UK Autumn Budget Announced: Increasing Tax Rates to Expand Investment

The British government announced the biggest tax increase since the 1970s as part of its autumn budget on October 30. Chancellor of the Exchequer Rachel Reeves has proposed a series of tax changes aimed at raising £40bn, mainly affecting high earners and the wealthy. The changes include higher rates of capital gains tax, inheritance tax and energy windfall tax, as well as planned changes to the tax structure for non-UK residents.

Employers' national insurance rates will rise by 1.2 percentage points to 15%, and the threshold at which employers start paying NI will be lowered, raising an estimated £25bn a year. Capital gains tax rates will also rise, from 10 per cent to 18 per cent for the low rate and 24 per cent for the high rate. The inheritance tax threshold will be frozen until 2030, raising more than £2 billion. In addition, the stamp duty surcharge on second homes will be increased to 5%, while tobacco duty, e-cigarette duty, private jet passenger duty and alcohol duty will be increased, while fuel duty will remain unchanged.

The government also plans to issue £297 billion of government bonds in the 2024/2025 financial year to support its fiscal plans. The measures are expected to raise £12.7 billion in tax revenue over the next five years and boost economic growth.

While the tax increase may have an adverse impact on business investment in the short term, the government has stressed that its priority is to boost economic growth. The budget also includes big investments in public services, especially health, education and infrastructure. For example, the daily budget of the National Health Service (NHS) will increase by £22.6 billion and the capital budget by £31 billion. On housing, the government will provide more than £5 billion of investment to increase the construction of affordable housing schemes. In the area of education, the government will provide an extra £6.7 billion for state schools, and special education funding will increase by £1 billion. On transport, the government promised high-speed rail and promised money to build a tunnel to London Euston.

The government's Office for Budget Responsibility (OBR) forecasts that the UK's overall tax burden will be 36.4 per cent of gross domestic product (GDP) by 2024/25, rising to a record high of 38.3 per cent by 2027/28. The OBR also warned that most of the tax increases would eventually be passed on to ordinary workers and consumers. Despite this, the UK government's monthly and annual borrowing continues to rise, with both public borrowing and net debt remaining high as a percentage of GDP.