Five takeaways from Rachel Reeves' Budget

A fiscal statement of historic proportions was unveiled this afternoon, as Rachel Reeves, the first woman Chancellor in British history, delivered Labour's first Budget in 14 years.

Reeves delivered very few Budget surprises in a fiscal statement that had been extensively briefed before the Chancellor took her place at the dispatch box today.

The Chancellor confirmed yesterday's announcement that the National Living Wage would rise by 6.7% in April, and the National Minimum Wage for 18- to 20-year-olds by 16%, as well as the expected bus-fare cap increase from £2 to £3 — and there was also confirmation on the long-expected introduction of VAT for private school fees.

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But Reeves did surprise in some areas, including choosing to maintain a freeze on fuel duty. Perhaps the biggest shock was Reeves' announcement on personal tax thresholds, which will not be frozen for another year, as some had expected (more on that below).

Overall, Reeves announced tax rises of almost £40 billion, although much of it will fall on businesses as Labour seeks to plug a £22 billion black hole in public finances while keeping to its promise not to raise taxes for "working people".

No rises in income tax, National Insurance or VAT… and no freeze on income tax thresholds

Reeves' fiscal announcement did not include any major tax rises for what Labour calls "working people" – a term which has been a point of contention in recent weeks.

Referencing Labour's manifesto commitment not to raise taxes for "working people", Reeves said this decision was "a promise made and a promise fulfilled".

Reeves also said there would be no extension of the freeze of income tax and NI thresholds, beyond 2028, the date chosen by the previous Conservative government.

It had been thought Reeves might extend this measure, although critics said such a move would amount to a "stealth tax" due to the process of "fiscal drag", where more people are "dragged" into paying higher rates of tax as their wages rise.

An increase in National Insurance paid by employers

In an announcement which will shock few, Reeves said that she will increase National Insurance payments for employers.

NI contributions are a key source of funding for benefits and the NHS, paid by employees, employers and the self-employed across the UK. Employees usually make contributions of 8% in NI from their pay, while employers had paid contributions of 13.8%.

This is now set to change under Reeves' Budget, with employers faced with paying 15%. In addition, the threshold at which businesses start paying National Insurance on workers' earnings will be lowered from £9,100 to £5,000.

The move could raise as much as £17 billion a year for the Exchequer, according to the Institute for Fiscal Studies (IFS). But critics have argued the plans amount to a "tax on jobs".

Reeves also announced that she will be increasing Employment Allowance to help out smaller businesses. It will rise from £5,000 to £10,500, which the chancellor said will mean 865,000 employers won't pay any National Insurance at all next year, while over one million will pay the same or less than they had previously.

Changes to capital gains tax

Capital gains tax (CGT) is set to increase. The lower rate of CGT will rise from 10% to 18% for basic-rate taxpayers, while the higher rate will increase from 20% to 24%, Reeves announced. The rates on residential property will remain at 18% and 24%.

CGT is paid by investors, business owners, and some property owners who make a profit when selling assets such as second homes, or investments like shares.

The rise, while likely to cause consternation among business groups, is lower than had been feared; earlier this month, Keir Starmer was forced to dismiss reports that the levy could rise to as much as 39%, calling the speculation "wide of the mark".

But industry groups have warned that the rises could interfere with Labour's promise to grow the economy. "No government at all serious about growth would hike CGT on entrepreneurs selling a small business," Tina McKenzie from the Federation of Small Businesses told the BBC in October.

VAT exemption for private schools scrapped

Labour have long made clear that they would scrap the VAT exemption for private schools, promising in their manifesto to do so rather than remove their charitable status.

The policy, which is set to come into effect on 1 January 2025, could raise around £1.6 billion a year, said the IFS. The Independent Schools Council has warned that the government has underestimated the pupil displacement that will be caused.

But the government has pointed to IFS research that says the state sector should be able to "easily accommodate extra pupils", because overall student numbers are set to fall by 700,000 between now and 2030.

A boost to NHS funding

Reeves announced a £22.6 billion increase in the day-to-day health budget, and a £31 billion increase in the capital budget, which she said is the largest increase in spending – outside the pandemic – since 2010.

The measures will bring waiting lists down and increase the capacity for procedures in the NHS, the chancellor said.