In just a few hours, Rachel Reeves is poised to deliver the first Labour Budget in close to 15 years. The new Chancellor has pledged that her inaugural Budget will bring more “pounds in pockets” and vows that the upcoming financial plan will be centred on “rebuilding Britain”.
Keir Starmer, underscored the significance of this moment for the new government to present its financial roadmap on taxes and spending, describing the forthcoming week as a “landmark” phase for the country. Ms Reeves has signalled potential tax hikes as part of an effort to bridge the £22billion ‘blackhole’ alleged to have been left by the previous Conservative government.
However, she is simultaneously committing to revitalising public services, with a particular focus on bolstering the NHS and spending billions of pounds aimed at reducing the backlog of waiting lists. Mr Starmer insists on avoiding “short cuts” when it comes to national restoration post-14 years of Conservative administration, yet remains optimistic, assuring that “better days are ahead”.
Speaking earlier this week, the Prime Minister said: “We are turning the page on Tory decline, closing the book on their austerity and chaos. Those days are done, they are behind us, change is here.”
Some details of what will be announced have already emerged while more is set for today when the Budget is finally announced. This is all we know about what is to come so far, according to the Mirror.
Minimum wage
The national minimum wage is set for a significant increase of 6.7% come April 2025, which will see the hourly rate for those over 21 jump from £11.44 to £12.21 equating to an annual increase of around £1,400 for full-time workers. Deputy PM Angela Rayner welcomed the move, saying: “A proper day’s work deserves a proper day’s pay.”
Younger workers under 21 are also in line for a substantial pay rise, with their minimum wage going up from £8.60 to £10.00 per hour marking the most considerable increase to date. The Treasury has highlighted that these changes will benefit approximately 3.5 million workers and represent the “first step” towards establishing a single adult wage rate.
Labour’s manifesto, which led them to victory, pledged to make the minimum wage a “genuine living wage”. It also aimed to abolish the “discriminatory age band”.
NHS funding
In terms of NHS funding, the government is preparing to allocate billions to the health service, targeting the reduction of waiting lists. With the Chancellor focusing on addressing the issues plaguing the NHS, Treasury officials have cautioned that without additional investment, the service could encounter a £9 billion shortfall.
While the precise amount of funding will be disclosed during the Budget announcement on Wednesday, there has already been a commitment of £1.5 billion for new surgical hubs and scanners to increase NHS capacity. Furthermore, an extra £70 million is earmarked for the acquisition of new radiotherapy machines.
Ahead of the Budget, Ms Reeves said: “Our NHS is the lifeblood of Britain. It exemplifies public services at their best, there for us when we need it and free at the point of use, for everyone in this country. That’s why I am putting an end to the neglect and underinvestment it has seen for over a decade now.” Billions of pounds will be set aside for the NHS in an attempt to slash waiting lists – a key priority for the new Labour government.
Bus fare cap raised – but money for services
The cap on bus fares is set to increase, but additional funding for services is also on the cards. Keir Starmer confirmed earlier this week that the £2 bus fare cap across England will rise to £3. He addressed this issue during an interview with The Mirror, following concerns that the measure – which saves some passengers over £10 per trip – could be scrapped altogether. The Lib Dems have labelled the increase as a “bus tax”.
The Department for Transport (DfT) announced that the cap – which was due to expire in December – is being funded by £151million from the Government until the end of next year. An extra £925million will also be pledged to enhance bus services across the country during the 2025/26 financial year.
This means that the total funding to be announced on Wednesday will exceed £1billion. Local authorities will have the opportunity to utilise the additional funds to introduce new bus routes, increase service frequency and safeguard vital services for local communities.
Significant adjustment to borrowing rules
The Chancellor is set to revise the borrowing rules established by her Conservative predecessors, aiming to channel billions into significant infrastructure endeavours, including the development of schools, hospitals, and railways. During a speech in Washington DC last week, she emphasised the necessity of this shift to avoid the UK’s continued “path of decline”.
She remarked: “I don’t want that path for Britain when there are so many opportunities in industries from life sciences to carbon capture, storage and clean energy to AI and technology, as well as the need to repair our crumbling schools and hospitals.” This pivotal adjustment in fiscal policy, potentially unlocking about £50 billion, is specifically earmarked for capital expenditure and not for recurrent operational costs like public sector salaries.
VAT, National Insurance and Income Tax
On the topic of taxes affecting ‘working people’ Keir Starmer, during the campaign period, pledged not to raise taxes on “working people”. The manifesto promised: “We will not increase National Insurance, the basic, higher or additional rates of Income Tax, or VAT”.
It’s unlikely that any of these tax rates will see alterations come the Budget announcement on Wednesday. However, the Chancellor is contemplating prolonging the halt on income tax threshold increases – a strategy initially implemented by the Tories – which might ensnare more individuals in higher tax brackets.
Normally, thresholds would adjust according to inflation, but Rishi Sunak instituted a standstill in 2021 to recuperate funds post-Covid crisis. Consequently, this has resulted in more taxpayers being subject to income tax, with those on higher incomes potentially advancing into a different tax band.
£240million fund to get people back to work
The Prime Minister has signalled a major boost for employment, confirming that a £240million fund will be channelled into local services designed to help people return to work. Detailing the initiative in a speech on Monday, Mr Starter remarked: “As a Labour government we will always help those who cannot support themselves, but the UK is the only G7 country where economic inactivity is still higher than it was before Covid.
“He further highlighted the economic and societal benefits of the scheme, adding, “That is not just bad for our economy, it’s also bad for all those who are locked out of opportunity. So the Chancellor will announce £240 million in funding to provide local services that can help people back into work, and the dignity it brings.”
VAT on private school fees
In a significant policy change anticipated to bolster education funding, the Government is gearing up to close the 20% VAT exemption loophole long enjoyed by private schools a move aligned with Labour’s pre-election promises.The imposition of VAT on school fees is projected to generate around £1.5billion, according to estimates from the influential Institute for Fiscal Studies (IFS).
This money could pay for an additional 6,500 teachers, urgently needed in state schools across England. However, there are warnings from sceptics cautioning that the additional costs may lead to a withdrawal by affected parents. Rachel Reeves is set to announce exemptions for military families amidst these developments.
End to non-dom status
Another pressing issue addressed is the end of the non-dom tax status, which has been a subject of controversy for some time. The revelation that former Prime Minister Rishi Sunak’s wife, Akshata Murty, used non-dom status sparked widespread controversy. Non-doms are only taxed on UK earnings, exempting their foreign income, a loophole the Government has pledged to close. Labour’s manifesto aims to redirect these funds to secure 40,000 additional NHS appointments each week.
What else could be in the Budget?
Looking ahead to the Budget, what can we expect? There are rumours about a whole range of areas from taxing business and inheritance to changes to the Winter Fuel Allowance and the two-child policy. Here are some of the most likely.
Tax rises for businesses
Businesses might face tax hikes. Hints from both the Prime Minister and the Chancellor suggest a potential increase in national insurance for employers during the upcoming Budget.
There’s talk of possibly raising the current 13.8% rate by one or two percentage points. A 1p increase could generate about £8.5 billion for the Treasury.
Both the PM and Chancellor have not clarified whether their commitment to avoid tax increases for “working people” includes employers’ national insurance contributions (NICs). These contributions, which are separate from employee salaries, are not levied on other forms of income like savings, pensions, or property. At one point, it was rumoured that Ms Reeves considered taxing employers’ pension contributions, but she reportedly abandoned this idea following concerns over potential impacts on pensions.
Capital gains tax
Capital gains tax is also on the table. Rumours of a potential rise in capital gains tax (CGT) have been in the air since the last election day.
CGT is levied on profits from selling assets that have appreciated in value, affecting second homes or shares outside of ISAs, though primary residences are exempt if you’ve consistently lived in them. While visiting Samoa, Sir Keir Starmer hinted at possible tax increases for individuals profiting from real estate and shares, arguing they “wouldn’t come within my definition” of working people.
It has been suggested the current 20% CGT rate could see a hike when it comes to the disposal of investments like shares however it won’t extend to second properties.
Inheritance tax
Many have been speculating that the Chancellor is looking at changing the rates of inheritance tax. She is said to be thinking about increasing the 40% rate of inheritance tax, as well as limiting some of the tax relief or exemptions on some inherited assets.
Inheritance tax affects people who have an estate worth £325,000 and is charged at 40%. However this starting point rises to £500,000 if a home is given to a child or a grandchild. The gives a couple a combined tax-free property limit of £1million when they die. According to Government figures, just 3.7% of all deaths in 2020-21 resulted in an inheritance tax charge.
Stamp duty
Home buyers could be paying more in stamp duty as it is expected to increase next year. Buyers pay a Stamp Duty tax when they buy houses, flats and other land and buildings over a certain price in the UK. At present no tax is paid if the property being purchased is worth less than £250,000, or £425,000 for first-time buyers.
It has been speculated these thresholds would go down to £125,000 and £300,000. This was set to happen in March 2025 already but the Chancellor expected to confirm this at the Budget. The government is also expected to keep its manifesto pledge to increase stamp duty for non-UK residents, from 2% to 3%.
Fuel duty
There is speculation that Ms Reeves will end a 13-year freeze on fuel duty. On Monday, at his pre-Budget speech the Prime Minister avoided committing to keep fuel duty frozen.
The Chancellor is also understood to be considering ending the temporary 5p cut in fuel duty next year, which was introduced following Russia’s invasion of Ukraine. The RAC, which would usually be against a rise in fuel duty, has admitted that drivers have not felt the benefit of the cut as sellers have not passed on lower prices to them, instead focusing on boosting their own profits.
Vape tax
The Chancellor is said to be looking at changing plans to bring in vape taxes that vary depending on the product’s nicotine strengths. She is said to be considering imposing the same rate of tax across all nicotine strengths – as well as increasing it.
The Conservatives introduced an “excise duty” on vaping products, which is set to take effect October 2026. The price rise depends on how much nicotine is in the e-liquid, with a 10ml bottle of nicotine-free e-liquid to go up by £1 compared to a bottle with 11mg or more of nicotine to increase by £3.
Anti-smoking campaigners have warned the tiered system may put off smokers who need high strength nicotine products to help them quit.
What’s not expected to be in the Budget?
But to two-child benefit limit
It is not expected that the controversial two-child benefit limit will be scrapped. This limit, introduced by George Osborne, stops people from claiming Child Tax Credits or Universal Credit for more than two children.
However it has been blamed for trapping kids in poverty. Despite repeated pleas from Labour MPs and charities, the government has claimed it cannot afford to scrap the policy. Instead, ministers are expected to review it as part of a child poverty strategy being published in spring 2025.
Winter fuel payment U-turn
In July Ms Reeves announced that winter fuel payments – which are worth up to £300 – will be means tested from this year and only paid to people on certain benefits such as Pension Credit. However despite it being controversial the planned change is unlikely to be scrapped.
This means about 10 million pensioners miss out in order to save the Treasury an estimated £1.4billion in the next financial year. Ms Reeves and Mr Starmer have said it is a “tough choice” they didn’t want to make. However it is unlikely it will see a U-turn.