October Budget 2024: what it means for your money

Chancellor Rachel Reeves just unveiled £40 billion in tax hikes, with big surprises for pension savers, investors and motorists. Here's what today's Budget means for your money.

Chancellor Rachel Reeves delivered a blockbuster Budget in which she unveiled a spending frenzy and a whopping £40 billion worth of tax hikes.

While businesses will bear the brunt of those increases, there were also big changes affecting the wider public.

So what will today's speech mean for you? Our detailed Budget explainer has all the information you need. 

We'll go through all the changes in detail, but here's a quick summary of the key announcements we think will be relevant to you: 

• Inheritance Tax to be levied on pensions;
• Surprise as Fuel Duty freeze extended;
• CGT hike: Basic Rate from 10% to 18% and Higher Rate from 20% to 24%;
• 'Stealth tax' not extended: freeze on Income Tax won't run beyond 2028;
• Inflation expected to stay higher for longer, affecting Base Rate cut timeline
• State Pension hike for 2025/26 confirmed at 4.1% as expected;
• Plans to reassess Child Benefit at household level scrapped.
   

The lion's share of Reeves' tax grab will come from an increase to National Insurance (NI) contributions to be paid by employers, which will rise from 13.8% to 15% from April 2025.

The chancellor also announced that the threshold at which employers start paying NI on workers' earnings will fall from £9,100 to £5,000.

The remarkable double blow is expected to cost businesses £25 billion.

The Labour Party has claimed this doesn't break its election pledge not to hike Income Tax, VAT or NI for working people as the burden will fall on businesses and not workers.

However, many commentators have pointed out that many people will pay the tax indirectly as companies will simply pass these costs on to staff in the form of lower pay rises and fewer staff benefits.

Indeed, the Government's own spending watchdog, the Office for Budget Responsibility, has pointed out that the NI increase will have a negative impact on pay. 

While the headline hike to NI was widely trailed before the speech, perhaps the biggest surprise of the day was that Inheritance Tax will be levied on pensions from April 2027.

It's a bombshell move that will likely see many people rethinking their retirement plans, said Helen Morrissey, head of retirement analysis at Hargreaves Lansdown.

“It’s a decision that will upturn many people’s plans as we will see many more people being dragged into paying Inheritance Tax because their Defined Contribution pension is now counted as part of their estate," she said.

"It’s an issue that will not be felt by those with Defined Benefit pensions as these cannot usually be passed on.

"We will see a flurry of people revisiting their retirement finances.

"The likelihood is we will see people looking to gift more money to loved ones while they are still alive – for instance money to help people get on the housing ladder.

"They will also look to spend down their pensions as retirement income rather than leave them untouched, a move which could keep the rest of someone’s estate below the IHT threshold.

"We may also see an increased interest in annuities as people look to secure a guaranteed income while also keeping their estate below the Inheritance Tax threshold.”

We've written extensively about the massive impact the ongoing freeze on the Income Tax thresholds is having.

In short, by keeping the thresholds at the same amount year after year, more and more people are dragged into higher tax brackets as their salaries and incomes rise each year.

It costs people hundreds of pounds a year, and is a huge earner for the Government – so it was widely expected the new Government would look to extend the freeze beyond 2028.

But the chancellor confirmed the Government would not be doing so, in what must be seen as one of the main highlights in a Budget light on good news. 

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Fuel Duty was widely expected to rise in this Budget but the chancellor held fire – for now at least. 

It should be considered a victory of sorts for motorists although, as RAC points out, taxes already make up a big chunk of their fuel bill. 

"Drivers will breathe an enormous sigh of relief after all the speculation that the 5p cut would be scrapped at the same time as pushing the Duty up beyond the long-term rate of 57.95p," said RAC head of policy Simon Williams.

“It’s good to see the Government firmly recognising the importance of the car to millions of households up and down the country.

“It’s also worth remembering that, even as of today, 56% of the total price of a litre of petrol is already tax in the form of Fuel Duty, and the VAT that is charged on top.”

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As was widely expected, the chancellor unveiled massive Capital Gains Tax hikes.

The Basic Rate will rocket from 10% to 18% and the Higher Rate from 20% to 24% in what is a huge blow to many investors and landlords.

The Government claimed the move will raise £2.5 billion for its coffers.

However, Rachael Griffin, tax and financial planning expert at investment firm Quilter, questioned whether the move would have the desired impact.

"While this move is aimed at boosting revenue, it is likely to have the opposite effect as it discourages investment and leads to reduced economic activity across key sectors," she said.

"One key problem with raising CGT is that it doesn’t necessarily guarantee more tax revenue. In statistics produced by the Government which model the revenue impact of certain policies this is laid bare.

"For example, in the analysis it found that a 10 percentage point increase in the higher Capital Gains Tax rate shows a significant negative impact, reducing revenue by £400 million in 2025-26, £985 million in 2026-27, and £2.25 billion in 2027-28.

"This is because higher CGT rates often result in fewer people selling their assets, as they choose to sit on them to avoid triggering the tax.

"This has the effect of locking wealth into certain asset classes, reducing the flow of capital into the economy.

"This behavioural shift could undermine the Government’s revenue-raising objectives, as fewer transactions mean less CGT collected overall."

There was good news for low-paid workers after the chancellor confirmed the National Minimum Wage will increase by 6.7% from April 2025.

More than three million workers will benefit by up to £1,400 a year as a result.

One potentially important change wasn't specifically mentioned in the Budget but will come about as a result of it.

After analysing the impact of the Budget, the OBR has forecast that inflation will stay higher for longer than was previously thought.

This could be an important development for savers and borrowers alike as it could mean the Base Rate of interest is cut at a slower rate than was originally expected.

A quick mention of the State Pension, which the chancellor confirmed would increase 4.1% from April 2025 as we revealed earlier this month.

The move will see the pay of those in receipt of the Full State Pension rise by around £470, although those on the Basic State Pension will see a more limited increase.

There was a huge tax hike for landlords and second homeowners: applying from midnight, the Stamp Duty surcharge on additional homes will jump from 3% to 5%.

That increase was far greater than many in the property industry were expecting.

As Peter Stimson, head of product at MPowered Mortgages, put it: “Landlords and second homeowners were expecting another tax squeeze from the chancellor, but what they got was a whack with a hammer."

The notion of the British ISA was one of the notable additions to the last (Conservative) Budget.

The idea was that investors would receive an additional tax-free allowance of £5,000 if they invested in UK assets.

However, the British ISA was absent from Labour’s election manifesto and it has now been confirmed that it will be condemned to the rubbish heap.

Holidaymakers were also in the chancellor's crosshairs as she announced a whopping increase to Air Passenger Duty of more than 10% from 2026. 

It'll add £12 to the cost of a long-haul flight and £2 to short-haul journeys. Domestic flights will be hit with an additional £1 charge.  

There was time for one final surprise after it was revealed that the Government will not proceed with plans to assess Child Benefit at a household level.

Earlier this year, the previous Conservative Government had announced a significant shakeup of the benefit by increasing the point at which the Government starts clawing it back from £50,000 per household to £60,000.

It said it would also consult on making the benefit apply to overall household income, rather than on an individual basis.

This has long been an issue as it means two people earning just under the threshold would qualify for the full benefit, but a household where one person worked and earned more would start losing theirs. 

Having not made any firm decision on how this might be implemented, the new Government has come in and scrapped plans for any further changes.

As Laura Suter, director of personal finance at AJ Bell, explains: “There’s no doubt that it would have been a huge administration task for HMRC to assess couples on their household income rather than sole income, meaning there is no easy fix.

“Put simply, Labour say the move would be too costly.

"Currently you’re eligible for full child benefit if you earn up to £60,000, but Labour claim changing the system to base Child Benefit on a household income of £120,000 would cost £1.4 billion by 2029/30.

"It means the system that punishes single earners will remain. Currently, a sole earner on £80,000 gets no Child Benefit while two workers each on £59,000 get the full benefit."