Budget Day- Reeves Set to Deliver Tax Rises

Chancellor of the Exchequer Rachel Reeves is set to deliver the first Labour Budget in over 14 years this lunchtime, as the nation prepares for historic tax rises to raise to invest in a push for growth.

Much detail has already been released with pensioners taking a hit with a scrap to winter fuel payments, minimum wages have been given a boost up to ￡12.21 an hour. VAT will be added to private school fees and the energy tax on oil and gas firms will rise to 38%. Britain’s armed forces are also set for a 6% pay rise as Reeves hands ￡3bn to the military.

Proposed Tax Rises

However, the main headlines look set to be on proposed Tax rises and spending cuts totalling ￡40 billion. Some of the more scrutinised hikes will come from a raise to capital gains tax which looks set to rise to 39% (from 24%), much of the UK’s foreign wealth could also be driven away with a change to the Non-Dom tax status. Many businesses will face a “perfect storm” as they are hit by more taxes and higher wages with plans to increase national insurance contributions in a move which could raise ￡20bn to fund public services.

This budget could define politics for the next decade, and could be consequential for the markets as traders debate whether the government can afford to increase an already high level of borrowing. Will the market perceive this budget as moving the goalposts to borrow more money? Will the UK become less attractive for entrepreneurs and wealth creators? And is it sustainable for long term growth in Britain?

Making History

Policies aside, it’s one for the history books today, as we await the first ever budget from a female chancellor, Rachel Reeves. A list with nothing but men for over 800 years, with such names as William Gladstone (4 attempts), and Alistair Darling (the last labour chancellor). Rishi Sunak will have his last say as he sits opposite Reeves in the House of Commons, and will no doubt attack the National Insurance ‘jobs tax’, after looking to protect working people, the chancellor looks to raise the only major tax that specifically hits working people.

The rhetoric behind this budget seems to be that Labour have inherited a mess from the Conservatives, and is being forced to raise billions more of taxpayers money is the solution to fix the NHS, rebuild schools and increase wages for low earners. After beating the drum of “no tax increases on working people” with their manifesto pre election, changes to self imposed debt rules may be seen as a get out clause.

Sterling Making Gains

UK Gilts are already jumping this morning and Sterling has made some gains vs USD. Budget aside, major market data releases include Eurozone and US GDP and the ADP Private payrolls forecast, often a key indicator ahead of the Non Farm Payroll report on Friday.

Today’s Budget - Key Points:

The Budget speech usually starts at about 12:30 UK time and lasts around an hour. Labour's first Budget for 14 years will be delivered by Chancellor Rachel Reeves.

Government sources have told the BBC the Budget could include tax rises and spending cuts to the value of ￡40bn - suggesting most of that gap will need to be filled with tax rises rather than spending cuts.

Capital Gains Tax (CGT)

This tax is charged on the profit made from the sale of assets. For higher earners, the levy is currently 24% on gains from selling additional property, or 20% on profits from other assets like shares. There has been speculation that these rates could be increased but the prime minister appeared to dismiss suggestions of a rise to as much as 39%.

Non-dom tax status

The term "non-dom" describes a UK resident whose permanent home - or domicile - for tax purposes is outside the UK. As a result, they do not pay UK tax on money they make elsewhere.

In the March Budget, the then-Chancellor Jeremy Hunt said non-dom tax status would be abolished, although there were some concessions. Labour has since said it wants to toughen the existing plans, although these plans might be reconsidered amid worries they could bring in less money than expected.

Stamp Duty Land Tax

Stamp Duty is paid if you buy property or land over a certain price in England and Northern Ireland. In 2022, the rate at which people start to pay was increased from ￡125,000 to ￡250,000. For first-time buyers it rose from ￡300,000 to ￡425,000.

However, the higher thresholds are only due to last until March 2025 after which they will return to the original levels. Labour has not committed to an extension.

Already announced:

Minimum Wage

The National Living Wage paid to over-21s will go up by 6.7% in April 2025, while the National Minimum Wage for 18 to 20-year-olds will see a 16% increase.

VAT on private schools

The government has said VAT will be added to private school fees from 1 January.

Fiscal Insiders: UK Autumn Budget Special

Welcome to Fiscal Insiders: UK Autumn Budget Special. Here we take a look at what we can expect from Labour’s first Autumn budget today. Here’s our portfolio manager Chris with everything you need to know to stay ahead of market volatility.

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