The latest budget introduces several impactful changes aimed at bolstering the economy while addressing social welfare, healthcare and education.
Taxes are set to rise by £40 billion, the biggest budget announced since 1993.
Employers will see an increase in national insurance contributions from April 2025, with rates moving to 15% (from 13.8%), while the threshold for these contributions lowers to £5,000 annually (from £9,100).
Additionally, capital gains tax (CGT) on asset sales will see an increase, with rates climbing to 18% (from 10%) and 24% (from 20%) for lower and higher bands respectively. The freeze on inheritance tax has also been extended until 2030, while the stamp duty surcharge for second homes will increase to 5% (from 3%).
Tax thresholds will remain frozen until 2028 where bands will then increase at the rate of inflation.
The freeze on inheritance tax will continue for a further two years until 2030. This means the first £325,000 can be inherited tax-free, rising to £500,000 if the estate is passed to direct descendants, and £1m if it’s passed to a surviving spouse or civil partner.
A notable boost to social welfare funding includes £240 million for health and employment support for disabled individuals and those with long-term illnesses. In a positive shift, the minimum wage will rise by 6.7% to £12.21 per hour for those aged 21 and over and by 16.3% to £10 per hour for those aged 18-20. Meanwhile, new measures in Universal Credit will reduce repayment rates for overpaid allowances, benefiting approximately 1.2 million low-income households.
The maximum amount allowed in an ISA (individual savings account) will be frozen at £20,000 until 2030.
Businesses will experience a mixed impact from the new budget. The employment allowance increase (up to £10,500 annually from £5,000) will relieve some national insurance pressure for smaller companies, while business rates relief in retail, leisure, and hospitality will reduce from 75% to 45%.
The NHS budget will grow substantially, receiving £22.6 billion for daily operations and an additional £3.1 billion for capital investment in hospital facilities, including 40,000 extra weekly procedures and 1,500 new hospital beds. Social care services will also see increased support with a £600 million local government allocation for essential social care services.
Schools and students are at the forefront of new funding, with £1.4 billion allocated for rebuilding outdated schools and £300 million annually to address school maintenance. The initiative also increases the school breakfast budget to £30 million by 2025 and 2026, with significant investments to support special educational needs and vocational education.
VAT will be introduced on private school fees from January 2025 and schools’ business rates relief will be removed from April 2025.
The government forecasts economic stability by 2027-2028, expecting a surplus in public finances earlier than initially planned. Inflation is anticipated to ease towards a 2% target, with the Bank of England adjusting interest rates accordingly. The budget aims for a balanced trajectory, prioritizing both fiscal prudence and meaningful investments across sectors.
Fuel duty will be frozen this year and next, with the existing 5p cut maintained.
There will be a cut to draught alcohol duty of 1.7%, which will make a pint bought on draught cheaper by 1p.
The tax on tobacco will rise at the rate of inflation plus an additional 2%. There will also be a new flat rate duty on all vaping liquid of £2.20 per 10ml from October 2026.
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