The Budget Part I | Expectations
As the UK eagerly awaits the budget announcement on October 30th, 2024, all eyes are on the Chancellor Rachel Reeves. With the government facing a £22 billion fiscal gap, this budget is expected to introduce a range of measures to address rising inflation, the cost-of-living crisis, and growing public debt. People across the UK are wondering how these changes will impact their everyday lives—from household bills to taxes, public sector pay, and housing. Here’s a breakdown of what to expect and how the budget could affect you directly.
1. Cost of Living Relief: Targeted Support for Struggling Households
With the ongoing cost-of-living crisis driving up food prices, energy bills, and housing costs, many households are looking for relief in this budget. Rachel Reeves has emphasized the need for immediate measures to help families make ends meet.
What to Expect:
- Energy Price Cap Extension: The government is expected to extend the energy price cap but with more targeted support. Vulnerable and low-income households could see extended assistance with energy bills as winter approaches, but middle-income earners might receive less direct help.
- Welfare Support Increases: Universal Credit payments are likely to be adjusted modestly to help those most affected by inflation. Additional one-off payments to support low-income families could also be introduced.
Impact: If you're part of a low-income household, you might benefit from extended energy price caps and increased welfare payments. However, those outside of these targeted groups may see limited relief.
2. Public Sector Workers: Modest Pay Increases, Strikes Likely to Continue
Public sector workers, including healthcare professionals, teachers, and civil servants, have been calling for inflation-matching pay increases. However, with fiscal constraints in place, the government may struggle to meet these demands fully.
What to Expect:
- Modest Pay Rises: Public sector pay increases will likely remain below inflation levels. While healthcare and education sectors could see slight adjustments, many public sector employees might not see significant wage growth.
- Continued Industrial Action: If pay increases remain below inflation, public sector workers may continue to strike, causing further disruption to services.
Impact: Public sector workers might see minor improvements in pay, but these increases will likely fall short of inflation. Continued industrial action could disrupt essential services, affecting healthcare, education, and transport.
3. Potential Tax Increases: Wealth and Corporate Taxes in the Spotlight
To close the fiscal gap, the government will likely look at tax reforms to boost revenue. While direct income tax increases are politically unpopular, there may be other tax changes that could affect your finances.
What to Expect:
- Capital Gains Tax Adjustments: The government could raise capital gains tax (CGT) rates or lower the tax-free threshold. This change would primarily affect those selling second homes, stocks, or other investments, potentially leading to higher tax bills for those with significant assets.
- Stricter Corporation Tax Compliance: While the corporation tax rate has already been raised to 25%, the government may focus on stricter enforcement to close tax loopholes. This would target large corporations and multinationals, but it could indirectly affect employees and consumers through cost-cutting or price increases.
Impact: If you own investments or property, higher capital gains tax could impact your returns. Large businesses may face higher tax bills, which could affect job growth and wages. Everyday consumers may see price increases as businesses adjust to stricter tax enforcement.
4. Homeowners and Renters: Housing Costs Still a Concern
Housing affordability continues to be a major issue, especially for first-time buyers and renters. The budget may introduce measures to address some of these concerns, though large-scale reforms seem unlikely.
What to Expect:
- First-Time Buyer Support: The government may introduce or extend stamp duty relief for first-time buyers, or offer grants to help with deposits. This could help some younger buyers enter the housing market, but rising mortgage rates are still a concern.
- Rent Control Measures: Renters might see some relief through government interventions, such as rent controls or increased tenant protections. However, these measures may be limited given the budget constraints.
Impact: First-time buyers could benefit from tax reliefs or grants, but high interest rates might still make it challenging to enter the housing market. Renters could see some protection against rising rents, but significant improvements in affordability are unlikely.
5. Businesses and Entrepreneurs: Green Energy Incentives and Corporate Tax Scrutiny
Businesses are hoping for clarity on corporate taxes and potential incentives for growth, especially in green energy and innovation sectors. The budget could include a mix of tax enforcement and investment incentives.
What to Expect:
- Windfall Taxes on Energy Companies: Energy companies that have profited during the crisis could face extended or increased windfall taxes. This would raise revenue for the government but could also result in higher prices for consumers.
- Incentives for Green Energy and Innovation: The government is expected to continue investing in green energy and technology, offering tax breaks for businesses involved in renewable energy, electric vehicles, and other sustainable technologies. This could benefit companies in growth sectors like artificial intelligence and biotech.
Impact: Energy companies and large corporations could face higher taxes, but businesses in green technology and innovation might benefit from new incentives. If you work in or invest in these sectors, you could see growth opportunities.
6. Borrowing Costs and Debt: Rising Interest Rates Affect Loans
The government’s rising debt levels could indirectly affect borrowing costs for consumers and businesses alike. Higher interest rates mean that managing government debt is becoming more expensive, which could have knock-on effects for personal and business loans.
What to Expect:
- Higher Interest Rates on Loans: As the government grapples with increasing debt, the cost of borrowing is likely to remain high. This means personal loans, mortgages, and business loans could become more expensive.
- Debt Repayment Focus: The government may prioritize paying down the national debt to avoid even higher future borrowing costs, but this could limit public spending in other areas.
Impact: If you have outstanding loans or are planning to take on debt, expect higher interest rates to continue affecting your borrowing costs. For homeowners, this could mean higher mortgage payments, while businesses might face increased costs for financing.
7. Long-Term Investment: Focus on Green Energy and Infrastructure
Despite the immediate need to balance the budget, the government is likely to continue investing in long-term growth sectors, particularly green energy and infrastructure. This will align with the UK’s commitment to net-zero emissions by 2050.
What to Expect:
- Green Energy Investment: The government is likely to maintain or increase investment in renewable energy projects like wind and solar. This could create job opportunities and help reduce energy costs in the long term.
- Infrastructure Delays: Some infrastructure projects may be delayed or scaled back due to budget constraints. This could affect regional economic development and jobs, particularly in areas reliant on government-funded projects.
Impact: If you work in the green energy or tech sectors, the continued investment could offer long-term job opportunities. However, delays in infrastructure projects might slow down development in certain regions, impacting local economies and employment.
Targeted Relief and Tax Adjustments Likely to Shape the Budget
The 2024 UK budget is expected to deliver a mix of targeted relief measures and tax adjustments aimed at addressing the cost-of-living crisis, managing public debt, and stimulating long-term growth. Rachel Reeves and the opposition have stressed the importance of balancing fiscal responsibility with support for struggling households.
While vulnerable groups may receive some much-needed relief through energy price caps and increased welfare payments, many people could face higher taxes on investments and property. Public sector workers may see only modest pay increases, and businesses could be hit with stricter tax enforcement and extended windfall taxes.
For most households, the budget will likely bring a combination of relief and new challenges, with higher borrowing costs and limited support for middle-income earners. As the government walks the tightrope between fiscal prudence and economic support, the October 30th budget will set the stage for the UK's economic future.