The ‘Painful’ UK Budget

On 29 July 2024, Chancellor of the Exchequer Rachel Reeves announced the discovery of a ￡22 billion ‘black hole’ in the public finances inherited from the previous UK Government.? On 27 August, Prime Minister Kier Starmer announced that the October Budget would be ‘painful’, ‘those with the broadest shoulders should bear the heavier burden’, asking that we accept ‘short term pain for long term good’.?

He also highlighted pledges made in their Manifesto and, from a payroll and reward tax perspective, it is worthwhile looking at these pledges:?

1. ‘We will not increase the basic, higher, or additional rates of Income Tax’
2. ‘We will not increase National Insurance’

With constant references to the spending ‘black hole’, the Prime Minister changed this yesterday referring to ‘working people’ that in relation to Income Tax, National Insurance and VAT ‘we will not increase tax’.?

Surely any professional can see that commitments not to increase tax are complete nonsense whether they be written in a Manifesto or spoken:

There are many ways in which Income Tax can be increased without touching the rates, for example:?

• Freezing the Personal Allowances, though this is in place anyway
• Freezing the thresholds, something else that is in place
• Reducing the thresholds, i.e. the point that Income Tax starts to be paid or paid at one of the higher rates
• Changing the definition of what is taxable
• Changing or abolishing tax reliefs

So, the rates are not touched (as per the Manifesto commitment) but the result could be an increase in tax (something the Prime Minister said would not happen yesterday).

Also, remember that Income Tax is shared with Wales and Scotland.? Wales can vary the 20, 40 and 45% values by plus / minus 10% points.? Scotland have greater powers and can (and have) set their own rates and thresholds.??

To be fair, the Welsh and Scottish Labour Manifestos did acknowledge this, though Sir Kier Starmer did not when making his speech from Downing Street’s Rose Garden.

This is not shared with any devolved nation and operates the same UK-wide.?

Yet, the pledge is not to increase National Insurance at all which is a very bold and, possibly, unachievable one anyway.? Contribution revenue can increase without the overt signs that there have been increases, for example:?

• Thresholds can be frozen – and they have been
• Secondary employer’s National Insurance is not a tax on working people but a tax paid by those engaging working people.? The Exchequer could benefit from increasing these rates or decreasing the threshold at which Contributions become payable
• Reducing or decreasing the number of employer National Insurance ‘holidays’ – under 21s, apprentices, Freeports, Veterans etc

Changing the definition of what is subject to National Insurance or abolishing reliefs is also an option, though will result in an increase in Contributions.?

Increasing the value of the Upper Earnings Limit (UEL) would also be revenue-generating and would mean that those with the ‘broadest shoulders’ meet this cost.? However, this is overtly an increase, something the Prime Minister promised will not happen (as well as their Manifesto commitment).

Remember the pledges, how and when they were given.? Although, to be fair, any business or Government must adapt to the situation they face, remember COVID-19 for example.?

It is welcome for a politician to be open and transparent.? However, even with this openness and transparency there is the potential for deceit.? You can say 100 times that tax will not increase, however, there are 100 similar measures that will identify whether the tax burden has increased – for example, comparing to inflation (though which measure or inflation!) or comparing to the increase in average earnings (though which measure!).?

I think that the UK Government have been clear on two things consistently:?

1. The focus is on working people, i.e. those in some sort of employment, and
2. Things will get better – but they will get worse first!

The intention of this article is to make you aware of the pledges.? Because, as footballer Pele said, ‘If you don’t give education to people, it is easy to manipulate them’.?

Roll on the UK Budget on 30 October 2024.