In her latest budget address, UK Chancellor Rachel Reeves has outlined a bold plan to drive sustainable economic growth, restore stability, and make significant structural investments. Her budget proposal emphasizes a return to responsible fiscal practices and introduces key tax adjustments aimed at bolstering government revenues and catalyzing economic advancement. Here’s a breakdown of the main points from Reeves’ budget, including her commitment to investment, stabilization, and strategic tax reforms.

A Commitment to Stability as the Foundation of Growth

Reeves believes that stability is paramount for economic recovery. In a pointed statement, she emphasized that the prior government failed to provide the Office for Budget Responsibility (OBR) with full access to information, leading to a disparity in projections between March and current forecasts. She also clarified that comparisons to earlier budgets are misleading, given that the OBR’s spring budget forecast would have differed substantially had all information been disclosed at that time.

Boosting Investment to Drive Long-Term Economic Growth

Central to Reeves’ economic plan is a long-term strategy that seeks to grow the UK’s GDP by catalyzing investment through a National Wealth Fund. Reeves announced that this fund would inject £70 billion into the UK economy, targeting industries that increase supply capacity and promote sustainable growth. Further, she has committed to £100 billion in capital investment over the next five years, aiming to lift the UK’s GDP by as much as 1.4%.

Her plan also provides for £11.8 billion in funding for victims of the Infected Blood Scandal and an additional £1.8 billion for those impacted by the Post Office scandal, addressing long-standing societal issues alongside economic goals.

Tackling National Insurance and Income Inequality

Reeves’ budget revisits the impact of National Insurance policies, reversing cuts that she views as fiscally irresponsible. She plans to increase employers’ National Insurance contributions by 1.2 percentage points and reduce the threshold for NI contributions to £5,000. This measure alone is expected to raise an additional £25 billion annually by the end of the forecast period. To support small businesses, she is increasing the employment allowance from £5,000 to £10,500, offering relief to the UK’s small business sector.

Strategic Tax Reforms: Capital Gains, Inheritance, and Non-Domicile Tax Measures

Reeves has introduced targeted tax changes to increase government revenue and encourage fairer tax practices. Capital Gains Tax (CGT) is set to increase, with the lower rate moving from 10% to 18%, and the higher rate rising to 24%. She has also pledged to end the non-domiciled taxpayer regime, projecting an additional £12.7 billion in revenue over the next five years. Additionally, Reeves will extend the inheritance tax threshold freeze until 2030, raising over £2 billion.

For retail and hospitality sectors, the budget includes a 40% relief on business rates, helping to ease the burden on these industries during challenging economic times.

Maintaining Corporation Tax at 25% and Targeting Carried Interest

The budget places a cap on corporation tax at 25% for the duration of the current Parliament, giving businesses a stable environment for planning and growth. In April, the rate of capital gains tax on carried interest will rise to 32%, aiming to increase equity and fairness in tax contributions from top earners.

Projections and Outlook: GDP, CPI, and Debt Targets

According to OBR forecasts, the UK’s GDP is expected to grow by 1.1% in 2024 and 2.0% in 2025, with sustained growth anticipated through 2029. Consumer Price Index (CPI) projections have been updated as well, forecasting a 2.5% rate in 2024, with gradual decreases in the years that follow, stabilizing at 2.0% by 2029. Reeves is determined to balance the current budget by 2029–30, ensuring that day-to-day spending is not funded through borrowing.

Defense, Housing, and Public Sector Investments

In a nod to national security, Reeves’ budget allocates an additional £2.9 billion to defense spending. Housing investments exceed £5 billion, while the public sector net financial liabilities target will become the new standard for measuring public debt. With £15.7 billion of headroom under this metric, Reeves is confident in the fiscal sustainability of her plan.

A Vision for a Stronger, Fairer Economy

Chancellor Reeves’ budget reflects a vision for a stronger, fairer UK economy grounded in responsible fiscal management and ambitious, targeted investments. With a focus on transparency, long-term growth, and addressing socioeconomic challenges, Reeves has laid out a comprehensive roadmap aimed at both stability and growth, preparing the UK economy for a sustainable future.