Labour’s First Budget in 14 Years: What to Expect on October 30

As the UK braces for Labour’s first budget in over a decade, set to be unveiled on October 30, the anticipation is palpable. However, as warned by key party figures like Rachel Reeves and Sir Keir Starmer, this budget may not be well-received by the public. With a focus on fiscal responsibility and addressing the nation’s economic challenges, the budget is expected to introduce a series of tax changes that could significantly impact various sectors and demographics. Here’s a closer look at what could be included.

Employer National Insurance Contributions

National insurance contributions (NICs) are a cornerstone of the UK’s tax system, generating nearly £170 billion for the Treasury in the 2024-25 fiscal year, according to the Institute for Fiscal Studies (IFS). While Labour has pledged not to increase taxes on "working people," the party has left the door open for potential hikes in employer NICs. Currently set at 13.8% on employee earnings, this tax does not apply to pension schemes, a loophole that the Chancellor may target. By closing this gap, Labour could raise an estimated £17 billion annually, a significant sum that could be redirected towards public services.

Pension Changes

Another area of potential reform lies within the pension system. Reports suggest that the Chancellor is contemplating reducing the tax-free lump sum that individuals can withdraw from their pensions. Currently, those over 55 can take out 25% of their pension pot tax-free, up to a maximum of £268,275. However, discussions are underway to potentially lower this cap to £100,000. This has prompted many financial advisers to field inquiries from clients eager to cash in their tax-free lump sums before any changes take effect. Additionally, Labour may consider imposing national insurance on private pension incomes, introducing income tax on inherited pensions, and making pension pots subject to inheritance tax.

Inheritance Tax Adjustments

Inheritance tax (IHT) has long been a contentious issue in UK politics, and Labour may seek to make significant changes. Currently, IHT is charged at 40% on estates valued over £325,000, with additional allowances for main residences passed to children or grandchildren. However, the government could lower the threshold for IHT or increase the tax rate itself. Furthermore, exemptions on agricultural land and family businesses might be reconsidered, potentially broadening the tax base and increasing revenue.

Capital Gains Tax Revisions

Capital gains tax (CGT), which applies to profits made from the sale of assets, could also see alterations. Presently, individuals can earn up to £3,000 in profits tax-free, but this threshold may be eliminated. Labour could also consider increasing the tax rate, which currently ranges from 20% to 28% for higher earners. Such changes could significantly affect investors and homeowners alike, particularly those looking to sell properties or other valuable assets.

Council Tax Overhaul

The current council tax system, based on 1991 property values, has faced criticism for being outdated and poorly designed. While Labour has previously stated it would not alter council tax bands, there are indications that a new approach may be on the table. Reports suggest the possibility of replacing the existing system with a 0.5% annual tax on property value. For example, a property valued at £350,000 would incur a tax of £1,750 per year, potentially leading to a more equitable distribution of the tax burden.

Stamp Duty Changes

Stamp duty, a tax levied on property purchases, is another area ripe for reform. Currently, first-time buyers benefit from a higher threshold of £425,000, but this is set to revert to £300,000 in April. Labour may also explore shifting the focus of stamp duty towards an annual land value tax, which could fundamentally change how property transactions are taxed and potentially ease the burden on first-time buyers.

Gambling Tax Increases

In a bid to address the growing concerns surrounding gambling, particularly online gaming, Labour may consider increasing taxes on high-risk gambling products. Reports suggest that the general betting duty could be doubled from 15% to 30%, while remote gaming duty might see a staggering increase from 21% to 50%. Such measures could generate significant revenue while also promoting responsible gambling practices.

Fuel Duty Reinstatement

Finally, the issue of fuel duty remains a hot topic. In 2022, the previous government cut fuel duty by 5p, a measure set to expire in March 2024. Labour may choose to reinstate this duty, which the RAC estimates costs the Treasury around £2 billion annually. This decision could be met with mixed reactions, particularly from motorists already facing rising living costs.

Conclusion

As Labour prepares to unveil its first budget in 14 years, the potential changes outlined above signal a significant shift in fiscal policy. While the party aims to address pressing economic challenges, the proposed tax increases and reforms may not resonate well with the public. As the date approaches, all eyes will be on the Chancellor to see how these plans unfold and what they mean for the average citizen. The budget will undoubtedly set the tone for Labour’s economic strategy moving forward, and its reception will be closely scrutinized by both supporters and critics alike.