All the blame for the £22billion “Black Hole”, the broken finances, and the increase in our National Debt was gleefully laid at the door of the previous Conservative administration; conveniently forgetting the two Black Swan events - Covid and the Ukraine war - and her own Government’s agreement to meet the full demands of the Junior Doctors (22.3%) and Train Drivers (15%) last August.

Ms Reeves' budget is the biggest “tax grab” - £41.5 billion - in recent history. That’s ££22 billion to fill the Black Hole and £19.5 billion to “fix the foundations” and “restore stability to our economy.”

The cornerstone of this huge sum of money is the increase in Employers’ National Insurance (NI) from 13.8% to 15%.  Public Sector employers are exempt, so these fall (un)fairly and squarely on the shoulders of the Private Sector. Labour has said that this increase won’t affect employees (“working people”); but of course it will as employers start to look for ways to reduce their payroll.   

 What follows is a line-by-line analysis of the various UK taxes, highlighting the changes. It is meant to be a guide that you can refer to when you want to remind yourself of the changes or when you want to start an argument with your friends as to which taxes you would like to bin! Where appropriate, I have added a commentary - this is my personal opinion and feel free to disagree! 

However the Government want to spin this, the NI employers increase was a broken manifesto commitment. Not only has the NIC rate increased by 1.2% (restricted to the private sector), the rate kicks in sooner, i.e. for an employee earning more than £5000 rather than previously, £9100. These NIC increases give private sector employers seriously difficult choices. Do they suffer the increase themselves, i.e. do nothing? Do they reduce future salary increases for their staff? Do they pass on the extra costs to their customers? One of the most unfortunate consequences is that charities, private care homes and hospices are not part of the public sector; they will be very hard hit indeed, with grave repercussions for the NHS.

Capital Gains Tax (CGT) Rates on crystallised gains

Conditions applicable to BADR

·      You must have been trading for 2 years

·      And many other conditions

Inheritance Tax (IHT) Levied at 40% on Deceased Estates - Main Exemptions

Agricultural & Business Property Relief/Exemptions from IHT

Clearly, members of Rachel Reeves’ team know nothing about farming. Farmers work 24/7, take no weekends off and do not enjoy the same privileges as others, e.g. “working from home.” They produce food for us to eat. Many of them take the trouble to reinstate meadows and provide habitat for insects and wild animals. Farmers are integral members of the community. They may be asset rich, but they are cash poor. They will not be able to afford to find the cash to pay IHT bills which will be forthcoming. So, they either borrow or sell part of the farm. A hopeless doom-laden scenario. So, they will have to sell everything – doubtless to overseas investors with no interest in community or wildlife. Other comments follow. Kirsty Allsop: “She has zero understanding of rural voters.” James Rebanks, farmer: “The damage done to these relationships will last for a very long time – it’s a disaster of epic proportions.”

Pensions

I have highlighted the biggest change to private pensions which is to make these fully liable to IHT where they are bequeathed to anyone but the spouse. This will not be popular with the many taxpayers who have taken the trouble to ensure that their unused private pension is exempt from IHT. I know myself how incredibly time consuming it is going to be to change the benefit provisions and it is unsurprising that this change is not due to come in for another 2 years, 6th April 2027. Having said this, I do not think that the Labour Government will be minded to change their mind.

National Minimum Wage (NMW)

Many commentators have suggested that these increases will not be welcome by the hospitality industry. These increases will be in addition to employers’ NIC at the new rate of 15%.

Non-UK domiciled individuals (Non-Doms) resident in the UK

The new rules are complex and are still being drafted, but in essence, wealthy foreign nationals who become resident in the UK will pay UK income tax, not just on their UK income but their worldwide income. In addition, non-doms who have been resident in the UK for more than 10 years will become liable to IHT. If you have recently been to Belgravia, London, you cannot help but notice how devoid it is of people. The properties are owned by billionaire non-doms who enjoy the benefits of living in the United Kingdom, but who are not minded paying their share of tax. I welcome the Labour Party’s proposal to treat them as any other UK resident.

Stamp Duty

The financial obstacles which property owners face on buying a second home just keep multiplying. No longer do you get tax relief for loan interest payable. Capital gains tax for second homeowners suffer the highest CGT rate of all assets at 28%. Finally, the legislation governing landlord and tenant arguably favours tenants before landlords.

Value added tax (VAT) on Private Schools

There is uproar at the Government’s haste to enact this legislation, starting in the middle of the academic year. Watch this space.

Toward Conclusion

Before concluding this analysis of Ms Reeves budget changes, I thought it might be helpful to compare the take home pay of those living in Scotland with those living in the rest of the UK. The differences are stark, but our Scottish government would justify the higher taxes payable in Scotland by pointing out that in Scotland, residents enjoy benefits such as free prescriptions; such benefits are not enjoyed elsewhere in the UK. Oh, and one more thing – the tax free allowance enjoyed by everyone ( £12,570) and the various income tax rate bands will be frozen until 5th April 2028 – this will result in more and more taxpayers being dragged into the higher bands ( known as fiscal drag). Here is the comparison:

Net Earned Income after Deducting Income Tax and Employees NIC ( not due to change)

Finally, a rather gloomy summary of Ms Reeves Budget by Liam Halligan, economist

The government is now forecast to borrow an additional £1.42 billion over 5 years to fund huge public sector pay rises and other Labour pet projects. That’s why, since Reeves’s statement, the 10-year gilt yield (what the government pays to borrow) has risen sharply, up almost half a percentage point.

That will send debt service costs soaring, not just for the government, but for firms and households too.

Labour’s budget has been billed as politically canny. In reality, it’s economically incoherent and financially dangerous. Reeves needs to bury her ideology and understand that high tax, high spend, fuelled by borrowing, is the route to economic chaos. But that’s about as likely as Reeves hanging a picture of Winston Churchill in No 11 Downing Street.

I hope you have enjoyed this summary of the tax changes proposed by Ms Reeves, last Thursday. In my earlier note to you, I made some predictions of the tax increases Ms Reeves would make. I have awarded myself a “fail” for these, but I also said I wouldn’t want to be in her shoes. I haven’t changed my mind!

Andrew Hamilton, Dip PFS and Chartered Tax Advisor

3rd November 2024