In Labour’s first budget since returning to power in 2024, Chancellor Rachel Reeves introduced a range of economic measures focused on tax adjustments, healthcare and education funding, and social support to tackle inflation, reduce debt, and enhance public services. With tax increases aimed at generating £40bn to stabilize finances and boost key services, this budget marks a significant shift in economic priorities, addressing cost-of-living challenges and supporting long-term growth.
Here’s a comprehensive look at the main elements of Labour’s 2024 Budget.
Personal Taxes and Adjustments
- Income Tax and National Insurance (NI): Rates remain steady for income tax and NI contributions. However, income tax thresholds will be adjusted with inflation starting in 2028, helping prevent “bracket creep,” where wage growth pushes individuals into higher tax brackets.
- Capital Gains Tax (CGT): Tax rates on share profits will rise significantly, with the basic rate climbing from 10% to 18% and the higher rate increasing from 20% to 24%. Notably, CGT rates on property profits remain unchanged.
- Inheritance Tax (IHT): The current IHT threshold freeze is extended until 2030, with additional measures such as taxing unspent pension pots from 2027. Exemptions for farmland inheritance will also see a reduction in generosity starting in 2026.
These tax changes aim to increase public funding while providing clarity on future tax obligations for individuals and investors.
Business Taxes and Support for Smaller Companies
- Employer NI Contribution: Employer NI rates will increase from 13.8% to 15% for salaries over £5,000. This increase is anticipated to raise an additional £25bn annually.
- Employment Allowance: To offset higher NI rates, the employment allowance for small businesses will increase from £5,000 to £10,500, offering relief for smaller enterprises.
- Private Equity Tax: Tax on profits earned by private equity managers will rise from up to 28% to up to 32%, impacting venture capital and private equity firms.
- Corporation Tax: Maintained at 25% for businesses earning taxable profits over £250,000, this measure remains unchanged but is set for review in the next election cycle.
These adjustments support economic resilience by encouraging smaller businesses while implementing tax increases on high-profit companies and private equity.
Transport and Infrastructure
Labour’s budget includes a number of critical transportation initiatives:
- Fuel Duty: The temporary 5p fuel duty reduction on petrol and diesel has been extended for another year, providing stability for drivers as energy prices fluctuate.
- Bus Fares: The £2 cap on single bus fares in England will rise to £3 in January, ensuring affordable public transit.
- High-Speed Rail (HS2) and Trans-Pennine Upgrades: Committing to key infrastructure projects, Labour has earmarked funds for HS2 tunneling towards London’s Euston station and pledged to upgrade the Trans-Pennine rail line between York and Manchester, a route critical for northern England’s economy.
- Private Jet Air Passenger Duty: To encourage environmental responsibility, air duty for private jet flights will increase by 50%.
Drinking, Smoking, and Vaping Taxes
- Vaping Liquid Tax: Starting in October 2026, a new £2.20 tax per 10ml of vaping liquid will be imposed, responding to public health concerns.
- Tobacco and Alcohol Taxes: Tobacco taxes are set to increase by 2% above inflation, with hand-rolling tobacco seeing a 10% increase. Taxes on non-draught alcoholic drinks will be linked to the higher RPI inflation rate, while draught drinks will receive a 1.7% tax cut.
- Sugar Tax Review: As part of a public health initiative, the government will review the sugar tax thresholds and explore extending it to milk-based beverages to address rising health issues.
Wages, Benefits, and Pensions
- Minimum Wage: Reflecting a long-term plan to consolidate wage rates, the legal minimum wage for over-21s will rise to £12.21 per hour, while those aged 18-20 will see an increase to £10 per hour.
- State Pension and Benefits: State pensions will rise by 4.1% next year, driven by the “triple lock” guarantee. Additionally, the earnings threshold for the carer’s allowance will expand from £151 to £195 per week, supporting unpaid caregivers.
These changes aim to ease the financial pressures on workers, young adults, and retirees, improving affordability amid cost-of-living increases.
Housing and Social Support
- Affordable Housing Budget: To address housing shortages, Labour has allocated an additional £500m to the existing budget, enhancing affordable housing projects through 2026.
- Social Housing Rents: For the first time, social housing providers are permitted to increase rents above inflation under a multi-year settlement, helping fund improvements to housing stock.
- Stamp Duty on Second Homes: The stamp duty surcharge on second homes will increase from 3% to 5%, discouraging speculative purchases and increasing revenue.
Economic Forecasts and Debt Adjustments
- Growth and Inflation: The Office for Budget Responsibility (OBR) projects that the UK economy will grow by 1.1% in 2024, increasing to 2% in 2025. Inflation is forecasted to average 2.5% in 2024 and decrease to 2.3% by 2026.
- Government Debt Redefinition: The official definition of UK government debt will expand to incorporate more financial assets, such as future student loan repayments. This adjustment helps in re-evaluating debt metrics, improving fiscal planning.
Public Services: NHS, Education, and Defence
- Healthcare Funding: An additional £22.6bn is earmarked for NHS operational costs, with an extra £3.1bn for hospital and equipment investment. This funding addresses critical gaps in staff and infrastructure, prioritizing healthcare resilience.
- Education Investment: Labour’s budget includes a £6.7bn allocation for education, with £1.4bn dedicated to the rebuilding of over 500 schools.
- Defence Budget: With increased global security needs, defence spending will see a £2.9bn boost next year.
These measures emphasize Labour’s commitment to improving public services and national security, reflecting a balanced approach to fiscal responsibility and social investment.
Additional Allocations
- Infected Blood Scandal Compensation: An £11.8bn fund will compensate victims, alongside a £1.8bn reserve for those impacted by the Post Office scandal.
- Devolved Nations: Labour has committed £6.6bn to Scotland, Wales, and Northern Ireland, supporting regional needs and intergovernmental cooperation.
Labour’s 2024 Budget aims to stabilize the UK economy by addressing income inequalities, strengthening public services, and enhancing infrastructure. With modest tax changes, strategic funding for health and education, and support for working individuals and businesses, this budget reflects Labour’s intent to balance economic growth with social responsibility.
