Chancellor Rachel Reeves has today unveiled Labour’s first Budget for almost 15 years, along with a raft of new financial proposals for the country.
As the government reveals their mission for “economic growth” and raises taxes by £40bn, here’s a look at the key points from the long-awaited announcement – and how it will impact you.
How will benefits and taxes change?
National Living Wage hiked
Labour asked the Low Pay Commission to take account of the cost of living for the first time when it comes to their advising of this national living wage, which is currently at £11.44.
The Low Pay Commission recommended earlier this year that it should go up to £12.10, but Reeves has raised it to 6.7% to £12.21 an hour, worth up to £1,400 a year for a full-time worker.
Labour are also moving towards a single adult rate by initially increasing the National minimum wage for 18-20yr olds by 16.3%, taking it from £8.60 to £10 an hour.
Carer’s allowance earnings limit will rise
The amount carers can earn and still receive the allowance will rise to the equivalent of 16 hours at the National Living Wage, weekly.
It means they can now earn over £10,000 a year and still receive the allowance.
At the moment, it provides up to £81.90 per week to those with additional caring responsibility.
Fair repayment rate
Reeves announced a new Fair Repayment Rate “to reduce the level of debt repayments that can be taken from a household’s Universal Credit payment each month from 25% to 15% of their standard allowance.”.
She said: “This means that 1.2 million of the poorest households will keep more of their award each month, lifting children out of poverty and those who benefit will gain an average of £420 a year.”
Spending on state pension set to rise
Reiterating Labour’s manifesto committed to the Triple Lock – where the state pension increases each year in line with inflation, earnings growth or 2.5% – Reeves said pensions are guaranteed to rise next year.
In fact, she said this would rise by 4.1% in 2025-26, which works to £470 increase over 12 million pensioners.
Fuel duty frozen
She said it would be “the wrong choice for working people” to increase the fuel duty, as it would mean fuel duty rising by 7p per litre.
“I have today decided to freeze fuel duty next year and I will maintain the existing 5p cut for another year, too,” she said. “There will be no higher taxes at the petrol pumps next year.”
Employers’ National Insurance Contributions
Labour vowed not to increase National Insurance in their manifesto, but in recent weeks have altered that to claim they only meant they would not hike it for employees – not their employers.
“We will increase the rate of Employers’ National Insurance by 1.2 percentage points, to 15%, from April 2025,” Reeves said today.
They noted the secondary threshold – the level at which employers start paying national insurance on each employee’s salary – would be lowered from £9,100 per year to £5,000.
Employment Allowance
In a boost to small businesses, the chancellor noted that Employment Allowance would increase from £5,000 to £10,500, so “865,000 employers won’t pay any National Insurance at all next year”.
She added that one million others will pay the same or less than they did in the past.
Capital Gains tax rate raised
The chancellor announced Labour will “increase the lower rate of Capital Gains Tax from 10% to 18% and the Higher Rate from 20% to 24%”.
She added that the rates of capital gains tax on residential property would remain at 18% and 24%, too.
“This means the UK will still have the lowest Capital Gains Tax rate of any European G7 economy,” Reeves said.
Inheritance tax threshold freeze extended
Reeves extended the last government’s inheritance tax thresholds freeze for a further two years, meaning it is in place until 2030.
“That means the first £325,000 of any estate can be inherited tax-free,” she said. “Rising to £500,000 if the estate includes a residence passed to direct descendants and £1m when a tax free allowance is passed to a surviving spouse or civil partner.”
She added that inherited pensions would be brought into inheritance tax from April 2027, too.
Tobacco duty escalator
Taxes will rise in line with the RPI measure of inflation, as well as 2% – and duty will climb by 10% on hand-rolled tobacco this year.
There would be a flat-rate duty on all vaping liquid from 2026, and a one-off increase in tobacco duty for incentive for smokers to give up.
Air Passenger duty hiked
Reeves said: “Air Passenger duty has not kept up with inflation in recent years so we are introducing an adjustment meaning an increase of no more than £2 for an economy class short-haul flight.”
However, she said for private jets, the duty would be increased by a further 50% – working out to an extra ”£450 per passenger for a private jet”.
Draught duty cut...slightly
Alcohol duty rates on non-draught products will increase from February next year in line with RPI – but today, rather than increasing that tax, Reeves is cutting draught duty by 1.7%.
She noted that “means a penny off a pint in the pub”.
Capped corporation tax
Corporation tax will be capped at 25% – the lowest in the G7 – for the duration of this parliament.
Non-dom tax regime scrapped
The non-dom tax regime meant any UK resident whose permanent home was outside of the UK would not pay tax on money they make elsewhere in the world.
“We will abolish the non-dom tax regime and remove the outdated concept of domicile from the tax system from April 2025,” Reeves said.
“We will introduce a new, residence based scheme with internationally competitive arrangements for those coming to the UK on a temporary basis while closing the loopholes in the scheme designed by the party opposite.
“To further encourage investment into the UK, we will also extend the Temporary Repatriation Relief to three years and expand its scope bringing billions of pounds of new funds into Britain.”
Stamp duty tax hiked
“We are increasing the stamp-duty land tax surcharge for second-homes… …known as the ‘Higher Rate for Additional Dwellings’ by 2 percentage points, to 5%, which will come into effect from tomorrow,” she said.
“This will support over 130,000 additional transactions from people buying their first home, or moving home over, the next five years.”
VAT on Private school fees introduced
Reeves confirmed Labour would introduce VAT on private school fees from January 2025 and “we will shortly introduce legislation to remove their business rates relief from April”.
Lifting the freeze on income tax and NI thresholds
Reeves said: “Having considered the issue closely I have come to the conclusion that extending the threshold freeze would hurt working people. It would take more money out of their payslips.”
Bus fare cap increase
Reeves confirmed Starmer’s previous announcement that the bus fare cap would be increased from £2 per fare to £3.
What about departments?
Increased defence spending... in the future
Reeves said Labour would “set a path” to reach 2.5% of GDP spending on defence “at a future fiscal event”.
But she still said the UK was exceeding its NATO defence spending commitments by giving a total of £2.9m on defence this year – and £3bn to Ukraine.
NHS spending
Reeves confirmed a £22.6bn increase in the day-to-day health budget for the NHS and £31bn increase in the capital budget.
She said this is the largest increase in spending outside of Covid since 2010, meant to bring down waiting lists and increase the capacity for NHS procedures.
Transport spending
The high speed rail project got a shoutout today, with the chancellor saying Labour will commit to tunnelling work to London Euston, which had been scrapped under the Tories.
She also pledged to spend £500m on fixing roads and potholds.
Energy sector
Reeves promised to make Britain “a clean energy superpower”, with multi-year investment into carbon capture and storage.
The funding is offered to 11 new green hydrogen projects across the country.
Housing spending
The government said it would invest more than £5bn to deliver their housing plan, and increase the Affordable Homes Programme to £3.1bn.
It will also give £1bn to accelerate the removal of dangerous cladding on homes after the Grenfell Tower report.
Education spending
Reeves promised a £6.7bn capital investment for the Education department, which includes over £1.4bn to rebuild 500 schools in “the greatest need”.
Covid corruption commissioner
The chancellor announced that David Goldstone would be the chair of the new Office for Value for Money “to help us realise the benefits from every pound of public spending”.
She said this would help the government meet a 2% productivity savings target for departments.