Labour’s Autumn Budget 2024 – Why we should expect big changes

History tells us that the biggest shifts on tax and spending policy are taken in a new government’s first Budget, particularly if that government has a large majority.

And Labour used the summer and early autumn to set the scene for tax rises with consistent messaging around “tough decisions” and a “£22bn blackhole in the public finances”.

This rhetoric has been dialled back in recent days over concern from business leaders that Labour was in danger of talking down the economy – one that was actually the fastest growing in the G7 in the first half of 2024.

So, there is definitely a tricky balancing act for the new Prime Minister and Chancellor with this Budget to make changes without jeopardising business and consumer confidence.

What changes will we see?

The new government may have boxed itself into a corner on tax rises because of pre-election manifesto pledges not to increase the headline rates for income tax, employee national insurance, and VAT.

With an increase to the headline corporation tax rate also seemingly ruled out in the manifesto, what looks likely to happen is significant changes elsewhere in the tax system. While Labour says it won’t raise employee national insurance contributions, raising employer contributions is an option that remains open to them.

We already know that Labour plans to impose VAT on private school fees and close the ‘non-dom’ tax loophole and I’m sure we’ll be getting more detail on this in the budget. Based on previous campaigning, it looks likely that Rachel Reeves may also propose reducing tax relief on pension contributions for higher earners.

A reversal of the Conservatives’ previous 5p cut to fuel duty seems almost inevitable. It’s been 14 years since there was an increase to fuel duty, but with petrol prices having fallen in recent months now may be an opportune time for Labour to do it.

We already know the chancellor is planning to make assets held in offshore trusts liable for inheritance tax. Changes are also proposed for the taxation of carried interest on private equity deals, which is currently taxed at the lower capital gains tax rates, rather than income tax rates.

But these measures aren’t going to be enough on their own to close such a big shortfall in the public finances, which is why I think there’s a possibility of something more fundamental on both inheritance and capital gains tax.