Fortified with mineral water, having forgone the permitted alcoholic drink, Rachel Reeves, Britain’s first-ever female Chancellor of the Exchequer, began delivering her maiden Financial Statement -the first Labour Budget in fourteen years- at 12: 30 PM on 30 October 2024. Ms. Reeves addressed a standing-room-only House of Commons, chaired by the Deputy Speaker as is customary on these occasions, for a full 77 minutes. The contents of her “difficult” Budget mostly did not surprise informed observers, as accurate speculation and a series of leaks over the preceding weeks had already provided an inkling of what was to come. These contrived leaks to the public have since been condemned by both the Deputy Speaker and the chair of the Treasury Select Committee. Nevertheless, on the day, Ms. Reeves’ measures were greeted with repeated cheers by her ebullient fellow MPs on the government benches.
Just 118 days into the job, honouring a manifesto pledge not to increase the headline rates of income tax, National Insurance contributions (NICs), and VAT for “working people”, the Chancellor claimed to have made “difficult choices” in an attempt to plug an alleged £22 billion black-hole in Britain’s public finances, in the face of seriously depleted Treasury reserves, while promising there would be no “return to austerity.” She had also changed her fiscal rules to justify increased government borrowing, by redefining national debt as public sector net financial liability, guided by the premise that public investment can be relied upon to deliver positive returns for the taxpayer.
The seven pillars of the Chancellor’s growth strategy include restoring economic stability, increasing investment and building new infrastructure, delivering ‘local growth plans’ across the UK, improving employment prospects and skills, a long-term industrial strategy, driving innovation, and advancing clean energy. She seeks to rebuild Britain in keeping with a precedent set by the Labour governments of 1945, 1964, and 1997. Ms. Reeves described the parlous state of the public finances, as she has on many occasions before, and referred to the disastrous impacts of austerity, Brexit, and the mini-Budget of 2022 on the economy. In support of her position, at various times she referred to troubled public services, in the form of long NHS waiting lists, crumbling schools, and un-investigated crime, as well as polluted rivers, potholed roads, unreliable trains, and other tangible manifestations of a failing Britain.
Labour’s tax-and-spend plans require a £40 billion increase in tax revenues-the biggest tax-raising fiscal event since 1993. Normally, the biggest revenue earners are income tax, VAT, and NICs from employees and employers, which will mostly not contribute to this tax bonanza. The required revenue will be generated instead by increases in Capital Gains Tax, NICs from employers, Air Passenger Duty, stamp duty land-tax on second homes and buy-to-let properties, business rates, ‘sin taxes’ (tobacco duty; alcohol duty, apart from draught beer; vaping liquid), an Energy Profits Levy, and VAT on private school fees. The takings from inheritance tax will rise, as the £325,000 threshold remains frozen, and inherited pensions and agricultural and business assets are taxed. The continued freeze on income tax thresholds until 2028 will pull people some into higher tax bands as their wages rise with inflation, by the process of fiscal drag. The non-domicile tax regime has been abolished, making overseas income taxable for non-citizens resident in Britain. On the other hand, fuel duty has been frozen and discounted, and the price of draught beer reduced by a token 1p in the pint, just as Scotch whisky producers feel hard done by. Businesses may feel threatened by increases in the national minimum wage and NICs, and by new employment rights legislation. These changes could lead to compensatory cuts in wages, numbers of employees, and staff benefits.
Ms Reeves believes in long-term growth, in place of what she describes as the short-termism of preceding governments. She seeks to put “more money in pockets,” by increasing the national minimum wage, and to protect workers’ rights, but at the expense of somewhat reluctant employers. The beneficiaries of Labour’s increased tax revenues include the NHS, schools, local government, green energy, rail transport, homebuilding, broadband connectivity, among others. Retention of the state pension triple-lock will offset the loss of winter fuel payment support, thereby benefiting pensioners. On a positive note, “full compensation” has been promised to the victims of the Infected Blood and Post Office Horizon scandals.
While increased funding for all government departments will be contingent on 2 per cent productivity, efficiency, and savings targets, critics of Ms. Reeves’ Budget are concerned that money will be poured into services without any reasonable plans for improved efficiency. When it comes to another area of high government spending, the Chancellor is , however, of the belief that sustainable welfare spending demands health and disability benefits reform and a crackdown on fraud.
Ordinary citizens need to understand how Budgets directly affect their wages, benefits, pensions, savings, investments, the costs of goods and services which they rely upon, and the state of their public services. It may take some time for individuals and households to fully comprehend the implications of the 2024 Budget in relation to their personal circumstances and their own mini-budgets. The latest Budget promises much, but as we have come to learn the hard way, many of its promises must be backed up with the wherewithal to drive implementation, in the form of a suitably skilled workforce, which is currently in short supply within the UK.
Ashis Banerjee