Chancellor Rachel Reeves has revealed that the autumn budget will raise taxes by ￡40bn, the biggest increase in over three decades, as she announced increases to employers' national insurance, capital gains tax hikes and changes to inheritance tax and stamp duty.
According to the Institute for Fiscal Studies think tank, tax hikes of ￡40bn would be equivalent to 1.25% of economic output, surpassed in recent history only in 1993 by a budget plan under the Conservatives which raised taxes to shore up the public finances after a recession and currency crisis.
A ￡40bn tax-raising package is also bigger than any revenue-raising budget for a generation, exceeding the announcements made by Rishi Sunak in 2022, George Osborne in 2010 or Gordon Brown in 1997.
“Any chancellor standing here today would face this reality and any responsible chancellor would take action,” Reeves said. “That is why today, I am restoring stability to our public finances and rebuilding our public services.”
She also pledged to cut the duty on draft alcohol and abolish the non-dom tax regime. One surprise move was a freeze on income tax and national insurance thresholds for workers and an extension on the fuel duty freeze.
Here are the highlights from Reeves's maiden budget, the first Labour statement in almost 15 years.
National insurance rises for employers
Employers will pay out more in national insurance (NI), a tax on earnings, in a move that should provide one of the biggest revenue increases for HM Treasury.
Employers currently pay a rate of 13.8% in NI on a worker’s earnings above ￡9,100 per year. That will rise to a 15% rate on salaries above ￡5,000 a year.
Reeves said this would raise ￡25bn per year by the end of the forecast period.
“I know that this is a difficult choice. I do not take this decision lightly,” she said.
Jon Greer, head of retirement policy at Quilter, warned the increase could impact pay rises: "Calculations show given the secondary threshold has dropped dramatically to ￡5,000 if an employee’s gross pay is ￡30,000 then an employer will see a ￡865.80 increase in their national insurance costs for that employee.
"The total cost to employ someone on ￡30,000 will now be ￡33,750 compared to ￡32,884.20 under the previous rules. If a business wanted to keep their cost to that latter number than an employee’s gross salary would have to drop to ￡29,247.
"For many employers, particularly those operating on tight margins, this increase in NI is likely to prompt a re-evaluation of salary structures and potential pay rises."
Lower and higher rates of capital gains tax to rise
Reeves said the lower rate of capital gains tax will rise from 10% to 18%, and the higher rate from 20% to 24%.
Meanwhile, the rates on residential property will remain at 18% and 24%.
Capital gains tax is charged on profits are made from selling assets such as a second home or investments, including shares. She added that this would still be the lowest rate for any European G7 country.
Charles McManus, chief executive of ClearBank and co-chair of the Innovate Finance Unicorn Council, warned that Reeves's tax hikes could push investors away.
He said: “The combined increase in capital gains tax and national insurance — as well as the drop in the threshold for national insurance contributions for businesses — could have a significant knock-on effect in terms of the number of entrepreneurs establishing businesses in the UK, as well as already exacerbating the challenges we have already seen around UK businesses listing in other markets."
Inheritance tax threshold freeze extended
The chancellor said she was taking a "balanced approach" to inheritance tax (IHT), as she announced an extension of the threshold freeze. However, there will be some tweaks from 2027.
She said: "The previous government froze inheritance tax thresholds until 2028. I will extend that freeze for a further two years until 2030.
"That means the first ￡325,000 of any estate can be inherited tax free, rising to ￡500,000 if the estate includes a residence passed to direct descendants and ￡1m when a tax free allowance is passed to a surviving spouse or civil partner.
"Second, we will close the loophole created by the previous government, made even bigger when the lifetime allowance was abolished, by bringing inherited pensions into inheritance tax from April 2027."
A 50% IHT relief will be applied to shares held on the Alternative Investment Market (AIM) and on other similar markets, setting the effective rate at 20%.
Gary Smith, financial planning partner and retirement specialist at wealth management firm Evelyn Partners, urged pensioners and savers to review their plans in the next 18 months.
He said: "The chancellor has removed the IHT-free status of defined contribution pensions from April 2027, which will mean that the proportion of estates subject to IHT will grow from the current 6%.
"Retirees and savers have 18 months to review their long-term plans. As defined contribution pension funds could now be subject to up to 40% IHT on death, we will probably see greater withdrawals from pension pots.
"Pension withdrawals are subject to income tax, so some savers in drawdown will have an eye on the frozen ￡50,270 threshold at which point their overall income from all sources will be taxed at 40%."
Rachel Reeves said that from Thursday, the stamp duty land tax surcharge for second properties would rise from 3% to 5%.
But Paul Johnson, of the IFS, warned that this tax increase would end up costing renters.
"This will support over 130,000 additional transactions from people buying their first home, or moving home, over the next five years," Reeves said.
The increase will also apply to those purchasing buy-to-let residential properties, and companies purchasing residential property.
Stamp duty is taxed in bands. For a first home worth up to ￡250,000, the buyer will pay no tax. If the property is valued at ￡250,001 to ￡925,000, the buyer will pay no tax on the first ￡250,001, and five per cent tax on any remaining value.
Reeves did not extend a discount for home-buyers that is set to expire next year.
Fuel duty freeze extended for another year
The chancellor has decided to keep fuel duty frozen and the temporary 5p cut introduced a year ago will remain.
Government figures show the average cost of a litre of petrol and diesel at UK forecourts is around ￡1.34 and ￡1.40 respectively.
AA president Edmund King said: “In this eve-of-Halloween budget, the chancellor has conjured up a treat for drivers.
“Since Covid and the start of the Ukraine war, perma-high pump prices have inflicted road fuel costs that were well above anything motorists had endured before.”
RAC head of policy Simon Williams added: “It’s good to see the government firmly recognising the importance of the car to millions of households up and down the country.
“Eight in 10 drivers tell us they are dependent on their vehicles for the journeys they need to make.”
Analysis by motoring research charity the RAC Foundation shows tax makes up around 55% of pump prices.
Other taxes: from vaping to airfares
Among the announcements from Reeves' maiden autumn statement, there was news of a new vaping duty tax at ￡2.20 per 10ml of liquid.
The chancellor is also increasing air passenger duty. This will be worth no more than ￡2 for economy, short-haul flights. But for private jets this will go up by 50%, the equivalent to ￡450 per passenger.
She also confirmed VAT on private school fees from January 2025 and the end of the non-dom regime next year. In a surprise move, Reeves said will not extend the freeze on income tax threshold.
Reeves announced she was cutting draught beer duty to take a penny off the cost of a pint.
The chancellor ended her inaugural budget statement by defending her measures.
"The choices I have made today are the right choices to restore stability to our public finances, to protect working people, to fix our NHS and to rebuild Britain. That does not mean that these choices are easy, but they are responsible."