This article was written by Dheer Chawla a student at the University of Warwick. This article is part of his column 'Behind the Headlines'.
The UK's latest budget, presented by Rachel Reeves, the country’s first-ever female Chancellor of the Exchequer, marks a turning point in the nation’s economic policy while setting ambitious targets for national revitalization. In her opening address, Reeves spoke of a “decade of national renewal” under the Labour government, promising to uplift living standards through significant public investment, higher wages, and improved public services. The budget brings substantial tax reforms, targeted spending, and sectoral adjustments aimed at reversing an apparent economic slowdown and addressing issues like social inequality. However, it also raises critical questions about long-term sustainability, potential economic impacts, and the underlying political strategy. Is this a bold plan for prosperity—or simply an overreach that risks leaving the UK with more debt?
Economic Stability Through Investment
The centrepiece of Reeves’s budget philosophy, as stated, is to “invest, invest, invest.” This appears to be an approach aimed at reversing nearly 14 years of stagnation under Conservative leadership. By raising taxes by £40 billion, the budget seeks to fund essential public services, reinvigorate the NHS, and address the needs of the UK’s ageing infrastructure. Reeves’s call for restoring stability signals an intention to steer the country toward fiscal responsibility while making bold investments in public sectors. The challenge lies in whether the government can deliver tangible improvements swiftly enough to satisfy public expectations in the UK’s volatile economic climate.
National Insurance and Employment: A Balancing Act
A key component of Reeves’s fiscal strategy is the decision to raise employers’ national insurance contributions by 1.2 percentage points, from 13.8% to 15%, and reduce the threshold for secondary contributions from £9,100 to £5,000. This measure, projected to generate £25 billion annually, is the largest single tax-raising policy in the budget. Although necessary to boost the funding for public services, it risks being perceived as a “tax on jobs.” This increase could hinder small and medium-sized businesses, potentially impacting job creation. Is this the right time to add costs for businesses already battling inflation and supply chain issues? Yet, Reeves has countered this claim by enhancing the Employment Allowance, thereby reducing the burden on smaller employers.
The Tax Landscape: Income Tax, Capital Gains, and Inheritance
In a move supposedly directed at preserving the disposable income of working households, income tax thresholds will rise with inflation starting in 2028–29, averting an otherwise automatic increase in tax burdens. While income tax remains untouched for the immediate future, capital gains and inheritance tax reforms feature prominently in the budget. The increase in capital gains tax from 10% to 18% (lower rate) and from 20% to 24% (higher rate) does somewhat seem to align with the government’s commitment to fairer wealth distribution without imposing overly restrictive tax rates.
The decision to freeze the inheritance tax threshold at £325,000 until 2030 is accompanied by reforming reliefs for business and agricultural assets. These changes may, however, spark debate about the balance between fair wealth distribution and family legacy protection. Still, the anticipated revenue increase from these adjustments remains modest, and critics may question whether it is sufficient to address the broader fiscal challenges.
Minimum Wage and Sectoral Adjustments
The budget includes a 6.7% increase in the national living wage, raising it to £12.21 for over-21s and benefiting many low-income households. While this policy is widely regarded as a populist measure, businesses may voice concerns over its impact on operating costs, especially those in labour-intensive industries. With two sides to every coin, the question arises: Will higher wages spur spending, or simply add pressure on businesses to cut jobs? Yet, Reeves appears to have weighed these risks against the immediate benefit of improved living standards, a step she argues is necessary for economic growth. Additional measures, including tax on vapes and tobacco, do have some reflection of a blend of fiscal pragmatism and public health awareness.
Education and NHS Investment: Responding to Long-Standing Issues
The budget allocates an additional £6.7 billion to the Department for Education, including significant capital investment for school rebuilds, special educational needs, and higher education. This represents a real-term increase of 19%, demonstrating the government’s claimed commitment to rejuvenating an education system that has long suffered from underinvestment. Furthermore, the NHS will receive an unprecedented £22.6 billion in day-to-day funding, alongside a £3.1 billion increase in capital funds for infrastructure improvements. Reeves’s long-term NHS strategy, set for release in spring, will likely prove crucial to determining whether this injection can truly alleviate chronic backlogs and service delays.
Housing and Infrastructure: Building for the Future
Reeves' affordable housing pledge, to be achieved with a £5 billion investment, and the ambitious target of 1.5 million new homes prove that Labour is serious about trying to handle the continuing housing crisis. The transport strategy under the budget contains the Transpennine Route Upgrade, improvements in northern rail links, and HS2 tunnelling into London Euston. This type of investment underscores the ruling party's promise to "level up" the country with better connectivity and reduced regional inequalities.
Green Energy, Industry and Public Investment Rules
The budget introduces the Great British Energy Initiative and sets aside £3.4 billion for the Warm Homes Plan to be invested in energy efficiency and environmental sustainability. Reeves' proposal for more public investment, pinning this to a new rule measuring debt as a share of the economy, is that of moving to growth-based fiscal responsibility. Part of the sectors highlighted for investment are aerospace and life sciences, reflecting a supposed intent to foster high-growth industries and drive green-tech innovation.
Political Underpinnings and Economic Trajectory
Reeves' placing of Labour as the party to "rebuild Britain" seeks to unify the electorate around a progressive economic agenda. The political stakes, however, are high, and it will most likely have to be the success of Reeves' ambitious program that will shape Labour's credibility in future elections.
Will Reeves's budget succeed in kick-starting a transformative era for the UK economy? Labour has struck a good deal by focusing on its priorities: immediate economic relief combined with strategic long-term investment. However, it still remains to be seen how this vision will translate into reformed realities on the ground. The resolution and strategy of Labour will be certainly tested by political opposition, economic volatility, and challenges in the months ahead.
The views and opinions expressed in this article belong solely to the writer and do not necessarily reflect the views and opinions of the Warwick Economics Summit.
References
"Budget 2024: Key Points at a Glance." The Guardian, 30 Oct. 2024, theguardian.com/uk-news/2024/oct/30/budget-2024-key-points-at-a-glance.
Gilchrist, Jenni R. "UK's Labour Government Raises Taxes by £40 Billion in New Budget Plan." CNBC, www.cnbc.com/2024/10/30/uk-budget-labour-rachel-reeves-october-2024.html.
"Just a Moment..." Just a Moment.., www.herbertsmithfreehills.com/insights/2024-10/uk-labour-autumn-budget-2024.
"Reuters.com." Reuters.com, www.reuters.com/world/uk/key-measures-uk-labour-partys-first-budget-nearly-15-years-2024-10-30/.
Seddon, Paul. "UK Budget 2024 Summary in Nine Key Points from Rachel Reeves Speech." BBC News Pidgin, 31 Oct. 2024, www.bbc.com/pidgin/articles/cz0ml5prdgmo.
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