The new Labour Government’s first budget was much as expected with an hour and a half of record tax rises, borrowing, and spending announcements from the Chancellor Rachel Reeves, followed by Rishi Sunak’s last stand as Conservative Leader at the despatch box blasting out (as expected) ‘I told you so’, as the extent of the budget start to sink in.
For ‘working people’, this was actually a pretty nice budget, but employers and business owners won’t be quite as happy this afternoon.
One thing we can probably all agree is a good thing is that the new Labour Government are committed to balancing day to day spending with tax receipts and only borrow for investment. In personal finance terms, it’s like aiming to bring an end to having to put your grocery shopping on your credit card and never paying it off because you don’t earn enough to pay for your shopping from your salary.
The Government aims to gain a 2% productivity, efficiencies and savings target for government departments. There will also be a Covid Corruption Commissioner to try and recover funds spend during the pandemic and reforms to welfare including cracking down on fraud and error.
Wages
The National Living Wage will increase £11.44 to £12.21 per hour from April and for 18 to 20-year-olds from £8.60 to £10.00. 16 to 17-year-olds will see a rise from £6.40 an hour, to £7.55 and the apprentice rate will rise from £6.40 an hour, to £7.55.
Businesses will start to pay pay NI at 15% on salaries above £5,000 from April, up from 13.8% on salaries above £9,100. This is a massive bill of £23.8 billion, take away those who are paid by the government, and businesses will have to pay a touch over £19 billion.
Before you totally cry, bear in mind that the Employment Allowance will increase from £5,000 to £10,500 and the £100,000 threshold is being removed, expanding this to all eligible employers. This means that 865,000 employers will pay no NICs next year (roughly if you have four full time workers there’ll be no employer’s NI to pay).
Chance are that with an increased minimum wage and massively increased NI bill, businesses will think twice before recruiting new staff!
The freeze to income tax and National Insurance contributions thresholds will not be extended and from April 2028, these personal tax thresholds will be uprated in line with inflation. Good news as this really will allow people to keep more of their own money.
Businesses
There will be permanently lower business rates multipliers for retail, hospitality and leisure (RHL) properties from 2026-27. The Budget also provides £1.9 billion of support to small businesses and the high street in 2025-26 by freezing the small business multiplier and providing 40% relief on bills for RHL properties, up to a £110,000 cash cap.
Corporation Tax on taxable profits over £250,000 will be capped at 25% for the next five years.
The lower rate of Capital Gains Tax (CGT) is going up from 10% to 18% and the higher rate from 20% to 24%. CGT rates for Business Asset Disposal Relief and Investors’ Relief will rise gradually to 14% from 6 April 2025 and match the main lower rate of 18% from 6 April 2026.
The Energy Profits Levy on oil and gas producers will rise from 35% to 38%.
Travel
Fuel duty isn’t changing as the Chancellor is extending the temporary 5p cut for one year.
There will be a widening of the differentials in Vehicle Excise Duty First Year Rates between EVs and hybrids or internal combustion engine cars, plus a maintaining of the EV incentives in the Company Car Tax regime and extending 100% First Year Allowances for zero emission cars and EV chargepoints for a further year.
The £2 cap on single bus fares in England will rise to £3 (except areas like London and Manchester which are devolved).
Air Passenger Duty will cost you an additional £2 for a short haul flight.
Personal Finance
Stamp Duty Land Tax on the purchases of second homes, buy-to-let residential properties, and companies purchasing residential property goes up from 3% to 5% from midnight.
Inheritance tax threshold is frozen to 2030, with unspent pension pots also subject to the tax from 2027. Allowance for inheriting the family farm will be reduced.
Private school fees will become subject to VAT and business rates charitable relief in England is to be removed.
Things that are bad for you
Alcohol duty on draught beer will be reduced by 1p a pint from February next year.
From October 2025 a vaping tax will be introduced
Tax on tobacco will jump 2% above inflation (10% for hand-rolling tobacco)
Thresholds for ‘sugar tax’ on drinks to be reviewed.
Stuff for the mega rich
If you’ve got a private jet, higher rates of Air Passenger Duty are going up 50% and more planes will be brought into the higher rates.
Non-dom tax regime to be scrapped and replaced with a new residence-based system
Caring for society
The basic and new State Pension will increase by 4.1% in 2025-26
The maximum earnings threshold for full-time carers will rise from £151 to £195 a week
Spending
There will be a ton of spending on the NHS, transport (including a tunnel taking HS2 to Euston), the housing market, education, rebuilding schools, defence, Great British Energy, and payouts for the infected blood and Post Office Horizon scandals.
