Context

The Chancellor of the Exchequer, Rachel Reeves, laid out the Labour Government’s first budget. Reeves, the first female Chancellor, faced a daunting task having revealed over the summer that the economy had a £22 billion “black hole” in the public finances inherited from the previous government.

The Government had promised to make the tax system fairer, deliver economic stability with tough spending rules, and to promote the growth of the UK economy through investment. The Chancellor assured voters that there would be no return to austerity but given the challenges facing public services hard decisions had to be made.

The Prime Minister Keir Starmer was no more upbeat than his Chancellor warning that that tax rises were on the way to “prevent austerity and rebuild public services” and he said that the budget would “get Britain working.”

What was in the Autumn Budget?

The Chancellor announced £40bn of tax rises on businesses and the better off as she and the Government sought to lay the foundations for enhanced public services. There was a sweeping package of tax increases revealed that Reeves claimed would be vital to balance the books and turn the page on austerity.

“The only way to improve living standards, and the only way to drive economic growth is to invest, invest, invest,” Reeves said.

Most controversially for many in business, the budget contained an increase in National Insurance contributions to be paid by employers that will be worth £25bn by the end of this parliament and billions of pounds in increases from changes to capital gains tax, inheritance tax and VAT on private schools.

What was in it for Northern Ireland?

The headline announcements in relation to Northern Ireland related to the future of the City and Growth deals for the Causeway Coast and the Mid-South West regions. Funding for the two deals were "paused" during a pre-budget spending review but Reeves today confirmed that there will be funding for both projects.

This will help to create a NI Agri-food Robotics Centre at CAFRE Loughry campus, focused on education of higher education students and technology transfer of robotic automation and enabling technologies to the agri-food sector. A £22m centre for food and drug discovery (CFDD) in the Causeway Coast and Glens Borough Council area with Ulster University will also be funded.

A rise in central government spending will also see the Northern Ireland Executive benefit easing some pressure on local Ministers. The Chancellor announced an extra £1.5bn funding in 2025/2026, £1.2bn for day-to-day spending and £270m for infrastructure investment.

The government is also providing £730,000 to support schools as they work towards integrated status, a further £45.8 million for the PSNI’s Additional Security Fund and the Executive Programme on Paramilitarism and Organised Crime.

Reaction has been coming from political and business quarters in Northern Ireland.  While confirmation of funding for the City Deals has been welcomed there has been criticism of the burden that will be faced by small businesses as the result of the Employers’ National Insurance rise and the National Minimum Wage.

Measures

Taxes and Benefits

·        Reeves announced that a freeze on inheritance tax thresholds until 2028 will be extended for another two years to 2030.

·        The Chancellor confirmed there would be no increase to National Insurance, VAT or income tax for individuals.

·        She announced that the Government will not extend the freeze on income tax and National Insurance thresholds beyond 2027/28.

·        The lower rate of Capital Gains Tax will rise from 10% to 18%, and the higher rate will go up from 20% to 24%.

National Insurance

·        National Insurance contributions by employers will rise from 13.8% to 15% from April 2025, with the threshold lowered from £9,100 to £5,000 raising £25bn a year, a controversial move with business.

·        Employers allowance will increase from £5,000 to £10,000.

Minimum Wage

·        National minimum wage has increased by 6.7%, rising to £12.21 an hour.

·        The rate for those aged 18 to 20 years old will rise by 16.3% taking it to £10 an hour.

Housing

·        £5bn has been pledged for affordable housing

·        There will be a stamp duty hike for second-home buyers and landlords. The additional rate of stamp duty will rise from 3% to 5% from tomorrow.

Pension

·        State pension will rise to £470.

Energy

·        The windfall tax on oil and gas profits will increase to 38%, and will now expire in March 2030.

·        Funding will be provided to 11 new green hydrogen projects across England, Scotland and Wales.

Health

·        A £22.6bn increase in the day-to-day health budget and a £3.1bn increase in the capital budget over this year and next were announced with NI getting the Barnett equivalent.

·        A 10-year plan for the NHS will be published in the spring for England and Wales.

Hospitality

·        “A penny off a pint in the pub”, - draught duty on alcoholic drinks will fall by 1.7%.

·        In England and Wales, business rates for the hospitality, retail and leisure industry will receive a 40% relief in 2025/26, up to a cap of £110,000 per business. This is a drop from 75% relief.

Schools

·        From 1st January 2025, VAT will apply to all education, training and boarding services provided by private schools.

·        Reeves promises an additional £6.7bn to the Department for Education for next year – a 19% real-terms increase on this year. This will include over £1.4bn to rebuild 500 schools.

Air Passenger duty

·        An increase for £2 on an economy short haul flight.   

·        Air passenger duty for Private Jets will increase by 50%.

Fuel Duty

·        Freeze in fuel duty will continue.

Non-Dom Status

·        The Government is to remove the domicile status from the UK tax system from 6th April 2025 and to create a simpler residence-based regime.

Vaping

·        From 1st October 2026, the government will introduce a vaping duty for first time at £2.20 per 10ml of liquid.

·        There will be a one-off tobacco duty rise to keep the incentive to choose refillable vaping over smoking.