Autumn Budget Overview: The Key Takeaways

Measures Impacting Businesses, Savers and Investors

As regards business, savers and investors, the main policies announced in the budget are as follows:

The rate of Employers National Insurance (NI) contributions is raised by 1.2%, from 13.8% to 15%, whilst at the same time the salary threshold at which companies pay the tax has also been lowered, from £9,100 a year to £5,000 a year. This measure is expected to provide the bulk of the tax raise to the tune of £25 billion per year. This is partly mitigated by the increase in employment allowance from £5,000 to £10,500.

The state pension will rise in line with average earnings by 4.1% in April to £230.30 a week, or £11,975 a year, a £473 increase.

From 2028-29, personal Income tax and National Insurance thresholds will be uprated in line with inflation.

The Capital Gains Tax (CGT) rate on non-residential assets will rise from 20% to 24% at the higher rate and from 10% to 18% at the lower rate. This tax hike is expected to generate £2 billion per year.

ISA subscription limit of £20,000 per year frozen until 2030 and plan to create a UK (British) scrapped.

Inheritance tax thresholds will be frozen until 2030.

Inherited pensions will fall under the scope of the Inheritance tax regime (IHT) from April 2027.

The Business Asset Disposal Relief (BADR) and Investors’ Relief (IR) rate will increase to 14% from 6 April 2025 and 18% from 6 April 2026. 

AIM shares held for two years and eligible for Business Relief have had their potential inheritance tax (IHT) relief cut in half, with inheritance tax (IHT) chargeable on most AIM shares poised to be set at an effective rate of 20%.

Agricultural and Business Reliefs would still be retained up to £1m, however over this threshold an effective rate of 20% would apply.

Increase to 5% of the Stamp Duty Land Tax (SDLT) surcharge on the purchase of second homes.

A Summary of the Autumn Budget

The fiscal measures announced in the October Budget by the first female Chancellor of the Exchequer Ms Reeves, amount to a total tax increase worth £40 billion.

According to projections elaborated by the Office for Budget Responsibility (OBR), the government public finances’ independent watchdog, the policies adopted are expected to push the tax take to a historic high of 38% of the UK economy as measured by Gross Domestic Product (GDP) by 2029-30.

Budget policies entail an increase in spending by almost £70 billion (a little over 2% of GDP) a year over the next five years, in the words of the OBR amounting to “one of the largest fiscal loosening of any fiscal event in recent decades”.

The OBR forecast the net effect of Budget policies is to increase borrowing by £19.6 billion this year and by an average of £32.3 billion (1% of GDP) over the next five years.

In brief, a classic “tax and spend” Budget.

The Economic Forecast

Although promoted as a “growth” Budget by the government, the likely effect on the UK economy of the announced measures is probably not going to be momentous.

According to the OBR projections, having stagnated last year, the UK economy is expected to grow a little over 1% this year in real terms (i.e. adjusted for inflation), rising to 2% in 2025, before falling to around 1.5% for the rest of the forecasting period, i.e. until 2029.

Budget policies are expected to push up headline inflation as measured by the Consumer Price Index (CPI) by around 0.5% percentage point at their peak, meaning it is projected to rise to 2.6% in 2025, and then gradually to fall back to the 2% mandatory target pursued by the Bank of England.

What is the Impact on Financial Markets?

In the near term, Budget policies should temporarily boost output and the rate of growth of the UK economy as measured by GDP, hence should not create any particular headwind for the stock market, as economic growth will support companies’ earnings, and the Budget did not contemplate any increase in corporation tax.

The FTSE 100 stock index of larger companies closed the day slightly in negative territory (-0.73%). It is likely the announcement in the Budget of the continuation of the Energy Profits Levy, which will increase to 38% as of November 2024, might have played a role, impacting investors’ sentiment as regards the shares of companies in the oil & gas sector listed on the index.

By contrast, FTSE 250 stock index of medium and small companies delivered a positive return of 0.35% and the AIM 100 stock index jumped by 4%. Performance of the latter was probably buoyed by the Budget retaining half of the Inheritance Tax relief enjoyed by the shares of eligible companies listed on the index.  

So, hardly a vote of no confidence on the part of equity investors.

Less good news came out of the UK government debt market. Following the announcement of the policies listed in the Budget, the price of the UK 10-year Gilt (government bond) fell, and yields rose to their highest level in 5 months.

This might have been caused by the considerable size of the increase in government spending expected to greatly augment the supply of UK government debt on the market, a flow of government bonds which might not necessarily find many willing buyers, hence causing the price of gilts to fall.

As the former Governor of the Bank of England Mark Carney was fond of reminding us, the UK government debt market is quite dependent on the “kindness of strangers”, i.e. investors worldwide willing to buy UK gilts. 

Add to mix the possibility of a short-term rise in inflation as forecast by the OBR and the negative reaction on the part of investors in the gilts market makes sense.

However, it is too early to extrapolate from the immediate movements in the gilts market post Budget if an uptrend in yields (falling prices) is establishing itself in the gilts market, particularly considering the Bank of England is expected to cut interest rates in the near term, which should provide a tailwind for the price of UK government debt.

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