant spending commitments, aimed at reshaping the UK’s economic landscape.?

The forecasts about a substantial rise in employer national insurance contributions were accurate and exceeded expectations with a 1.2% increase announced. The anticipated increases in fuel duty and the continued freeze on income tax thresholds proved inaccurate.?

In a Budget with relatively few surprises, other that it being less painful than predicted, there was a significant amount of investment and increases to health and education. A ￡70 billion National Wealth Fund was announced, which the Chancellor hopes will drive investment into infrastructure and long-term projects across the UK. This reinforces Labour's mantra that inward investment is the key driver that will get Britain growing again.??

Key Highlights??

• Stability of the economy was emphasised throughout the Chancellor’s statement, with no new borrowing to fund day to day spending.?

• ￡100bn investment in capital spending is allowed because of the investment rule. The OBR has said this investment will result in 1.4 percent GDP growth in the long term.?

• The Chancellor confirmed that there will be ￡70bn of investment through the National Wealth Fund.??

• Additionally, the Chancellor said that the International Investment Summit saw ￡63.5bn investment and created 40,000 jobs.?

• Launch of a 10-year infrastructure strategy and planning reforms to support future economic growth.?

• In an effort to bring down NHS waiting lists, there was ￡ 22.6bn increase in the day-to-day health budget, and a ￡31bn increase in the capital budget.?

• The Chancellor has confirmed she will increaser employers’ national insurance, which will go up by 1.2 percentage points, to 15 percent, from April next year.??

• The Chancellor also said she is reducing the threshold above which it is paid. This will come down from ￡9,100 per year to ￡5,000.??

• An additional ￡300 million for further education.?

• This is coupled with ￡40 million investment to transform the Apprenticeship Levy into a Growth and Skills Levy.??

• Funding for compensation schemes for Infected Blood Scandal (￡11.8bn) and Post Office Horizon Scandal (￡1.8bn).?

• On HS2 - the high speed rail project – the Government is committing funding to begin tunnelling work to London Euston, meaning a reversal in the pervious government’s decision to stop the line at Old Oak Common in West London.?

Analysis?

Since almost its first day in office, the Government has been relentlessly managing expectations about the state of the economy. They were right to do so. The headline from this budget has to be the eyewatering ￡40 billion in tax rises, which they have blamed on the last Conservative Government’s poor fiscal management.??

Despite the overall increase in taxes, the Budget introduced a number of incentives for small businesses. Retail, hospitality, and leisure sectors will benefit from a 40% relief on business rates for 2025-26, capped at ￡110,000 per business. Additionally, a 1.7% cut in beer duty will be implemented on draught beers, to support the struggling pub sector, effectively taking “a penny off a pint.” However, this support is likely to be met with some mixed messages – especially given the increase in general alcohol duty by RPI next year.?

The Chancellor interestingly signalled dedicated funds to long-overdue compensation schemes, including the victims of the Infected Blood Scandal and the Post Office Horizon Scandal. The Chancellor made clear settling these were a key part of the government’s commitment to ‘justice and accountability’.?

The largest winners in the Budget were new spending in health and education, underscoring the Government’s priority of investing in public services. This decision clearly has been balanced alongside an impressive growth programme with investment at the core.??

As Labour settles into government, the Budget signals a shift towards “sensible government”, albeit with the burden of tax significant rises. The challenge ahead lies in maintaining public confidence, especially as the government aims to balance an agenda of accountability with ambitious targets for growth and investment.?

Media reaction?

Early reactions from economists, political commentators, and industry groups are coming in, though it may take a day or two to fully assess the impact of the announced measures. Below are some initial insights.?

According to The Times, farmers have warned that Labour’s new 20 per cent inheritance tax on agricultural businesses could signal the “death of the family farm.” Farming families are typically seen as ‘asset rich but cash poor,’ with many businesses struggling to turn a profit in recent years. Consequently, if a farm valued at ￡5 million were to be passed on to the next generation, they would likely be unable to meet the ￡800,000 tax liability.?

The Financial Times reports that business groups have cautioned that the increase in National Insurance for employers could compel some companies to reduce staff or even close, given the additional rises in labour costs and wages.?

The Telegraph has highlighted slower than anticipated economic growth as a result of the budget, with the Office for Budget Responsibility stating that the projected year-three growth rate of 1.5 per cent is “below its estimated potential growth rate” of 1.66 per cent.?

Meanwhile, The Guardian has welcomed the government’s commitment to rebuilding public services, noting the benefits this budget promises for bolstering public sector investment.?

What about the markets??

The UK government bonds market initially responded positively to the budget but began to reduce after the Treasury announced that debt sales will rise to ￡300bn in the current fiscal year, up from the previous estimate of ￡278bn.?

During the speech alone, the 10-year gilt yield climbed to 4.39 per cent from an original 4.21 significantly increasing the cost of government borrowing. Further to this the FTSE 100 is now trading down 0.5 per cent, while the FTSE 250 has increased 0.5 per cent due to a boost in energy company shares.?