The UK Chancellor, Rachel Reeves, has unveiled a significant plan to increase taxes by £40 billion ($51.8 billion), marking the largest tax hike in decades. This initiative aims to fulfill the Labour Party's promise to "rebuild" the UK, but its impact on economic growth and public spending is anticipated to be limited. The tax burden is expected to reach a post-war high, with businesses and the wealthy bearing the brunt of the increase. Reeves asserts that such measures are necessary to address the fiscal gap left by her predecessors from the Conservative Party and to kickstart a decade-long national rejuvenation.
The announcement had immediate implications for the financial markets, with UK government bond prices falling as traders assessed the long-term effects of assuming such substantial levels of debt amid smaller-than-expected fiscal buffers. The Office for Budget Responsibility predicts modest growth in public spending, highlighting a 1.5% annual increase, which may not be sufficient to meet Labour's commitment to leading growth within the G7.
As part of the budget plan, the UK Debt Management Office plans to issue £297 billion in government bonds for the fiscal year 2024-2025, aligning closely with market expectations. Key measures include raising the national insurance tax rate for businesses by 1.2 percentage points to 15% starting April 2025, reducing the tax threshold, and eliminating VAT exemptions for public school fees.
Other significant tax adjustments introduced by Reeves include increasing the lower and higher bands of capital gains tax from 10% to 18% and from 20% to 24%, respectively. Additionally, taxes on tobacco, air passengers, alcohol, and e-cigarettes will be increased. The capital gains tax rate on fund managers' profits will rise to 32%, and the windfall tax on oil and gas companies' profits will be elevated to 38%.
