A bumper Budget for tax and public spending

So, we started with a £22bn black hole in July and this seems to have grown steadily since then, through ‘discovered’ overspends in Westminster, public sector pay settlements, and a need to invest, invest, invest.

Today it seems we settled on around £41bn of tax rises needed to cover the spending pledges of an emboldened Government with a huge majority – largely above and beyond manifesto commitments. Included within this figure were confirmed compensation amounts for those affected by both the infected blood scandal and the Post Office Horizon scandal – a total of £13.6bn.

More borrowing needed – YES. Tax rises needed – YES. We knew both these things heading into today. After 3 months of near silence from the Treasury, the last fortnight saw us revert to type, with leaks and briefings aplenty. This led to a rebuke from the Deputy Speaker at the start of the Chancellor’s speech, who stated that the level of ministerial briefings was plainly wrong. As such, the slightly delayed main event of Rachel Reeves’s speech was mostly about the sheer size of the numbers.

No surprises that the Chancellor altered the fiscal rules – it’s been done many times before – and that gave the headroom for an estimated £70bn more investment into the public sector, UK infrastructure and the like, although a large slug seems to go towards day-to-day spending plans, not just capital spending. More jobs and a hoped-for boost to the economy will surely have to follow to make these sensible steps as part of the planned for “decade of renewal”.

Sadly, no humourous interludes to report on this year. However, of particular note:

• NHS – over £25bn of extra commitments from next year, to help a transition from hospital-based to community-based healthcare.
• Defence - £2.9bn extra from next year, maintaining the 2.5% of GDP commitment required by NATO
• Education – around £6.7bn extra to support increased day-to-day spending in support of the expected shift back to state education, as well money for school rebuilding and maintenance, and a boost to Special Education Needs provision.
• More money for the UK regions; £3.4bn extra for Scotland in 2025/26, £1.7bn for Wales, £1.5bn for Northern Ireland.
• More broadly, government departments will get around 1.5% extra in real terms from next year, but public services will be required to move towards a “zero-waste approach”.
• Minimum wage going up by around 16% for under 21s, and 6.7% for over-21s, with an intention to harmonise the rates for all ages in coming years.
• State Pension triple lock maintained – an increase of 4.1% in April.

Of more immediate interest to our clients and investors are the wider fiscal impacts around personal and business taxation. With a pre-election promise to maintain the status-quo on income tax rates, VAT and personal National Insurance, (all reiterated today), one could assume there was a limited pool of options; seemingly not!

Today we were informed of, in no particular order:

• Employer National Insurance contributions (ER NIC) increased by 1.2% to 15% from net year. Added to this a reduction in the threshold for ER NICs to £5,000 p.a.. Overall raising £25bn p.a., although smaller businesses were given some support with increased employment allowances. Business owners will have a lot to say on this, now that it’s confirmed; arguably a tax on working people, depending upon your definition.
• Capital Gains Tax (CGT) – increase in lower rate from 10% to 18%, and in the higher rate from 20% to 24% - less than some had forecast. Property CGT rates are unchanged. Unchanged Business Asset Disposal Relief at £1m, with only slight increases in rates beyond that figure – up to 14% from 2025/26 and 18% thereafter. No changes to the rebasing of assets upon death.
• Carried interest CGT rates will increase to 32% in April, with a revamp of the concept of carried interest to be introduced from 2026.
• Inheritance Tax (IHT) – allowances now frozen up to 2030 and the Main Residence Nil Rate Band is maintained too. Of more note is those assets now being drawn into the net.
  • From April 2026, there will be a £1m limit on Business Property Relief and Agricultural Property Relief for those owning assets currently firmly excluded from IHT (including AIM shares). Beyond that figure, a 20% rate of IHT will apply from 2026.
  • Inherited pensions are also drawn into scope for IHT from 2027, leaving many families needing to review their planning. Since pension simplification, the current treatment of pensions has been a cornerstone of succession planning for a great many families. We will need to see how this works in practice, as the intention is for this to apply to both personal and money purchase pensions, as well employer and defined benefit (final salary) scheme. We may well see changes here before implementation; the delay in introduction will be needed to understand and consult on how this can be made to work in practice. One issue to overcome will be how to avoid double taxation on those dying after age 75, where pension benefits are already taxed in the hands of the beneficiaries.
• Pensions – no changes to pension tax relief, no changes to pension lump sums, and no reintroduction of the Lifetime Allowance. However, with pension IHT now on the radar, this last point is rather moot.
• Income tax thresholds remain frozen until 2028, but this freeze was not extended. Taxpayers in Scotland will now await the Scottish Budget in a few weeks to see what changes to their rates and bands may be announced.
• Fuel Duty – remains unchanged for another 12 months.
• Alcohol Duty – up by inflation, except on draught products, where it’s down by around 1p per pint. Good news for pubs?
• Air passenger duty up by 50%, with an extra differential added for ‘private jets’.
• Resident non-domicile regime will be abolished, and the concept of domicile itself will leave the statute books from next year, to be replaced by a broader residence-based scheme; estimated to generate £12bn over the next 5 years.
• Stamp Duty Additional Dwelling Supplement (not in Scotland) increases to 5% immediately.
• Oil and Gas company windfall levy is increased to 38% up to 2030
• Alongside the pre-announced VAT addition to private school fees from January, a change in their status will mean that the schools will lose their business rates relief from April.
• An ongoing rates relief regime will exist for hospitality and leisure industries, however we will see higher multiples introduced for ‘prime’ properties from 2026.

Overall, the numbers were huge across the board in terms of tax increases and public spending (cue headlines tomorrow of Bumper Budget or similar), and most of the public and business owners will feel some immediate pain somewhere in their finances. Longer-term gain will have to wait, perhaps. Initial Office for Budget Responsibility indications suggest that inflation may be slightly higher, and short-term growth slightly lower than the last government was predicting. However, markets and interest rates seem largely unmoved. This was, I understand, a key measure for the Treasury to hit on the heels of the speech.

Clearly what cannot wait is my usual call to arms for anyone with pensions, investments, property or other assets to take stock and sit down with your professional advisers as soon as possible. There remain significant planning measures and opportunities available for those who do so.

Please follow us for more news and views as fuller analysis follows over coming weeks. However, please pick up the phone today and speak to your adviser.