Autumn Statement 2024: Tax Hikes and Spending Cuts on the Horizon
The Chancellor of the Exchequer, Rachel Reeves, will deliver the Autumn Statement on Wednesday, 30 October, outlining the government's economic plans for the year ahead. This pivotal event, based on forecasts from the Office for Budget Responsibility (OBR), will shed light on the government's tax and spending strategy, impacting everything from fuel duty to income tax and even the cost of a pint.
With the country facing a £22 billion hole in its public finances, experts predict the Chancellor will announce significant tax changes to address this shortfall. Ms Reeves has already warned MPs that her statement will involve "difficult decisions across spending, welfare and tax," suggesting a period of austerity may be on the cards.
Here are some of the potential areas where tax changes are likely:
Inheritance Tax:
The current inheritance tax rate stands at 40%, with significant speculation suggesting the government may increase this rate or lower the thresholds, leading to more individuals falling under the tax net. Additionally, a reduction in the period before death for making gifts tax-free is also being considered.
Pensions:
Labour previously floated the reintroduction of the Lifetime Allowance for pensions, which limits tax-free savings, but this was ultimately dropped during the election campaign. Instead, the government could introduce other pension tax reforms.
One possibility is a reduction in tax relief for higher earners on their pension contributions, with a flat rate of 33% introduced. This would mean higher earners would receive less tax relief compared to the current system where relief is tied to the individual's marginal tax rate.
Another area of potential reform concerns the current exemption of pensions from inheritance tax. This could be reviewed, meaning pensions would be included in an individual's estate and subject to tax upon death.
Capital Gains Tax (CGT):
CGT is payable on profits made from selling assets like shares, second homes, or valuable artwork. The first £3,000 of gains (or £1,500 for trusts) are currently tax-free, but some experts believe this allowance could be scrapped entirely. The tax could also be extended to encompass a wider range of assets.
Business Rates:
The government has pledged to overhaul the business rates system, potentially announced in the Autumn Statement, to provide support for small businesses. One potential change involves basing the rates on the value of the land, rather than the current method of estimating annual rental costs.
Winter Fuel Payments:
The universal winter fuel payments, previously available to all those over state pension age, will be slashed starting this year. The payments will now be restricted to individuals receiving certain benefits, such as Pension Credit, Universal Credit and income support. The amount will be £200 for eligible households, or £300 for those with someone aged over 80.
Fuel Duty:
Despite previous pledges, the Treasury has not ruled out a potential rise in fuel duty, a move that could significantly impact household finances. The duty has remained frozen since 2011, with a temporary 5p reduction in March 2022. Motoring organisations have warned that a duty increase could add an additional £171.60 in annual fuel costs for lower-income workers.
Household Support Fund:
The household support fund, designed to assist low-income families with essential costs, is set to close on 30 September. However, the government could choose to extend the fund, which would be announced in the Autumn Statement.
What won't change:
Labour has confirmed it will not alter National Insurance, Income Tax, Corporation Tax, or VAT, suggesting these taxes are unlikely to be raised.
The Autumn Statement will be a key event for the UK economy, shaping the financial landscape for the coming year. The government's decisions regarding tax and spending will have a direct impact on individuals and businesses alike, making this statement a significant event for all to watch.
