The Budget in brief: what you need to know

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UK chancellor Rachel Reeves has announced £40bn of tax rises and pledged to improve public services as she delivered Labour’s first Budget in 14 years. Here are the key points.

Main policy announcements

• Employer taxes A 1.2p increase in employer national insurance contributions to 15p from April and a reduction of the earnings threshold at which payments begin, raising £25bn a year by 2030. Corporation tax is capped at 25p during the current parliament.

• Personal tax The existing freeze in earnings thresholds for income tax and national insurance will end in 2028. The freeze drags more people into the tax net or higher tax brackets each year as their pay rises.

• Spending NHS’s day-to-day budget to increase by £22.6bn with a £3.1bn capital budget increase. Investment in schools to rise by £6.7bn, a 19 per cent real-terms increase.

Other key measures

• Non-doms Trusts used by non-doms to shelter assets offshore will be made subject to inheritance tax.

• Private equity Tax will rise on “carried interest” paid to fund managers on successful deals. The current 28p rate will increase to 32p with further reform to follow.

• Capital gains tax Lower rate increased from 10p to 18p. Higher rate rises from 20p to 24p. CGT on residential property unchanged.

• Inheritance tax New 20p rate for shares in Aim-listed companies, which were previously exempt. Inherited pensions will be taxed. Inheritance tax relief for business owners is reduced, beyond the first £1mn. The changes will raise about £2bn a year.

Fiscal outlook

• Tax burden Tax as a share of GDP is forecast to rise to 38.3 per cent of GDP in 2027-28, from 36 per cent in 2023-24.

• Budget deficit The Office for Budget Responsibility says the budget will turn to a surplus of £10.9bn in 2027-28, and the government says it will achieve its “stability rule” of using revenues to cover its costs.

• Borrowing is forecast at £127bn this financial year, up from the £87bn forecast in March. It will be £72bn in 2028-29, up from the £39bn previously forecast.

• Public debt This will be redefined to allow extra borrowing. The OBR says the government’s self-imposed target to have debt falling within five years will be met two years early.

• Investment An additional £100bn will be invested in capital spending over the next five years.

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Economic forecast

• Economic growth The economy will expand by 1.1 per cent in 2024, up from the 0.8 per cent forecast in March, climbing to 2.0 per cent in 2025. However, the growth forecasts for 2026, 2027 and 2028 were revised down, leaving growth flat over the period.

• Inflation is forecast to be 2.5 per cent in 2024 — up from the 2.2 per cent forecast in March, rising to 2.6 per cent in 2025.

• Living standards Real disposable income per person, a measure of living standards, is forecast to fall by 1.25 per cent at the start of 2029 compared to March forecasts, as tax bills rise and employers seek to offset their costs by keeping wages down.

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Additional reporting by Emma Agyemang