Autumn Budget 2024 predictions
Discover the latest insight and analysis of the Autumn Budget 2024 including predictions and reactions from our tax, industry and economic experts.
A view from industry
After the jubilant post-election high, the government’s tone of optimism has wavered and talk of “tough” decisions in the forthcoming Autumn Budget now dominates. How will the new government set a roadmap to generate revenues to tackle the deficit, fund public services, support economic growth, stimulate spending and make the UK fit for the future?
Tinkering with the fiscal rules to unlock £20bn will go some way to offset any “black holes” in the public finances, but tax increases will be needed to help fund key policy commitments to support the green economy; invest in key housing and infrastructure; and reform workers’ rights to “Make Work Pay”.
It’s the detail behind the headlines that is needed as businesses want certainty, stability and strategic direction to ensure they can make commercial decisions and invest with confidence. Too much change and increased uncertainty could derail growth, impact productivity, and ultimately hinder the UK’s economic recovery and global competitiveness.
So what will be in the Autumn Budget 2024? We look at the policy changes that we think could be on the horizon as the Chancellor prepares to unveil the government’s long-awaited spending and revenue plans.
Rachel Reeves, Chancellor of the Exchequer, is set to deliver her first Budget on Wednesday 30 October. What can we expect in the new government’s budget?
- The view from our economist
- Filling the black hole?
- Business and the growth agenda
The view from our economist
While the focus in the run up to the Autumn Budget 2024 has been on where tax increases will hit, the real action might be elsewhere.
It looks like the Chancellor is going to change the fiscal rules to allow for more investment spending. There are dozens of different ways she could improve the current fiscal rules, but the end result will be more headroom.
This won’t necessarily make the budget less painful as she still needs to fill the black hole in current spending and will want to boost future spending by some amount, so we expect tax increases of around £20bn. However, creating more headroom would unlock the opportunity for a significant increase in investment spending.
Admittedly, there is a risk that if markets deem total borrowing excessive, interest rates could rise. But as long as she doesn’t use all the headroom the new fiscal rules create, and the investment is well targeted, markets could be sympathetic to extra borrowing given the positive impact on growth.
Overall, we doubt this budget will upset the economic recovery currently underway in the UK and it could set the stage for a much-needed increase in investment. But done badly, there is a risk that business and consumer confidence is hit, and economic recovery is undermined.
Filling the black hole?
With the Chancellor promising that there will be no return to austerity, tax rises seem inevitable but who will bear the brunt? The government ruled out rises in income tax or National Insurance contributions (NICs) for working people in its election manifesto and capped the rates of VAT and corporation tax so could businesses end up shouldering much of the burden through increased employment taxes? Will we see short-term tax raids, or will the Chancellor stick to longer term measures to signal the government’s commitment to certainty and stability?
Whilst VAT on private school fees has been pre-announced, there are also rumours of changes and potential rate hikes for capital gains tax (CGT) and inheritance tax (IHT). The challenge the Chancellor faces is that whilst CGT and IHT may be soft targets politically, neither are significant revenue raisers. Estimates show that, together, they contributed around 2.5% of the total tax collected by HMRC in 2023/24. It’s difficult to see how changes to them could raise the additional tax revenue seemingly required so other major measures are likely to be needed.
CGT set to increase
With CGT rates historically low, an increase seems unavoidable, possibly with immediate effect on Budget Day. This could even take the form of aligning CGT rates with income tax, which would mean a top rate of 45% for those with the highest earnings. Alternatively, the Chancellor could take inspiration from the United States and introduce different CGT rates for short-term and long-term gains, targeting higher rates at those ‘flipping’ assets for profit.
HMRC’s estimates indicate that increasing CGT rates by 10% would likely reduce the overall tax take by £2bn per annum within just three years, as it would discourage taxpayers from selling chargeable assets. If the Chancellor does increase CGT rates, aligning these with income tax rates would therefore appear counter-productive. However, she could accompany rate increases with changes to reliefs to target the impact of the rises. Another option open to the Chancellor to influence behaviours would be changing the current temporary non-residence rules, which enable taxpayers to avoid CGT by leaving the country for five years, making temporary non-residence a less attractive tax planning option.
Scrapping business asset disposal relief
The Chancellor could also choose to reduce the benefits available to taxpayers from various CGT reliefs. Business asset disposal relief, originally intended to encourage entrepreneurial behaviour by reducing CGT from 20% to 10% on gains on business sales, has become less effective since the lifetime gain limit was reduced from £10m to £1m in 2020. Scrapping this relief could be a simplification, whilst delivering savings of around £1bn per annum.
Carried interest reform
The government has also signalled its intention to make changes to the taxation of carried interest; the return private equity and venture capital fund managers make on successful investments. Carried interest is currently subject to CGT rates with an 8% surcharge, giving an effective top rate of 28%. The Chancellor is considering changes following recent consultation, but may, in the short term, move the effective rate applied to carried interest closer to the highest income tax rates.
Tax hikes on gifts and inheritances
The Chancellor is also expected to target IHT, but it is difficult to see how IHT revenues could be significantly increased without an overhaul of the regime and its interaction with CGT, as most IHT arises on death when reliefs may be available to offset the tax charge arising. Having ruled out the possibility of introducing a wealth tax, the Chancellor has left the door open to increasing IHT revenues by withdrawing business relief for AIM-listed portfolios and agricultural relief for owners not actively farming their own land, and/or capping reliefs for other claimants.
Pension reform – too complex to tackle?
Subjecting individuals’ pension funds to IHT on death is another possible change to the rules we might see on Budget Day. Pension reform could also take the form of limiting the rate of income tax relief on pension contributions, or a reduction in the tax-free lump sum which can be withdrawn during a pensioner’s lifetime. Pension taxation has been a popular topic for budget predictions for more than a decade; however, potential changes are fraught with complexity and political sensitivity, which is perhaps why successive chancellors’ have shied away.
A softer stance on non-doms?
Having previously confirmed the intention to proceed with the proposed abolition of the non-domicile (non-dom) tax regime, there is speculation that the Chancellor may not take as hard a line as originally anticipated. The forecast impact on public finances of a mass exodus of wealthy non-dom taxpayers may have persuaded her to soften the impact of these changes.
Business and the growth agenda
What’s the direction of business tax?
Growth is at the top of the new government’s agenda and it has promised to give businesses stability, certainty and the ability to plan for the long-term. The expected ‘business tax roadmap’, the first since 2016, will set out the intended direction of travel for business taxes for the rest of the current parliament. It is likely to feature minor but positive changes to key business tax reliefs for capital expenditure and innovation. It will hopefully succeed in unlocking investment, improving productivity and delivering the desired growth.
However, whilst certainty and stability may be at the top of the government’s agenda, the expectation of new rules to enforce governance, or a slew of measures to ‘close the tax gap’, suggests that the simplification businesses would also like to see, may not be delivered.
Will the government hike employers’ NICs for big windfall?
Although the government has promised not to raise taxes on working people, there were no such promises for employers. Increasing the rate of employers’ NICs beyond the current 13.8% on relevant staff costs could be a big revenue raiser; HMRC estimates that a 1% increase could generate nearly £8.5bn additional revenue. Alternatively, the employer element of the ‘Health and Social Care Levy’, introduced and then repealed by the previous government, which charged 1.25% on both employer staff costs and employee earnings, could be brought back. Combined with the anticipated increase in the National Living Wage, a careful balancing act is needed as changes to employment taxes could represent a significant cost to business, which could adversely impact the government’s growth agenda.
Will fuel duty fill the fiscal void?
With fuel prices falling, and the headline rate of fuel duty frozen since 2011, it may once again be on the rise. Raising around £25bn a year, increasing fuel duty offers a significant opportunity to address the black hole, although any increase could hit growth and working people’s finances, two areas the government is keen to protect from additional tax burdens. Reversing the temporary 5p per litre cut in the rate, in force since 2022, could be on the cards. Reports suggest that many retailers are not currently passing this on to consumers, so the effect on taxpayers may be limited.
Discover our detailed industry analysis on:
Building for economic growth
Clarity on devolution of powers to meet housing targets
The government’s reintroduction of mandatory housing targets highlights its commitment to restimulate the market to help build a more resilient economy. While this approach is broadly supported by the housing industry, we expect government to provide clarity on the devolution of powers to local authorities, regeneration plans and the allocation of infrastructure spend.
In addition, while it seems local authorities will play a key role in decision-making, it is not yet apparent where financial responsibilities will lie for housebuilders and government. Progress updates on the government’s overarching housing strategy and the outcome of the National Planning Policy Framework consultation are therefore likely to address funding, as well as deployment of labour to ensure these targets don’t become pie in the sky.
Revised social housing targets and new incentives
The government recently proposed the introduction of a requirement that 50% of new housing developments must be affordable, with a focus on social rent and building on brownfield and grey belt land. This has been met with strong pushback from housebuilders, due to concerns over profitability, land availability and delays in the planning system, leading them to re-assess margins and partnerships with social housing associations.
The Chancellor may therefore respond to calls for revised social housing targets and incentives for developers. Likewise, she needs to outline funding for social housing associations, to ensure the development of affordable housing aligns with accelerated targets, amidst the government’s plans to clampdown on right-to-buy sales.
Tax reforms set to hit property
There have been murmurs the Chancellor may impose further restrictions on inheritance tax agricultural relief (AR), to the detriment of farmers and owners of farming land whilst raising relatively little tax revenue. The removal of AR may, however, prompt the sale of farming land as housing developments increase, especially if it’s not being actively farmed.
Another property tax potentially subject to change is residential property developer tax (RPDT). Given ongoing public concern around the removal of unsafe cladding, the government might consider increasing the rate from 4% to grow the funding available for removal and remediation works.
The government’s proposed stamp duty land tax (SDLT) non-resident surcharge increase is also likely to be addressed in the Budget. This move could deter non-resident investors from purchasing additional properties, especially in the buy-to-let market. But this could make it easier for first-time buyers to get on the housing ladder, reducing the number of households relying on government support.
Kelly Boorman, head of construction
The Green Economy
An alternative to fuel duty
Fuel duty could be on the increase to help fill the fiscal black hole in the short term, but what is needed is an alternative longer-term solution to maintain the current tax take while we transition to electric vehicles and the revenue from fuel duty naturally decreases.
Other countries, like New Zealand, have implemented a road user charge for diesel vehicles that is a fixed fee per kilometre travelled. This would not only generate tax revenue but also shape behaviour to encourage an earlier move towards electric vehicles given the punitive taxing of high emission vehicles. However, the government has already ruled out introducing pay-per-mile road pricing.
Electric vehicles (EVs) currently attract no duty, aside from the 5% VAT on electricity for domestic charging points (which is much less than the 20% VAT charged on top of fuel duty - albeit that EV charging points themselves attract a 20% rate of VAT). So, would the Chancellor consider scrapping the reduced VAT rate of 5% on electricity for domestic charging points, bringing all EV points in line with the 20% VAT rate?
Alternatively, would the government consider bringing forward the removal of the current road tax exemptions for zero-emission vehicles to boost revenues? This would be in line with the recent changes introduced to London’s Congestion Charge, removing the 100% discount currently received by drivers of electric vans. However, such measures on EVs would likely have a detrimental impact on the UK’s carbon emissions and net zero targets.
A renewables ISA
To support the government’s commitment to make Britain a clean energy superpower and double onshore wind, triple solar power and quadruple offshore wind by 2030, we could see a renewables ISA announced. This would provide additional funding for the development of new low and zero carbon energy sources and would also provide investors with a tax incentive to help the government deliver on its clean energy mission. A renewables ISA could give investors an extra allowance to encourage more investment in the UK’s green economy, particularly in solar and wind projects.
This boost in green investment could allow GB Energy to pivot its strategy to invest in key infrastructure, such as improving the connection to the national grid, and tackling ongoing planning issues, both of which are cited as major obstacles to progress. Lifting blockers while increasing investment into key renewables schemes will accelerate progress and stimulate further growth.
Tax stimulus for the green economy
The Chancellor may consider offering a super-deduction on the purchase of new wind and solar assets, to incentivise investment and help the government to deliver on its clean energy mission statement. The legislation from the previous regime, which provided a year-one 130% capital allowance for new capital investment in all industries but ended in April 2023, could be tweaked to apply only to certain green qualifying assets. This could allow investors in qualifying assets to benefit from a reduction in their tax bill for every £1 spent.
A technical change, reclassifying solar panels from the special rate pool to the main pool of capital allowances, enabling them to benefit from full expensing, would unlock benefits for investors and stimulate growth in the sector, helping to meet the government’s stated objective of tripling solar production by 2030.
Treating solar panels as main pool assets would be a timing point and not an absolute cost for the Treasury. However, the cashflow differential and the impact on project economics could be substantial for investors.
In addition, given that grid connections can take up to a decade, extending the pre-trading expenditure tax relief time limit from seven years would encourage investment in renewables projects by reducing the risk that tax relief for expenditure incurred in early years would be lost.
Sheena McGuinness, head of renewables and cleantech
Making work pay comes with a cost for employers
Wage costs set to rise
At the heart of the government’s Make Work Pay plan is delivering a ‘genuine living wage’, so we expect to see an uplift in the National Minimum Wage (NMW). The government previously confirmed it would benchmark NMW rates against the cost of living and introduce one rate for all working adults. That meant that a rate of £13 per hour could have been on the table for all working adults.
However, those proposals have since been watered down. The cost of living will now be a factor to consider, with an absolute floor of two thirds of median earnings, whilst a tapered approach to introducing one rate of NMW will be taken.
We now expect a 6% increase for 21 year-olds to around £12.12 (from £11.44) and an 11.6% hike for 18-20 year olds to £9.60 (from £8.60) – gradually moving closer to that longer-term aim of one rate of NMW.
Sick pay to become a day-one right
We are also likely to see an increase in sick pay costs with the government having confirmed its intention to make statutory sick pay a right applying from the first day of employment. There have also been calls to increase the amount which is payable; however, that would create an even greater cost burden on employers and needs to be weighed against the problem of too many workers being economically inactive.
Employers could be hit with NICs increase
Whilst the government confirmed it would not raise taxes for workers, it is becoming increasingly likely that an increase in employers’ NICs is on the cards. Increasing the rate of employers’ NICs could be a big revenue raiser with HMRC estimating a 1% uplift could generate as much as £8.5bn in additional tax revenue.
However, with NMW rate rises also set to be announced, these measures must be balanced against the productivity puzzle facing the government. If the cost of labour rises too much, business confidence to invest in the UK may drop, particularly given the uncertainty of the impact of new workers’ rights being introduced in the Employment Rights Bill.
