Autumn budget 2024: Key announcements and analysis

Approximate read time: 20 minutes

1. Economic and fiscal context

Momentum in the UK economy has picked up since the start of 2024. Following a mild recession over the second half of 2023, gross domestic product (GDP) returned to growth in the first half of this year. The economy expanded over that period at the fastest pace in two years and by more than any other G7 economy.^[1] However, population growth meant the recovery in GDP per person was more subdued. GDP in the second quarter of 2024 was 2.9% higher than in the fourth quarter of 2019, prior to the Covid-19 pandemic. But GDP per person was still 0.6% lower.^[2]

Economic activity has been supported by lower inflation and rises in average wages outstripping price rises. The consumer prices index (CPI) increased by 1.7% in the 12 months to September 2024. This was the lowest year-on-year rate of inflation since April 2021 and the first reading below the Bank of England’s 2% inflation target over the same period.^[3] In real terms, average weekly earnings in August were higher than a year earlier for the 15th successive month, the longest unbroken run of rises since late 2021.^[4]

The Bank of England’s monetary policy committee expects inflation to rise somewhat over the rest of this year, reflecting a smaller drag on inflation from domestic energy bills than in the recent past.^[5] But the Bank of England’s latest forecast predicts that inflation will drop below the 2% target in the medium term, if interest rates move in line with financial markets’ expectations.^[6] A more benign inflation outlook resulted in the monetary policy committee cutting the official interest rate in August to 5% from 5.25%. This was the first reduction in bank rate since March 2020. In the monetary policy committee’s meeting in September, the committee held bank rate unchanged at 5% while judging that “a gradual approach to removing policy restraint remains appropriate”.^[7]

As of September 2024, government borrowing since the start of the current fiscal year stood at £79.6bn. This was above both borrowing in the same period in 2023/24 (£78.4bn) and the Office for Budget Responsibility’s (OBR) forecast in March 2024 of £73.0bn.^[8] Higher borrowing compared to the OBR’s forecast reflected higher than expected government spending on goods and services. According to the Office for National Statistics, this was partly a consequence of public sector pay rises and inflation.

The overshoot in government spending was offset to a degree by stronger than expected tax receipts, particularly income tax. Meanwhile, public sector net debt excluding public sector banks was estimated to be equivalent to 98.5% of GDP at the end of September 2024. This was four percentage points more than at the end of September 2023, and at levels last seen in the early 1960s.^[9]

2. Main measures in the budget

The chancellor of the exchequer, Rachel Reeves, delivered the first budget of the new Labour government to the House of Commons on 30 October 2024, describing it as a budget to “rebuild” Britain.^[10]

The budget raised public spending, tax and government borrowing compared to the previous government’s plans. The changes to public spending were larger than those for taxation, meaning public sector borrowing was forecast to be higher in each of the next five years relative to previous plans. Cumulatively, borrowing between 2024/25 and 2029/30 was forecast to be £142bn higher than previously expected, or around 1% of GDP per year. According to the OBR, this represented “one of the largest fiscal loosenings of any fiscal event in recent decades”.^[11]

The fiscal effects of the budget’s policy decisions are illustrated in table 1 below. In net terms, the budget loosened fiscal policy by a total of £24bn in the coming fiscal year (2025/26), with the loosening building to £41bn by the end of the forecast period in 2029/30.

Table 1. Fiscal cost of budget policy measures (£bn)

*Total may not sum due to rounding. (HM Treasury, ‘Autumn budget 2024: Fixing the foundations to deliver change’, 30 October 2024, HC 295 of session 2024–25, p 122)

2.1 Taxation

The chancellor announced a set of tax changes that would raise an additional £36.2bn, or just over 1% of GDP, a year on average in additional revenue. According to the Institute for Fiscal Studies (IFS), as a share of GDP, the rise in taxation by the end of this decade would be the second largest of any post-war fiscal event.^[12] The tax take is forecast to increase to a peacetime record high of 38.2% of GDP by 2029/30. This would be 5.1% of GDP higher than in 2019/20, just before the Covid-19 pandemic.

The most significant tax decisions announced by the chancellor, in terms of fiscal impact, were as follows:^[13]

National insurance contributions (NICs). From 6 April 2025:

• The rate of employers’ NICs will rise by 1.2 percentage points to 15%.
• The level at which employers start paying NICs for each employee will fall from £9,100 to £5,000.

Capital gains tax:

• For disposals made on or after 30 October 2024, the lower rate of capital gains tax will rise from 10% to 18%, and the higher rate from 20% to 24%.
• From 6 April 2025, the rates of capital gains tax that apply to carried interest (the share of the profits which arise to managers of an investment fund where the investments in a fund perform above a certain level) will rise from 10% and 28% to 32% and then to 36% in April 2026.
• Capital gains tax rates for business asset disposal relief and investors’ relief will rise to 14% from 6 April 2025 and match the main lower rate of 18% from 6 April 2026.^[14]

Inheritance tax:

• The previous freeze in inheritance tax thresholds until 2028 will be extended for a further two years until 2030.
• From April 2026, inheritance tax relief for business and for agricultural assets will be capped at £1mn, with a new reduced rate of 20% being charged on assets above that.
• From April 2026, inheritance tax chargeable on most shares listed on the alternative investment market (AIM) will be set at a rate of 20%, up from zero previously.
• From April 2027, inheritance tax will apply to pension wealth that is transferable at death (unused pension funds and death benefits).

Stamp duty:

• From 31 October 2024, the extra rate of stamp duty charged on additional homes will rise from 3% to 5%.

Changes to the regime for non-domiciled taxpayers:

• From April 2026, the current non-domicile tax regime will be replaced with a new residence-based system.

VAT:

• From 1 January 2025, VAT will be charged on private school fees and business rates charitable relief will be removed from private schools in England.

The changes to NICs were by far the largest of these measures, raising a forecasted £25.7bn per year by 2029/30.

Revenue-raising measures were partly offset by several tax reductions. These included:

• From 6 April 2025, the employment allowance for NICs will rise from £5,000 to £10,500 a year and the £100,000 threshold will be removed.
• Fuel duty will remain frozen and the temporary 5p cut in fuel duty announced by the previous government will be extended for one year to 2025/26.
• The current cash freeze in key income tax thresholds will end in 2028/29, at which point thresholds will rise in line with inflation.

2.2 Spending

The budget set out planned increases in public spending of an average of £69.5bn, or 2.2% of GDP, a year from 2025/26. On average, two-thirds of this increase will go on current, or day-to-day, spending and one-third on capital spending such as transport, housing, and research and development (R&D).

The rise in current spending announced in the budget represented the biggest real terms increase since the 2000 spending review.^[15] It was also significantly front-loaded. Day-to-day public service spending is set to be 4.8% higher in 2024/25 than in 2023/24, which the OBR said reflected a combination of the funding of undisclosed spending pressures that existed at the time of the March budget that had since come to light, and the cost of new policies announced by the government. Current spending is then set to grow by a further 3.1% in 2025/26 and by an average of 1.3% per year over the following three years.

The rise in capital spending announced in the budget will keep public investment broadly flat at around 2.5% of GDP over the next five years, rather than dropping to the 1.7% assumed in the previous government’s plans.

Total public spending is forecast to settle at 44.5% of GDP by the end of this decade, almost five percentage points higher than prior to the Covid-19 pandemic. Alongside additions to departmental spending, higher public spending reflected the government’s decision to set aside £11.8bn to compensate victims of the infected blood scandal and £1.8bn in compensation for victims of the Post Office Horizon scandal.

2.3 Fiscal rules

The chancellor announced a revised fiscal framework and three new fiscal rules.^[16]. The new fiscal rules are:

• A fiscal mandate for the current budget (the ‘stability rule’). This requires the current budget (tax revenues minus day-to-day spending) to be in surplus by 2029/30. The time horizon for the mandate will be reduced to three years from five years in 2026/27.
• A supplementary target for public sector debt (the ‘investment rule’). This requires public sector debt as a share of GDP to fall between the fourth and fifth years of the forecast period (2028/29 and 2029/30). As with the fiscal mandate, the time horizon will be reduced to three years from five years in 2026/27. The measure of debt used in the supplementary target will be public sector net financial liabilities (PSNFL), or what the chancellor termed ‘net financial debt’ for short. Net financial debt captures all financial assets (such as equity holdings and loans) and financial liabilities (such as funded pensions obligations) on the public sector balance sheet. As a result, it encompasses a wider range of the public sector’s assets and liabilities than the definition of debt (public sector net debt excluding the Bank of England) targeted in the previous government’s debt rule.
• A revised welfare cap, with the target year updated to 2029/30.

A shorter time horizon for the fiscal rules was a reform which had previously been recommended by organisations including the Organisation for Economic Co-operation and Development (OECD), the IFS and the Institute for Government (IfG). According to the IfG, a three-year horizon would:

[…] allow government to respond to relatively minor shocks (with an impact of three years or less) while staying within the rules and […] reducing the potential for gaming through pencilling in implausible spending plans.^[17]

In the OBR’s view, the change in the measure of debt used for the supplementary target presents some risks. These stem from:

[…] the complexities in valuing the additional financial assets and liabilities included in PSNFL, the risk profile of new financial assets created or acquired by the national wealth fund and other public bodies as part of their investment activities, and the incentive that the use of PSNFL as a fiscal target creates for the government to deliver policy through loans and equity injections.^[18]

2.4 Other measures

Several other policy decisions were also announced by the chancellor. These included:

• National minimum wage. From April 2025, the national minimum wage for 18 to 20-year-olds will be £10.00 per hour, an increase of 16.3%, representing the largest ever increase in both cash and percentage terms.
• Investing in additional HM Revenue and Customs staff (HMRC). The government will invest £1.7bn over the next five years to recruit an additional 5,000 HMRC compliance staff and 1,800 HMRC debt management staff.

3. Economic forecast

Alongside the budget, the OBR published updated economic and fiscal forecasts in its economic and fiscal outlook.^[19]

The OBR judged that the policies announced in the budget would temporarily boost GDP in the near term relative to its last forecast in March 2024, but leave the size of the economy largely unchanged at the end of the five-year forecast period. Higher government spending was projected to support economic activity. However, this was expected to be offset by a drag from tax rises, while increased government spending ‘crowded out’ some consumption, investment, and net exports in an economy which the OBR judged to have little spare capacity. In addition, looser fiscal policy meant monetary policy was expected to be tighter than otherwise.

In the longer term, the OBR predicted that extra public sector investment would help to raise growth. However, reflecting the lagged impact of a larger public capital stock on potential output, this boost was expected to only emerge from the early 2030s onwards. The effect on growth was also predicted to be modest. According to OBR analysis, if the rise in public sector investment announced in the budget was sustained as a share of GDP, the economy would be around 1.5 percent bigger after 50 years.^[20]

The OBR forecasted real household disposable income per person to grow just over 0.5% a year on average over the next five years, the joint lowest on record. Compared to the OBR’s March forecast, the level of real household income per person was forecast to be 1.25% lower by the start of 2029. The bulk of this difference (around 85%) was explained by policies announced in the budget. In particular, the OBR assumed three-quarters of the rise in NICs would ultimately be funded by employers paying less than in the absence of the tax increase.

The OBR expected the fiscal loosening announced in the budget and some pass-through of employer NICs to consumer prices to push up CPI inflation by a peak of around 0.5 of a percentage point. CPI inflation was projected to rise to 2.6% in 2025, and then gradually fall back to the Bank of England’s 2% target.

Table 2 below provides a summary of the OBR’s latest projections for key economic indicators, relative to what it was previously expecting in March 2024.

Table 2. Forecasts for selected economic indicators relative to previous OBR forecast

(Office for Budget Responsibility, ‘Economic and fiscal outlook’, October 2024, CP 1169, p 168; and Office for Budget Responsibility, ‘Economic and fiscal outlook’, March 2024, CP 1027 p 146)

4. Fiscal forecast

The OBR forecasted that public sector borrowing would be £28.4bn or 0.9% of GDP a year higher on average over the forecast period compared to its expectations in March. The bulk of the rise in borrowing reflected the impact of measures announced in the budget, with a smaller contribution coming from higher inflation pushing up debt interest spending.

In assessing the government’s new fiscal rules, the OBR forecasted that the current budget target would be met two years earlier than required and by a margin of £9.9bn (0.3% of GDP) in the target year of 2029/30. The OBR forecasted that public sector net financial liabilities would decrease in each of the final three years of the forecast and fall by 0.5% of GDP (£15.7bn) in 2029/30, meaning that the investment rule is also expected to be met.

The £9.9bn in headroom the chancellor retained against her current budget target is small by historical standards. It is around a third of the £28bn average headroom that previous chancellors held against their rules since 2010.^[21].

Table 3 below illustrates the OBR’s latest forecast for public sector borrowing and debt, including public sector net financial liabilities.

Table 3. Public sector borrowing, debt and net financial liabilities (% of GDP)

(Office for Budget Responsibility, ‘Economic and fiscal outlook’, October 2024, CP 1169, p 176; and Office for Budget Responsibility, ‘Economic and fiscal outlook’, March 2024, CP 1027, p 154)

5. OBR review into the preparation of its public spending forecast in March 2024

Alongside the economic and fiscal outlook, the OBR published its review into the preparation of its March budget 2024 public spending forecast.^[22] This review was launched in July 2024, in the wake of the Treasury’s ‘Fixing the foundations’ document, which identified an estimated £21.9bn of unfunded net pressure on public spending plans for 2024–25 not included in the March 2024 OBR forecast.^[23] The government has repeatedly referred to these pressures, including in the chancellor’s budget speech, as a “black hole” in the public finances.^[24]

The OBR’s review was concerned with the adequacy of the information and assurances provided to it by the Treasury regarding departmental spending in the usual forecast preparation meetings held in advance of the March 2024 budget.

The review found that in the run-up to the March 2024 budget, the Treasury had information about £9.5bn of net pressures on departments’ budgets in 2024/25 which it did not share with the OBR. In the OBR’s view, “had this information been made available, we would have reached a materially different judgement about resource departmental expenditure limits (DEL) [ie day-to-day] spending in 2024/25”. According to the OBR, “the £23bn that the October 2024 budget has added to resource DEL spending this year reflects a combination of a decision to fund those pressures and new policies announced since March”.

6. Reaction to the budget

6.1 Political reaction

The chancellor of the exchequer, Rachel Reeves, described her budget as one which would restore stability to the public finances, protect working people, fix the NHS, and “rebuild Britain”.^[25]

In the opinion of the leader of the opposition, Rishi Sunak, the October budget was one “that contains broken promise after broken promise and reveals the simple truth that the prime minister and the chancellor have not been straight with the British people”. Mr Sunak went on to characterise the budget as:

[…] the fiscal rules fiddled, borrowing increased by billions of pounds, inflation-busting handouts for the trade unions, Britain’s poorest pensioners squeezed, welfare spending out of control and a spree of tax rises that the government promised the working people of this country they would not do.^[26]

The chair of the House of Commons Treasury Committee, Dame Meg Hillier (Labour), welcomed the “certainty and predictability” provided, in her view, by the government’s new fiscal rules.^[27] She considered the decision to raise employers’ NICs “understandable”, with the measure bringing “money into the Exchequer at a faster pace than some of the other measures that were mentioned in the media”. But with reference to the budget’s announcements of a rise in employers’ NICs, the reduction in the threshold at which employers start paying NICs, and the rise in the minimum wage, she acknowledged concerns over how some of the budget measures could interact and said this would be something that the Treasury Committee would examine.

Ed Davey, leader of the Liberal Democrats, welcomed some of the budget’s announcements, including plans to increase capital spending, compensation for the victims of the contaminated blood scandal and the Horizon scandals, extra spending on the NHS and the rise in the national minimum wage.^[28] But he argued that the budget failed to deliver on expectations, with the government “ignoring […] the crisis in social care”, choosing “unfair tax hikes that will hurt small and medium-sized businesses” and not addressing “the crisis in local council funding”.

6.2 Think tanks

Paul Johnson, director of the IFS, characterised the budget as “two big judgements—one could say gambles”.^[29] In Mr Johnson’s view, the first judgement was that the extra public spending would be enough to turn the performance of public services around and that many of the current temporary spending pressures would not persist. But if this judgement proved wrong, the chancellor “may well need to come back with another round of tax rises in a couple of years’ time—unless she gets lucky on growth”.

The second judgement was that the increase in borrowing announced in the budget would prove worthwhile and that “the benefits—from more funding for public services in the next couple of years, and from more public investment throughout the parliament—will more than offset the costs”. These costs include higher debt servicing costs and, in the OBR’s expectation, higher inflation and higher interest rates than would have otherwise been the case.

In the Resolution Foundation’s view, plans for public spending announced in the budget “dispelled previous fiscal fictions” around what it considered the implausibly tight spending trajectory intended by the previous government.^[30] However, the think tank warned that “families are also set for a further squeeze on living standards as the rise in employer national insurance dampens wage growth”. Moreover, it felt the tax rise would fall heavily on low-earning jobs, and, in the Resolution Foundation’s view, potentially further incentivise “bogus” self-employment. It also said that while increased public investment would be a positive for growth, “the other elements of the growth strategy—on skills, on planning, on industrial policy and more—are only looking more crucial”.

The National Institute of Economic and Social Research (NIESR) welcomed the budget’s announcements of higher spending on public services and more public investment. But it considered the autumn fiscal event “a missed opportunity to rethink the fiscal framework and formulate a wider strategy for economic renewal”.^[31] In NIESR’s view, “the government has widened the fiscal straitjacket rather than throwing it off” and the new fiscal framework would continue to keep public investment below an economically desirable level.

Harry Quilter-Pinner, interim executive director at the Institute for Public Policy Research (IPPR), said that plans to increase public sector investment would take investment as a share of GDP to the highest level since the 1970s. In his view, this would be “a big win” for the economy.^[32]

However, Robert Colville, director of the Centre for Policy Studies, believed the chancellor had “delivered a budget which—as the Office for Budget Responsibility’s own figures show—will reduce business investment, trade and private sector activity, propping up the economy via higher state spending”.^[33] According to Mr Colville, “the budget also leaves Britain with staggeringly high—and historically unprecedented—levels of tax and spending, with growth forecasts well below the levels required to sustain even current levels of welfare spending, never mind meet the demands of an ageing population”.

Sebastian Payne, director of Onward (a conservative think tank), described the latest fiscal event as:

[…] a bad budget for both trust in politics and small businesses. Labour was given a mandate for ‘change’ and the wide-ranging increases in tax announced today will do little to deliver what people wanted, or help employers.^[34]

He described it as the “most traditional Labour budget since the 1970s”, stating that increased borrowing needed to be met with complementary supply side reforms (such as in planning and nuclear energy).

Tom Clougherty, executive director at the Institute of Economic Affairs, was also generally critical, saying that the tax rises announced in the budget “will be a bitter pill for firms to swallow”.^[35] He welcomed decisions not to extend the freeze on income tax and national insurance thresholds and to put greater emphasis on assessing the costs and benefits of capital spending. However, he said “the worry is that Britain’s international competitiveness and economic dynamism are facing death by a thousand cuts”.

7. Read more

• House of Commons Library, ‘Autumn budget 2024: A summary’, 31 October 2024
• House of Commons Library, ‘Autumn budget 2024 and Finance Bill 2024–25’, 31 October 2024
• HM Treasury, ‘Autumn budget 2024: Fixing the foundations to deliver change’, 30 October 2024, HC 295 of session 2024–25
• Office for Budget Responsibility, ‘Economic and fiscal outlook’, 30 October 2024, CP 1169
• HM Treasury, ‘A strong fiscal framework: Explaining the government’s new fiscal framework and rules’, 30 October 2024

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Cover image by Kirsty O’Connor/HM Treasury on Flickr.