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UK Budget 2024: All You Need To Know With Daily Equity

Daily Equity - UK Budget 2024: All You Need To Know With Daily Equity

Labour’s ambitious UK budget aims to boost public services and living standards, but heavy tax increases spark debate on economic growth.

On October 30, 2024, Chancellor Rachel Reeves delivered a significant financial update, marking a pivotal moment for UK’s Labour government. Emphasizing a mandate for “national renewal,” Reeves promised to put “more pounds in people’s pockets” and enhance living standards through substantial investment.
Reeves framed the budget as a necessary pivot away from 14 years of Conservative governance, asserting that Labour is prepared to “rebuild Britain.” Central to her message was the announcement of a £40 billion tax increase, a move that has drawn both support and criticism.

National Insurance Changes

Reeves announced that while employees won’t see a direct increase in national insurance contributions, employers will face a 1.2 percentage point hike, bringing the rate to 15% by April. Additionally, the threshold for contributions will drop significantly, potentially raising £25 billion annually by the end of the forecast period. Before the budget, employers were liable for a rate of 13.8% of workers’ earnings above £175 a week. An increase of one percentage point would raise an estimated £8.5bn. This bold move has raised concerns about its impact on job creation and economic growth

Taxation on Income and Investments

Personal tax thresholds will be adjusted for inflation starting in 2028-29, allowing Reeves to claim compliance with Labour’s manifesto promise to avoid increasing taxes on working individuals. Capital gains tax will see hikes, with rates moving from 10% to 18% and from 20% to 24%, which is anticipated to yield £2.5 billion. The government will extend a freeze on the threshold for inheritance tax, allowing £325,000 to be inherited tax free.


Support for the Minimum Wage

In a bid to increase living standards, the national living wage will rise by 6.7% to £12.21, providing an annual boost of £1,400 for full-time workers. This decision is likely to resonate positively with the public, despite concerns from some business sectors.

Tobacco, Alcohol and Fuel Duty

Reeves introduced new levies on vapes and increased tobacco taxes by 2% above inflation. Taxes on alcohol will rise in line with the RPI, but Reeves announces a cut in draught duty by 1.7%, which she says is a penny off a pint in the pub. While extending a freeze on fuel duty for another year, she navigated the politically sensitive terrain of fuel taxation carefully, given its potential backlash.

Education and NHS Investments

A notable focus on education includes a 19% real-terms funding increase for the Department for Education, totalling £6.7 billion. Meanwhile, the NHS is set to receive an injection of £22.6 billion to improve everyday services, with the promise of a long-term plan expected in the spring.

Housing and Transport Initiatives

With a commitment to build 1.5 million new homes, £5 billion will be allocated to housing investments. In transport, Reeves confirmed funding for significant upgrades, including the Transpennine Route and improvements to local rail services.

Public Spending, Energy and Defence

An increase in real spending for government departments by 1.5% reflects Labour’s priority to revitalize public services, with an additional £2.9 billion for military spending. Reeves announces £3.4bn for the warm homes plan to upgrade buildings, lowering energy bills. The government will fund Great British Energy, a new body to be based in Aberdeen.

Investment in Growth

Reeves highlighted the importance of public investment, setting a new rule for debt management that aims to reduce liabilities while focusing on infrastructural growth. Funding will also support sectors such as aerospace and electric vehicles. There will be regular reports on government investments from the Office for Budget Responsibility (OBR). Reeves says the government will invest £1bn in aerospace, £2bn in automotive to support electric vehicles, and £500m for life sciences.

Government Borrowing

Reeves announces new rules to not borrow for day-to-day spending. The current budget will be balanced within three years of forecasts. The government will run a deficit of £26.2bn in 2026, but will achieve a surplus of £10.9bn in 2027-28, £9.3bn in 2028-29 and £9.9bn in 2029-30. Public sector net debt will fall from £127bn in 2024-25, falling gradually to £70.6bn by 2029-20.

Inflation and Growth Forecasts

The chancellor will maintain the Bank of England’s 2% target for inflation. Inflation will average 2.5% in 2024, rising to 2.6% in 2025, before gradually dropping to 2% in 2029, according to OBR forecasts. Inflation was at 1.7% in September, below the Bank of England’s 2% target, and down from 11% in October 2022. The OBR slightly upgrades its growth forecast for this year, but adjusts them down in later years. GDP growth is forecast to be 1.1% in 2024, then 2%, 1.8%, 1.5%, 1.5%, and 1.6% by 2030, Reeves says.

UK Market Reaction

FTSE 100, the key benchmark index in the United Kingdom, closed with a loss of 0.73% (-59.98 pts) at £8,159.63 today, as UK’s first female Chancellor tabled the Labour’s “rebuild Britain” budget.
Reeves concluded with a challenge to the Conservatives, urging them to specify their alternatives to her proposed tax increases. With a firm vision for the future, Labour aims to protect essential services while promoting economic growth, setting the stage for an intense political discourse in the months to come.
This budget reflects both ambition and contention, with a focus on revitalizing public services amidst significant tax hikes. The success of these measures will depend on balancing immediate fiscal demands with long-term economic growth.

UK Budget 2024: All You Need To Know With Daily Equity

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