The first Budget under the new Labour Government is scheduled for 30 October 2024.
Chancellor Rachel Reeves has already signalled the need for significant financial adjustments, including £13.5 billion in spending cuts over the next two years.
These reductions are necessary to address a £22 billion deficit in public finances, which the Chancellor attributes to the previous Government’s overspending.
Immediate financial strategies
To tackle this fiscal shortfall, Labour plans to halt and delay major infrastructure projects.
While these actions aim to stabilise public finances, they may also have wider implications for businesses involved in these sectors.
Businesses should evaluate the potential impact on their operations and consider how to adapt their strategies accordingly.
Tax strategy insights
Chancellor Reeves has indicated that the upcoming Budget will involve difficult decisions to align with Labour’s fiscal policies.
Although increases in Income Tax, National Insurance, and VAT have been ruled out, the Government intends to focus on closing tax loopholes and combatting tax avoidance.
Of particular note are possible changes to Capital Gains Tax (CGT) and Inheritance Tax (IHT).
Additionally, the Budget may reduce or eliminate reliefs like the Business Asset Disposal Relief (BADR), which could affect individuals selling businesses or significant shareholdings.
Businesses and individuals should prepare for these potential changes by reviewing their tax planning strategies.
Reforms and transitional policies
Labour plans to overhaul certain tax policies, including the abolition of non-domiciled status and its associated tax benefits.
The Government will replace this with a new scheme targeting those temporarily in the UK.
Furthermore, offshore trusts used for IHT avoidance will be targeted, ensuring that UK residents are taxed more equitably.
These reforms may require businesses and individuals to reassess their tax residency status and estate planning strategies to ensure compliance and tax efficiency.
Changes in benefits
Going forward, the universal winter fuel payment will no longer be universally available to all pensioners but will be restricted to those on pension credits or other means-tested benefits.
It shows that the Government is focused on targeting resources more effectively, which may impact financial planning for retirees.
Pension tax relief adjustments
Speaking of retirees, the Government is considering changes to pension tax relief, potentially equalising the relief rate across all income brackets, which could affect higher earners.
Additionally, there are rumours of a possible reduction in the 25 per cent tax-free lump sum currently available from pension pots.
These potential changes could alter retirement planning strategies, making it necessary to stay informed as more details emerge.
Ensuring fiscal responsibility
Labour’s commitment to fiscal efficiency is evident in the establishment of the Office of Value for Money.
This new body will oversee Government spending, ensuring that funds are used effectively. In addition, a Covid anti-corruption probe will be launched to recover funds lost to pandemic-related fraud, reflecting the Government’s focus on accountability.