October 30th 2024.
The latest Budget measures have just been announced, and people are eager to know how it will affect their daily lives. From cheaper pints at the pub to a boost in the minimum wage, there are a lot of changes to take in. This is the first Budget in over a decade from the Labour party, and it's also the first time a female Chancellor, Rachel Reeves, has delivered the statement. However, with a whopping 40 billion pound increase in taxes, some may be wondering if it's really the best move for the country after 14 years of Conservative rule.
Regardless of your political beliefs, the decisions made in this Budget will have an impact on your wallet. Will you come out ahead or feel the sting? To help break down the effects for different individuals, we turn to Metro's consumer champion, Sarah Davidson. But before we dive into that, let's take a closer look at some of the key points of the Budget.
For those working on the national living wage, Labour has promised to protect them from the tax hikes announced in this Budget. As of April next year, the National Living Wage will increase from £11.44 to £12.21 per hour, meaning a pay rise of £1,602 per year for someone working 40 hours a week. And it's not just those on the national living wage who will see an increase - 18 to 20-year-olds will now have a minimum wage of £10 per hour, while under-18s and apprentices will receive at least £7.55 per hour.
For those who pay income tax and national insurance, Reeves made a bold statement that she will not increase these taxes. However, this is a bit misleading as the previous government had already frozen income tax and NI thresholds until 2028. This means that even with no increase, people will still end up paying more due to inflation - a tactic known as fiscal drag. So while it may seem like a promise fulfilled, it's not exactly as straightforward as it seems.
If you're earning more but keeping less, you're not alone. By freezing income tax bands, more people will be pushed into higher tax brackets, resulting in an increase in national insurance and income tax. For example, if you earn up to £37,700, you pay 20% income tax and 8% national insurance. But with a pay rise of £2,300, taking you to £40,000, you'll now have to hand over 40% of that pay rise to HMRC, plus 8% in national insurance. This means you'll end up with just £1,196 of your pay rise, instead of the full £2,300. If income tax bands had been raised in line with inflation, you would have paid £380 less to HMRC.
The impact of the Budget goes beyond just taxes. For those working or trying to get a job, there are changes to employee and employer national insurance contributions. While employee contributions will remain at 8%, employers will now have to pay an additional 1.2% of their employees' salaries to HMRC, bringing their total contributions to 15%. This, along with the rise in the national living wage and the cost of training apprentices, may result in companies cutting jobs or hiring fewer people to cover their higher costs.
Small businesses will also feel the pinch as the bulk of the £40 billion tax increase is placed on them. Along with higher national insurance, businesses will now have to pay national insurance on each employee's salary over £5,000, instead of the previous threshold of £9,100. This will likely result in lower profits for businesses, which could lead to lower pay rises, job losses, or hiring freezes. To help ease the burden for smaller businesses, the government has increased the employment allowance from £5,000 to £10,500.
For homeowners, there is a focus on providing more affordable housing. The Budget includes plans to boost the number of new homes being built, particularly social housing. There are also changes to the Right to Buy discount and planning rules, as well as a £3 billion investment to support smaller housebuilders in delivering 1.5 million new homes over the next five years. However, it can take years for these investments to result in actual availability of homes, and private housing developers may limit the stock of new homes to keep prices from falling.
For those renting their homes, there are both positive and negative effects. On the one hand, the increase in stamp duty for second properties means more homes will be available for first-time buyers and those moving house. On the other hand, this also makes it more expensive for landlords to invest in rental properties. Since 2016, landlords have sold over 1.5 million properties, and this increase in stamp duty could lead to a net loss of half a million homes to rent over the next 10 years. This, along with other factors such as tax reliefs and stricter rules, may result in a decrease in the supply of rental properties, leading to higher rents.
Overall, the new Budget measures have a wide-reaching impact, from workers to businesses to homeowners. While some may benefit from pay rises and more affordable housing, others may feel the sting of higher taxes and living costs. As always, it's important to stay informed and understand how these changes may affect you personally.
The unveiling of the new Budget measures has been the talk of the town lately – and for good reason. It's always important to understand how these changes will impact us, the everyday people. So, let's break it down and see what it means for you.
First and foremost, let's take a look at some of the key highlights from Labour's first Budget in over a decade, and the first one ever from a female Chancellor, Rachel Reeves. Among the many measures announced, some of the most notable ones include a penny reduction in the price of a pint at the pub, efforts to keep the cost of petrol down, and a well-deserved pay boost for the country's lowest paid workers.
However, the biggest attention-grabber from this Budget is the whopping £40 billion increase in taxes, the largest hike since 1993. Both Reeves and Prime Minister Sir Kier Starmer have defended this decision, claiming that it is the responsible thing to do to get the country's finances back on track after 14 years of Conservative rule. But regardless of your political beliefs, it's clear that these changes will have a direct impact on your wallet. The question is, will you see a positive or negative effect?
To help us better understand the implications of this Budget, we turn to Metro's consumer champion, Sarah Davidson. She's here to break down how people from different walks of life will be affected. But before we dive into that, make sure to follow our live blog for all the latest updates on the Budget.
Now, let's explore how these changes will impact you based on your current situation.
If you are currently working and earning the national living wage, you'll be pleased to know that Labour has kept their promise to protect workers from the worst of the tax increases. As of April next year, the National Living Wage will be increased from £11.44 to £12.21 an hour, benefiting around three million lower paid workers. This means an individual working 40 hours a week will see a pay rise of £1,602 per year, according to analysis from tax firm Blick Rothenberg. Additionally, younger workers will also receive a pay rise, with the minimum wage for 18 to 20-year-olds set at £10 an hour, and under-18s and apprentices receiving a minimum of £7.55 per hour.
For those of you who are currently working and paying income tax and national insurance, Reeves made a bold promise to protect you from being pushed into higher tax brackets. She stated that the income tax and national insurance thresholds will remain frozen from 2028/29 onwards. However, this may not be as good as it seems. While it is technically true that these thresholds will not change, they have been frozen since 2022, meaning they have not been adjusted for inflation. This is known as "fiscal drag" and is essentially a sneaky way for the government to increase the overall amount of income tax paid by individuals. So, while your income may be increasing, you may end up paying more in national insurance and income tax.
Let's take a closer look at how this works. If you earn up to £37,700 this year, you pay income tax at 20% and national insurance at 8%. If you were to receive a pay rise of £2,300, bringing your income to £40,000 next year, you would become a higher-rate taxpayer. This means you'd have to hand over 40% of your pay rise to the HMRC, plus 8% in national insurance. Under the current rules, this would result in paying £920 more in income tax and £184 more in national insurance, leaving you with only £1,196 of your pay rise to take home. However, if the income tax bands had been raised in line with inflation, you would have paid £380 less to the HMRC and national insurance, leaving you with a higher take-home pay of £1,576. As you can see, while you may be earning more, you're actually keeping less due to the frozen thresholds.
Moving on to those who are currently working or trying to secure a job, the Budget will have some significant implications for you as well. While employee national insurance contributions will remain at 8%, companies will now have to pay an additional 1.2% of their employees' salaries to the HMRC, bringing their total contributions up to 15%. Along with the increase in the national living wage and the cost of training apprentices, this means that businesses may have to cut jobs or hire fewer people to cover their higher costs. According to Robert Salter, a director at Blick Rothenberg, this could lead to increased unemployment over time. His colleague Heather Powell also warned that those working in certain sectors, such as retail, leisure, and hospitality, may be at a higher risk of job losses due to the additional costs for employers.
If you work for a small firm, you may feel the impact of this Budget even more, as the bulk of the £40 billion tax hike will be placed on businesses. In addition to the higher national insurance contributions, businesses will also have to pay national insurance on each employee's salary over £5,000, which is significantly lower than the current threshold of £9,100. This means that even with the government's decision to raise the employment allowance from £5,000 to £10,500, most companies will still see their profits decrease. This could lead to lower or no pay rises for employees, job losses, and hiring freezes.
For homeowners, the Budget has a strong focus on increasing access to affordable housing, with plans to build 1.5 million new homes over the next five years. This includes efforts to boost the number of social housing and changes to the Right to Buy discount. However, these changes may take some time to see the real impact, as investment in housing takes years to result in actual availability. On a more immediate note, the Office for Budget Responsibility's report forecasts a modest increase in inflation as a result of the policies announced in this Budget. This means that we may see higher interest rates, and thus, higher mortgage rates. So, if you're a homeowner, it's important to keep an eye on this and consider your options for refinancing your mortgage.
For renters, there is some good news and some not-so-good news. On the positive side, those buying a second property or additional dwelling will have to pay an extra 5% in stamp duty, which should result in more homes being available for first-time buyers and those looking to move. However, this could also have a negative impact on the rental market. Since 2016, landlords have sold over 1.5 million properties, and increasing stamp duty on rental properties may lead to a further reduction in available rental homes. This could result in higher rents or even job losses in the rental market. So, if you are currently renting, it's important to keep an eye on these developments.
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