Introduction
The Budget 2024 is shaking up the UK’s fiscal landscape with a monumental £40bn tax increase, sparking intense debate across business sectors, employees, and households. Central to these changes is a rise in employers’ national insurance contributions (NICs), aimed at raising an additional £25bn. But what does this really mean for the average UK worker or business owner? Let’s break it down, unpack the impact, and answer the critical questions this budget raises.
Key Highlights of Budget 2024: What You Need to Know
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Tax Hike Breakdown
The new tax hike is unprecedented—£40bn. This is the largest increase seen in over three decades, with most of it falling on employers’ national insurance contributions, which are set to increase from 13.8% to 15% starting in April 2025. The chancellor, Rachel Reeves, called it a “difficult choice,” but one she believes is necessary for the long-term stability of the UK’s economy. -
Reduction in Tax-Free Threshold
Another big move is the lowering of the tax-free threshold for national insurance, down from £9,100 to £5,000. This effectively increases tax obligations for many businesses and has raised concerns about the knock-on effects on employee wages. -
Impact on Businesses and Consumers
The Office for Budget Responsibility (OBR) suggests that much of this tax burden will be passed down to employees in the form of lower wages and to consumers through higher prices. The OBR predicts that this will result in a reduction of 50,000 work hours due to increased cost pressures on employers. So, what does this mean for job security and consumer prices? -
Frozen Income Tax Thresholds
The current freeze on income tax thresholds will end by 2028/29, after which they will be adjusted in line with inflation. The impact? More people will likely enter higher tax bands as their income grows, leading to higher tax payments for many. Reeves described this as a move towards “responsible leadership” after what she described as “14 years of Conservative austerity”.
Analysing the Tax Changes: How Will It Impact You?
With the NIC increase, businesses face higher costs per employee, particularly affecting those in labour-intensive sectors like hospitality and retail. Let’s break it down:
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For Businesses
Companies with large workforces are likely to be the hardest hit, especially those in industries operating with thin profit margins. Some might consider passing on costs to customers, potentially leading to price hikes across various goods and services. -
For Workers
The OBR points out that employers may cut costs by reducing salary growth or even downsizing, especially among low and middle-income workers. The lowered NIC threshold and increased contributions may lead to smaller pay rises or fewer job opportunities. -
For Consumers
If businesses pass the increased costs onto consumers, we could see a rise in the cost of everyday goods and services—yet another hit amid ongoing inflation concerns.
Capital Gains Tax Changes and Business Reliefs
Another notable update includes capital gains tax changes. While residential property rates remain at 18% and 24%, the standard capital gains tax rates will rise from 10% to 18% for lower rates and from 20% to 24% for higher rates. Additionally, there will be 40% relief on business rates for 2025-26 for specific sectors up to £110,000, which may provide relief to certain industries like retail, hospitality, and leisure.
Big Budget Benefits: NHS, Schools, and National Living Wage
Despite the tax increases, Budget 2024 also promises some significant investments:
- £22.6bn for the NHS to address immediate health system needs, with an additional £3.1bn dedicated to infrastructure.
- £2.3bn allocated to support teacher recruitment, alongside £6.7bn for school infrastructure.
- An increase in the national living wage to £12.21 per hour for those aged 21 and over, a 6.7% jump that will benefit millions of low-income workers.
Additional Budget 2024 Highlights
The chancellor also introduced several other significant changes:
- Fuel Duty: Frozen with a continued 5p cut next year.
- Inheritance Tax: Threshold freeze extended until 2030.
- Stamp Duty on Second Homes: Increased to 5% to curb property speculation.
- Draught Alcohol Duty: A modest cut of 1p per pint while non-draught drinks will see a duty increase.
Impact on the Average UK Household
With the £40bn tax hike, households may feel the squeeze. Here’s how this could manifest for the average family:
- Increased Cost of Goods and Services: With businesses likely to pass on some NIC increases, consumers may see higher prices.
- Wage Adjustments: Workers may experience reduced salary growth, particularly if employers redirect funds to cover NICs.
- Housing Market Impact: Higher stamp duty and capital gains tax may discourage second-home purchases, potentially stabilizing house prices for first-time buyers.
Labour’s Vision and Long-Term Strategy
Chancellor Reeves says Budget 2024 is a clear shift towards “responsible governance”. She highlighted Labour’s commitment to economic growth, the NHS, and pensions. As the UK’s first female chancellor, Reeves is leading an ambitious strategy to tackle debt while protecting health and education sectors, saying the nation is on a path to “invest, invest, invest” in future growth.
Her three main pledges include:
- Strengthening the NHS
- Restoring long-term economic stability
- Keeping the pension triple lock
For pensioners, the triple lock ensures the state pension will rise by 4.1% next year, improving retirement income for over 12 million people by up to £470 annually. The budget also includes £11.8bn for the infected blood scandal victims and £1.8bn for Post Office IT scandal compensation.
The Takeaway: What Budget 2024 Means for You
In summary, Budget 2024 is a landmark fiscal decision with significant implications:
- Higher NIC Costs: Businesses are shouldering a 15% NIC from April 2025, expected to impact wages and consumer prices.
- Reduced Tax-Free Thresholds: Lowered thresholds mean an increased tax base, affecting more workers.
- Social Investments: Major funds directed at NHS, education, and compensation for historic injustices signal a focus on social responsibility.
While the £40bn tax increase is set to stabilise the economy, the ripple effects will shape the business landscape, employment, and household spending for years to come. Is this the right balance between fiscal responsibility and social welfare? Only time will tell, but Budget 2024 marks a definitive shift in the UK’s economic policy.
