The first Budget after a change of government is always a moment of consequence and this was no exception. The measures announced by Rachel Reeves may have been heavily trailed, but this does not diminish the reality that this was a significant political and economic event.

A new fiscal direction: increased spending and higher taxes

The big picture analysis is straightforward. The Government is increasing spending compared to the plans that it inherited. This applies to both day-to-day spending on public services and public investment. This is funded by higher taxes (£40bn, in cash terms the biggest tax raising budget in the UK’s history) and higher borrowing. The definition of “debt” for the purposes of the fiscal rules has been changed to make it more permissive of higher levels of capital expenditure.

It is a strategy that comes with risks. The political risk is that this is a different economic strategy to the one presented by Labour at the last election, when additional public spending was going to be funded by higher economic growth. Higher borrowing could come with market risk with gilt yields rising following the Budget. According to the Office for Budget Responsibility, the looser fiscal policy announced in the Budget could mean that inflation and interest rates will be higher than had previously been forecast.

The Chancellor of the Exchequer will hope that taxes will not need to be raised in such a manner again. Politically, it makes sense to act early in a Parliament and get the pain out of the way. It is, however, noteworthy that the spending increases are heavily front-loaded, with big increases in the next two years followed by more modest increases. If the pressure grows for higher spending in those future years, the Government will hope that growth will exceed expectations, enabling such demands to be met. If, however, the public finances do not turn out as hoped, the Chancellor has left little fiscal headroom and may look to raise taxes again in the future.

Key tax changes

On the tax measures announced in this Budget, by far the biggest measure was the increase in employer National Insurance Contributions, which raises £25bn a year. Again, there will be a political debate as to whether the measure is consistent with Labour’s manifesto, but it was always unlikely that large sums of revenue could be raised without making use of the three largest taxes – income tax, NICs and VAT. 

On the tax rises promised in the Labour manifesto, the Government has taken a less aggressive approach in two areas than was expected at the time of the election. We discuss in detail the changes to the taxation of non-doms and of carried interest in focused articles linked below.

The Government has also looked elsewhere to ensure that the wealthiest make a big contribution to raising revenue. Increases in the rate and reforms of capital gains tax to 24% plus reforms of Business Property Relief and Agricultural Property Relief are scored as raising £520m a year by 2028/29.

On business taxes more widely, the Government has published a corporate tax roadmap, a welcome move for businesses looking to invest, explored in more detail below. This commits the Government to no further increases in the rate of corporation tax, maintaining full expensing as well as setting out an ambition for HMRC to provide greater certainty to businesses. Of course, such a roadmap is only of value if it is subsequently followed.

You can find our analysis on key matters via the links below:

The Autumn Budget 2024: a private client perspective

The Autumn Budget 2024: a business and corporate tax perspective

The Autumn Budget 2024: employment tax

The Corporate Tax Roadmap: how to achieve "change" (by not changing anything)

Close companies: take care

Closing the tax gap