The Rt Hon Rachel Reeves MP, the Chancellor of the Exchequer, has delivered the first Budget by a Labour Chancellor since 2010. It was also the first Budget delivered in the UK by a female Chancellor.
The Budget increases taxation by £40 billion and expenditure by £100 billion over five years on transport, schools and hospitals.
Key announcements included:
- An increase in employers’ National Insurance Contributions (NICs) by 1.2 per cent from 13.8 per cent to 15 per cent by April 2025. The level at which employers start paying NICs for each employee will drop from £9,100 to £5,000. The combined impact of this amounts to £25 billion.
- An increase in the lower rate of Capital Gains Tax (CGT) from 10 to 18 per cent and an increase in the higher rate of CGT from 20 to 24 per cent.
- Corporation Tax Rate paid by businesses on taxable profits over £250,000 to stay at 25 per cent until the next general election.
- An increase in the National Minimum Wage by 6.7 per cent from £11.44 to £12.21 per hour, with a bigger increase for the youngest workers
- The Carer’s Allowance earnings limit to increase by over £30 a week.
- A freeze in Fuel Duty.
- Income tax thresholds will be uprated in line with inflation after 2028-29.
- The prediction that the Budget would move from deficit into surplus by 2027-28.
- An increase from 2024-25 in day-to-day departmental spending by 1.5 per cent (and 1.7 per cent including capital spending).
- Additional £100 billion in capital spending over the next five years. The investment will increase GDP by up to 1.4 per cent in the long term.
- A 19 per cent increase in investment in schools of £6.7 billion, a £1 billion uplift for special educational needs and £300 million for FE colleges.
- An increase of £22.6 billion increase in NHS day-to-day funding and a £3.1 billion increase in the NHS capital budget.
- £500 million funding for 5,000 affordable social homes.
- The Office of Budget Responsibility predicts the UK economy will grow 1.1 per cent this year, 2 per cent next year and 1.8 per cent in 2026.
- A new stability rule will balance the current Budget, so day-to-day costs are met by revenues.
- A new investment rule will ensure that net financial debt is falling as a proportion of GDP. This rule keeps debt on a sustainable path whilst allowing the change needed for investment.
Meanwhile, DCMS will continue to fund important programmes such as Create Growth and the UK Games Fund.
The Government has also announced a small package of administrative changes affecting the Audio-Visual and Video Games Expenditure Credits (AVEC and VGEC). Specifically, the changes will affect the provisions relating to the British certification condition, unpaid amounts and regulation-making procedure. They are designed to align the AVEC/VGEC legislation with the predecessor tax reliefs and the impact on companies is expected to be minimal.
The explanatory notes to the Finance Bill will explain the legislative amendments in detail. They will be published alongside the Bill, in about a week’s time, but will include:
- Regulation-making procedure: this change corrects an error in the original AVEC and VGEC drafting, which stated that regulations made under the legislation must be laid before both Houses of Parliament. It is standard practice for regulations relating to financial matters (like tax reliefs) to be reserved for the House of Commons only, so the provision will be updated to reflect this. This will only affect how regulations proceed through Parliament; it will have no impact on companies claiming relief.
- Unpaid amounts: under the predecessor tax reliefs (eg. Film Tax Relief), amounts not paid within 4 months of the end of the accounting period in which they were incurred are not eligible for relief, but they can still be treated as an expense and deducted from income to reach profit/loss, as normal. As AVEC/VGEC is currently drafted, this changed so that unpaid amounts couldn’t be treated as being incurred at all until they were paid ie. they could not be deducted when calculating profit/loss for tax purposes. The change in the Finance Bill will amend the AVEC/VGEC rules so that they work the same way as the rules for the existing tax reliefs. The effect on companies will be to allow deductions for unpaid amounts earlier, although expenditure credit will still not be due on unpaid amounts until they are paid.
- The British certification condition: the original AVEC/VGEC wording refers to companies needing to provide BFI certificates which ‘have effect’ at the end of an accounting period. This is less clear in terms of what it requires companies to provide than the wording of the rules for the existing tax reliefs. The change in the Finance Bill will align the wording of the AVEC/VGEC legislation more closely to the rules of the existing tax reliefs and make it clearer what companies must provide with their claims. This will have no impact on customers as HMRC will continue to take the same approach to certificates as before: the British certification condition will be met if the certificate provided with a claim is valid (ie. not out of date or revoked) when the claim is made.
Further information: