Ever since the election in July, the government has come across in the media as being overly pessimistic about the state of the UK’s finances. So much so some have suggested that its rhetoric put off investors and frightened the chattering classes into financial decisions they’ll come to regret.
The big news – that taxes overall are to rise by £40bn – was nothing new. It had been leaked for some time; the budget was the biggest tax grab since 1993, and with it the government will take close to 39% of the economy’s value.
Employment
For employers, the news that their National Insurance bill will rise from 13.8 to 15% from April 2025, along with a lowering of the threshold at which it’s paid – from £9100 to £5000 – is less than good.
Some believe that it could very well lead to job losses as marginally profitable businesses close or, alternatively, employers curtail hiring or don’t replace departing staff. It’s also possible that employers decide that they want more “self-employed” workers instead of full-timers to save on National Insurance liabilities.
The only saving grace for employers, if it can be put that way, is that the Employment Allowance – which allows eligible small employers to reduce their National Insurance bill by £5000 per year – is to be increased to £10,500 per year from April 2025.
Naturally, employees will be pleased that their National Insurance bills won’t rise and that the lower rates introduced by the previous Conservative government won’t be reversed.
Similarly, the rise in the National Minimum Wage and National Living Wage from next April will not do much for an employer’s balance sheet.
For employees, there’s a little glimmer of light, as chancellor Rachel Reeves stated that the freeze on income tax thresholds will end in 2028/29. Thereafter, they will be uprated in line with inflation. But that’s years away and won’t come into effect until around the time of the next election. In the meantime, fiscal drag will bring more people into the tax regime and/or take them into higher tax brackets.
Business
Businesses and private individuals will be pleased that the expected end of the 5p per litre cut in fuel duty has been postponed, and the planned increase in line with inflation for 2025/6 has also been cancelled.
Those with premises in the retail, hospitality and leisure sectors will be a little happier that there’s to be £1.9bn in support through 40% relief on business rates from 2025-26 – up to a £110,000 cap. The Small Business Rates Relief was untouched, and the Small Business Tax Multiplier will stay at 49.9p. Naturally, these businesses would still be happier if business rates were reformed to increase the playing field between traditional and online outlets. Maybe, that’s a task for another time.
While the last government increased corporation tax on taxable profits over £250,000, Reeves said the current regime will stay at 25% until the next election. The Corporation Tax Small Profits Rate and marginal relief at the current rate and thresholds are also being left as is.
Turning to those selling businesses, they may want to get their skates on as Business Asset Disposal Relief will remain at 10% this year but rise to 14% from April 2025 and 18% from 2026/27.
However, Business Property Relief, which provides relief to business assets on death, is to be reformed from April 2026. To help protect businesses, the 100% rate of relief will continue for the first £1m of business assets but will be lowered to 50% thereafter. This will effectively introduce a 20% tax on unrelieved amounts.
In general terms, those with assets with a capital gain will be ‘glad’ that the already lowered exempt amount hasn’t been lowered any further. However, they will now – from budget day – be paying more with 18% on gains if they pay Income Tax at the basic rate or 24% if they pay at higher rates.
Summary
The budget could have been a lot worse. Typically, governments raise taxes at the start of a new term and lower them nearer the next election. This budget was no different. But it will be more than interesting to see how the public and business views Labour’s antics over time.