October Budget 2024: what does Rachel Reeves have planned for your money?

With the Budget due later today, Katy Ward looks at the rumoured policy changes and potential implications for your finances.

A problem of the Government’s own making?

Chancellor Rachel Reeves has already let us know that pain is coming in her Budget speech later today.

As the new Government has repeatedly claimed, there is a £22 billion hole in the public finances that needs plugging.

But Labour has tied itself in knots in the build-up to the Budget by vowing not to “increase taxes on working people”.

In effect, the party ruled out hikes to National Insurance, Income Tax and VAT – the main sources of funding for any Government.

So, what are the other options?

Here’s what we know so far…

Read: our 2024 Budget wish list

National Insurance contributions

Given Labour’s election manifesto, a hike in National Insurance contributions for employees feels highly unlikely.

As think tank the Institute for Fiscal Studies (IFS) points out, the Chancellor now has "little room for manoeuvre” in this area.

It would be a huge gaffe to ask us all to pay more through the PAYE system.

That said, there are rumours that the Government could increase National Insurance contributions for employers, which would raise £17 billion a year.

As this would not technically be a “tax on working people” (but employers), Labour could argue it had not broken any election promises.

Another stealth Income Tax rise?

When a Government sets out a Budget, what it doesn’t change is almost as interesting as what it does.

This is especially true when it comes to the Personal Allowance on Income Tax thresholds – the amount you can earn before becoming eligible for the tax.

At present, most UK taxpayers start paying Basic Rate Tax when they earn £12,570.

The Higher Rate band kicks in at £50,270 and the Additional Rate at £125,140.

While these bands are officially frozen until at least 2028, there are rumours the Chancellor is planning to extend the freeze.

In this case, the fiscal drag would come into play.

This happens when rising incomes push people into higher tax brackets, even though the Government hasn’t actually upped taxes.

Should this happen, pensioners would be one of the worst hit.

With the State Pension rising each year, payments are set to exceed the Personal Allowance in 2026.

As such, all retirees receiving the full New State Pension will be liable for Income Tax.

Income Tax bills are going to soar – and we need to be prepared

The pension triple lock

What the Government has in store for pensions is inevitably one of the most-scrutinised aspects of any Budget.

According to data released by the ONS this week, the full new State Pension will rise to £11,975 in April 2025 – an increase of £473.

This rise is due to the 'triple lock' in which payments increase by 2.5%, average wages or inflation – whichever figure is greatest.

Although the lock was originally a Tory policy, Rachel Reeves has pledged to retain it.

As the triple lock is often a barometer for Government plans, Labour announced its plans to maintain the guarantee early in the election campaign.

While the increase had originally been expected to come in at £460, the ONS revised its figure this week.

As a result, the increase rose from 4% to 4.1%.

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Tax-free lump sums

While the Government’s plans have yet to be confirmed, there are fears that Labour may go after the tax-free lump sum on pension withdrawals.

Under current rules, savers can take up to 25% of their personal or workplace pension as a tax-free lump sum when they reach the age of 55 – increasing to 57 in 2028.

The current system allows people to take up to £286,275 before they start paying tax.

However, the IFS has recently suggested a £100,000 cap on the amount people can claim.

Pensions tax relief

 Under current rules, the amount of relief people receive when paying into a pension is tied to their Income Tax bracket.

For Basic Rate taxpayers, contributions are topped up by 20%, meaning that a £100 contribution into a pension costs a saver £80.

Higher Rate taxpayers get 40% relief and Additional Rate taxpayers receive 45%.

In 2016, Rachel Reeves expressed support for a flat rate of 33% relief for every UK taxpayer.

Although the Government has now said this no longer represents the Chancellor’s views, it will certainly be one to watch on 30 October.

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State Pension age

According to existing policy, the State Pension age will increase from 66 to 68 by 2044 to 2046, impacting those born after 1977.

The increase to 67 will affect those born on or after 1960 and the increase to 68 will affect those born after 1977.

Unsurprisingly, it’s an emotive topic.

However, it feels likely the Government won’t want to make any sudden moves.

VAT

As one of its headline pledges, Labour promised not to hike VAT if it came to power.

At present, most goods and services qualify for 20%, while others receive a reduced rate of 5%.

Examples of goods eligible for the reduced rate include home energy and children's car seats.

Likewise, some items are exempt from the tax, including children's clothes and food.

However, this doesn’t mean that other changes to the tax are not on the horizon.

For example, the Government has already confirmed that it will add VAT to private school fees from January 2025.

Private schools: Labour’s plans for VAT

British ISA

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 is widely expected not to appear in the upcoming Budget.

Motorists

Since the new Government came to power, there have been concerns that the Chancellor may impose the first hike on fuel duty since 2011.

Simon Williams, RAC’s head of policy, said: “We’ve reached the conclusion the Chancellor has no option but to put fuel duty back up to 58p a litre in October’s Budget.

“She knows the 5p discount is losing the Treasury £2 billion a year. She also knows drivers were overcharged by a staggering £1.6 billion last year according to the Competition and Markets Authority’s recent report”.

The Chancellor has also previously been encouraged to consider the idea of a "pay-per-mile scheme" as a way of compensating for drivers of electric vehicles (EVs) not paying fuel duty.

As the name suggests, these schemes are based on the idea that drivers are taxed based on the amount they drive.

Many within the industry believe it is a simpler alternative to fuel duty.

Again, this remains speculation and it is not known how much tax drivers would pay per mile.

Likewise, some commentators argue that the system would result in higher taxes for male drivers.

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Council Tax

Council Tax has been one of the most-talked-about factors before the Budget and is widely seen as a means to help the Chancellor get things back on track.

One suggestion is that Rachel Reeves may do away with existing bands, which have remained unchanged since the early 1990s.

Nevertheless, Deputy Prime Minister Angela Rayner has appeared to promise not to increase the levy.

But what alternatives are available?

One much-reported suggestion has been that Reeves will impose a 0.5% tax based on a property’s value.

Many campaigners argue such a move could punish elderly people who are “asset rich but cash poor” – ie they are living in relatively high-value homes but do not have a high income.

Another rumour is that she may do away with the Single Person Discount, which currently offers a 25% reduction for those living alone.

Again, there is a concern that this move would disproportionately hit older people, with more than two million over the age of 75 in England currently living alone, according to NHS data.

Council Tax receipts in England up 61% in past decade

Inheritance Tax

Many pre-Budget rumours have focused on Inheritance Tax (IHT).

Under current rules, you won’t need to pay tax on the first £325,000 of your assets (property, money and other goods) when you pass away.

You’ll then pay a 40% rate on anything above this amount.

However, there are numerous exemptions, such as the freedom to pass on agricultural land and pension pots.

According to the IFS, closing these gaps could bring in £4.8 billion a year into the public purse.

Capital Gains Tax (CGT)

As with many previous Budgets, there have been rumoured changes to Capital Gains Tax – the levy you pay if you sell an asset for a profit.

Assets that may incur CGT include second homes and business assets.

If you’re a Higher Rate taxpayer, you currently pay 24% on any profits from residential property and 20% on income from other assets.

As a Basic Rate taxpayer, you’ll typically pay 18% on gains from residential property and 10% on other assets.

Although the Chancellor has previously said she won’t increase this levy, her promise came before the dire news on public finances.

Last week, The Guardian reported that an increase in CGT range of 33% to 39% could be on the horizon.

Mortgages

While the Government can’t tell lenders how much to charge in interest rates, there is an expectation that rates will continue to fall in the coming months.

Furthermore, there is a suggestion the Government could guarantee mortgages to encourage lenders to offer deals for those with lower deposits.

With many commentators predicting another cut from the Bank of England in November, it is believed the current downward trend may continue.

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First-time buyers

At present, the 0% Stamp Duty relief for first-time buyers stands at £425,000 – the amount of tax you pay when buying property priced over a certain amount.

There is currently a discounted rate charged on properties at £625,000.

However, this rate will reduce to £300,000 from 31 March, 2025.

That said, some have argued that the Government ought to extend this relief beyond March 2025.

Lifetime ISAs

There has been speculation that the Chancellor may be about to tweak the Lifetime ISA (LISA) – designed to help first-time buyers get on the property ladder.

At present, LISAs have a limit of up to £450,000 per property but there have been calls to increase this.

The Chancellor may also provide us with an update on the permanent guarantee for first-time buyers raised in the party’s pre-election promises.

Alcohol

In what will be one of the unpalatable Budget measures (for some), the Chancellor is also apparently considering an increase to alcohol duty.

By putting up taxes on beer, spirits and wine, the Chancellor could bring in up to £800 million next year, The Independent has reported.

While nothing has been confirmed, sources have apparently told The Independent that potential increase of more than 6% could be on the horizon.

Winter Fuel Payment

It’s a topic we’ve written about repeatedly at LoveMONEY.

The Government has made the decision to end the Winter Fuel Payment for 10 million pensioners, and we believe it will cause hardship.

However, it is unlikely to change in October's Budget.

And until access to Pension Credit – the gateway to Winter Fuel Payment – improves, many more older people will miss out.

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