The Robin Hood Budget: stealing from the rich. October 2024

Wednesday’s Autumn Budget statement saw Chancellor of the Exchequer Rachel Reeves outlining her party’s “mandate to restore economic stability… and deliver change”. Well, change is inevitable when you alter Britain’s entire fiscal framework and raise taxes by £40 billion; in doing so it’s easy to promise the earth and to say you’ll divert funds into infrastructure and the NHS.

But it remains to be seen how this will manifest in terms of Reeves’ plan to fix what she has described as “broken finances”, inherited from the previous government. This includes a “£22 billion black hole in public finances”, albeit the Office for Budget Responsibility (OBR) has denied any record of this being in the Conservatives’ figures.

And the Chancellor’s selective hearing as far as working with the OBR is evident elsewhere, since its review of this latest Budget has stated that plans to raise taxes by £40 billion will “weaken long-term growth in Britain’s economy”. This is in stark contrast to Labour’s Manifesto, a major focus of which was “kickstarting economic growth”, bearing in mind Reeves has claimed she has “inherited the worst set of [economic] circumstances since the Second World War”.

Perhaps the new Chancellor – Labour’s first in 14 years and the first female ever to deliver a Budget statement – felt she had to make her mark. In doing so she said she was compelled to make some “difficult decisions”, and this has largely come in the shape of tax rises, rather than spending cuts. Ostensibly, her bid to not increase National Insurance (NI) contributions, Income Tax or VAT for the “working people” is a positive step when so many of us are still financially burdened by a cost of living crisis. Realistically, though, her focus on putting “more pounds in people’s pockets” leaves businesses bearing the brunt of these decisions. Indeed, the major news to come out of Westminster is an increase in NI contributions by employers.

While this is a bid to protect the working people and avoid a “return to austerity”, maybe she has forgotten just how hard the working people, i.e. the founders of the 5.6 million small- to medium-sized businesses affected that make up the backbone of the UK economy, have worked to be successful. Particularly in the last few years.

And it was only in the last few years (in 2021) that the Tories floated this NI idea … only to reject it because the OBR expected 80% of the cost to be passed to employees in the form of lower wages, and the remaining 20% to be passed to consumers through higher prices of goods and services. There’s nothing to say that this would not still be true and it’s counterintuitive to put the burden of recuperating the deficit squarely on the shoulders of businesses; they aren’t going to be incentivised to grow and hire more staff if they’re effectively going to be penalised financially for doing so.

Naturally, there are some positives. The “stability” promised by Reeves comes in the shape of business rates relief for the retail and hospitality sectors – still struggling in the wake of COVID – a guarantee that corporation tax rates will stay the same, and annual investment allowance and R&D relief remaining unaffected. Nor can we begrudge the members of society earning the minimum wage the increases announced.

But the ramifications of higher NI contributions will inevitably outweigh these positives, resulting in SMEs being faced with increased payroll costs, a slowdown in wage growth, possible layoffs and likely scaling back growth plans. Businesses employing unskilled labour may also question whether that is the best way forward for their business growth, and this may well play out in the shape of poorer youth employment figures, when we’re already struggling with recruiting a workforce than can facilitate Britain delivering on its various promises.

Where the UK’s employment rate is still not back to pre-pandemic levels and the job market has already been described as “truly dire”, a move that will lead to fewer jobs, not more, with a disgruntled workforce as employees face longer hours to fill gaps where companies are reticent to hire, is pure economic illiteracy. It’s like putting up tax on alcohol and cigarettes – which Reeves has also done in the shape of an increase in alcohol duty in line with RPI, the introduction of a flat rate duty on all e-cigarette liquid plus a 10% rise in tobacco duty – and expecting people to drink and smoke more. However this is wrapped up, it is a tax on jobs and will inhibit, not promote, growth.

Meanwhile, the Chancellor has also announced an overhaul of Capital Gains Tax (CGT), which is charged on the profit made from the sale of assets. This includes the sale of any business, making it far less appealing to set up and conduct business on British shores. Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief) has historically allowed business owners to benefit from a reduced rate of CGT, paying only 10% on the first £1m of gains on qualifying assets when selling (or disposing of) a business. Reeves’ plan to raise this to 14% in 2025 and then 18% in 2026 will be a blow for those whose hard-earned successes have involved battling through a turbulent financial market in recent years. It might force people to sell in the short-term to avoid paying the extra tax. Or they might just wait for the foreseeable, as they do not have to sell – in which case, where is the money going to come from?

Aside from this Budget being a regressive raid on business growth, when it should be designed to be the exact opposite, it is also an attack on the wealthy from the point of view of pensions being subject to Inheritance Tax (IHT), Labour’s move to increase Stamp Duty Land Tax (SDLT) on anyone that owns more than one residential property (including landlords), and the removal of VAT exemption on private school fees. Perhaps Reeves sees herself as the Robin Hood of the 21^st century?

IHT already feels like a pernicious tax. If an individual works hard, buys their own house, makes investments, contributes to their pension, etc, those assets will have already been paid for out of taxed income. It feels wrong to impose what is effectively a double tax on what they leave to relatives. IHT thresholds for gifts and the nil rate band have not increased with inflation for what feels like decades, so to limit reliefs on leaving a business or farm on death to £1 million will just mean some businesses and farms will cease to function in order to pay the tax with a consequential loss of jobs. And yet this change too was part of the Chancellor’s Budget for Growth.

Rishi Sunak, the Leader of the Opposition, accused the Chancellor of “fiddling fiscal rules” and claimed, “You name it, they’ll tax it.” I, too, am viewing all of this with some trepidation. We have narrowly survived a recession in recent years, when the situation could have been markedly different, but the Chancellor has raised taxes by £40 billion and only envisages annual growth of 1.5%. Somehow, she seems quite pleased with this, despite average UK long-term growth numbers being over 2%, so her figures don’t seem to add up.

I’m therefore nervous as to how the tax increases will play out on the number of individuals that are employed in this economy. The Chancellor’s promises to “Rebuild Britain” and promote an “economy that is growing, creating wealth and opportunity for all” are merely words at this stage. In reality, it could be the working people that are made to pay the price of these promises.

Dominic Bourquin