GK Strategy | Chancellor delivers Budget 2024
Reeves sought to frame her fiscal statement as a Budget for growth that would ensure that the pay slips of ‘working people’ are protected. However, as heavily trailed, the Budget delivered significant tax rises across the economy, with the Chancellor expecting the measures to raise £40bn in additional revenue.
This was a big moment for Labour after a lacklustre first three months in office, and an opportunity for the Chancellor to set the narrative for the Government for years to come - reminding the electorate of its focus on restoring economic stability and delivering a decade of national renewal. The statement was a departure from the doom and gloom of the Government’s early months in power with a message of hope – that Labour’s ‘belief in Britian burns brighter than ever’ – and a pledge to put money back in people’s pockets and deliver economic growth.
In a Budget statement that was notably lacking in surprise announcements, the government announced an increase in the lower rate of Capital Gains Tax from 10 to 18% and to the higher rate from 20 to 24%. These rates will take affect from today (30 October 2024). This rise is not as significant as some commentators had suggested in advance of the Budget, and the Government has said that it will keep the UK tax system internationally competitive, with lower rates than comparable EU countries.
The Chancellor has confirmed the Government will proceed with reforms to the tax treatment of carried interest, fulfilling a Labour manifesto commitment. From April 2026, all carried interest will be taxed within the income tax framework, with a 72.5% multiplier applied to qualifying carried interest. As an interim step, the two Capital Gains Tax rates for carried interest will both increase to 32% from 6 April 2025. The government will also consult on introducing further conditions of access into the regime.
The most significant tax rise in the Budget was the Government’s decision to increase the rate of employer National Insurance contributions from 13.8% to 15% and reduce the per-employee threshold at which employers become liable to pay National Insurance from £9,100 to £5,000. The Treasury estimates that this will raise c.£25 billion per year to meet the Government’s spending commitments.
More broadly, the Government confirmed a 6.7% increase (to £12.21 per hour) to the National Living Wage from April 2025, the abolition of the non-dom tax regime and its replacement with a new residence-based system, an extension of the fuel duty freeze to 2025-26 (at a cost to the Treasury of £3 billion), an end to the freeze in income tax and National insurance contribution thresholds from April 2028 (from this date the thresholds will be uprated in line with inflation), and the introduction of VAT on independent school fees from 1 January 2025.
Leader of the Opposition and former Prime Minister Rishi Sunak was highly critical of the Budget. He argued it constituted an “enormous spending spree” which contained “broken promise after broken promise”. We expect the increase in employer National Insurance contributions to attract significant amounts of attention in the days and weeks ahead from the Opposition, particularly given the Government’s ambition to boost the underlying growth rate of the economy and its desire to attract private sector investment.
Overall, this was a confident and powerful statement, concluding with a compelling message about rebuilding the county with significant capital investment across transport, health and education. The Government will invest across the four nations in the industries of the future, underpinned by a modern industrial strategy, including in the aerospace, automotive, creative and life sciences sectors.
Life Sciences
Recognising the importance of the life sciences sector in driving economic growth, the government is keen to harness the UK’s potential as a R&D hub. To provide stability and predictability for businesses, the core R&D budgets are protected, with a real terms increase in funding for the National Institute for Health and Care Research, and the UK’s R&D tax reliefs will be maintained. This will support the NHS and wider health and care system to drive a research, life sciences, med tech and data revolution. Ministers hope this will strengthen the UK clinical trial network and bolster the life sciences investment environment. Reflecting the importance of R&D to the delivery of the government’s core missions, the Budget also includes £25 million in 2025-26 to launch a new multi-year R&D Mission Programme.
Backed by record levels of capital investment for health, the Budget provides over £2 billion for health R&D to drive innovation and support the UK’s life sciences sector. Confirming the long-term funding for the growth-driving sectors as part of the Industrial Strategy, £520 million is allocated to the creation of a new Life Sciences Innovative Manufacturing Fund. To support growth in the sector, £10 million of funding is being allocated to enable the Cambridge Growth Company to develop an ambitious plan for the housing, transport, water, and wider infrastructure in the Oxford, Milton Keynes and Cambridge corridor. This will support life sciences companies and unlock private investment.
Do let us know if you would like to schedule a call to discuss any measures contained in the Budget in more detail by reaching out to Lizzie Wills or Thea Southwell Reeves.
