In the Chancellor’s statement to the House of Commons on 29 July, the new Chancellor, Rachel Reeves, revealed a £22 billion black hole in government finances for this year alongside a range of immediate cost-cutting measures. She also announced that further “difficult decisions” will be contained in the Autumn Budget, due on 30 October.
The statement followed the ‘spending inheritance’ review Reeves had commissioned from The Treasury and her request to new ministers to list the financial problems their departments faced. It also reflected a number of gloomy reports published on or around 23 July by The National Audit Office, the publication of which had been delayed by the election.
Both the OBR and the IFS have subsequently suggested that Reeves had discovered more problems than were apparent in the documents produced around the Spring Budget 2024.
Plugging the hole
As a priority, the Chancellor announced a range of measures to achieve savings of £5.5 billion in the current financial year and £8.1 billion in 2025/26, including:
- Restricting the winter fuel payment eligibility to pensioners in receipt of pension credit or certain other means-tested benefits, saving about £1.4 billion in 2024/25 and £1.5 billion in 2025/26. At the same time, Ms Reeves confirmed that the triple lock would remain in operation. Next April, this will almost certainly mean the main state pensions will rise in line with earnings at a rate of over 5%.
- Scrapping the already twice-deferred launch of the social care funding cap in England, which had been due to start in October 2025.
- Finding savings in all departmental budgets totalling £3.15 billion in both 2024/25 and 2025/26 to help fund pay settlements.
- Abandoning two major road projects – the A27 (Arundel bypass) and the A303 (Stonehenge tunnel).
- Ending the Restoring our Railways scheme.
- Dropping the proposed NatWest retail share sale, but still disposing of the government’s remaining shareholding in the bank – probably by 2025/26.
- Reviewing the hospital building programme.
On the horizon
Alongside Reeves’ statement to the House of Commons, the Treasury published various related documents. These included:
- A new paper on the reform of domicile rules that incorporates the additional revenue-raising changes set out in the Labour manifesto.
- Draft legislation and explanatory notes on how VAT will be applied to private school fees and charitable rates relief removed. As of 1 January 2025, all education services and vocational training supplied by private schools will be subject to VAT at the standard rate of 20%. A technical note also confirmed the legislation would be retrospective, so any fees paid from 29 July 2024 relating to a term starting in January 2025 onwards will be subject to VAT.
- Draft legislation on abolishing the furnished holiday lets regime from April 2025, as previously proposed in the Spring Budget 2024.
- A call for evidence on the tax treatment of carried interest, a topic primarily of interest to fund managers in the private equity industry.
- A letter from the Chancellor to the Chair of the OBR setting out updates to the Charter for Budget Responsibility. These are designed to prevent a repeat of Liz Truss’s mini-Budget in September 2022 and to require the Treasury to provide the OBR with in-year assessments of pressures on expenditure.
An October Budget
The Chancellor also revealed that her Autumn Budget would be on 30 October – later than had originally been expected.
She added that the Budget “will involve taking difficult decisions to meet our fiscal rules across spending, welfare and tax” and has since said, “I think that we will have to increase taxes in the Budget”.
While Reeves reiterated Labour’s manifesto pledge that there would be no increases in…
- national insurance
- the basic, higher or additional rates of income tax, or
- VAT
… this points to capital gains tax, inheritance tax and tax reliefs as possible revenue-raising targets in the Autumn.
Can we help?
Rest assured, the Shipleys LLP team will monitor further Treasury announcements and the Autumn Budget to alert our clients to the fiscal implications for both personal and business finances.
Ahead of the possible shifts, if you are considering any financial planning in the near term (for example, pension contributions, divesting assets or estate planning with gifts to grandchildren) – talk to your Shipleys’ contact about the wisdom (or otherwise) of acting before 30 October.
Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary. If you would like advice or further information, please speak to your usual Shipleys contact.
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