The Historic Impact of Rachel Reeves’ Budget

By [Zubair Chowdhury]

Rachel Reeves, the first woman to ever assume the office of Chancellor, made history when she revealed her vision for the future of Britain in her 2024 budget address. She was the first person to ever hold this role. Reeves has brought about significant changes that she believes will pave the way for a more resilient and egalitarian Britain. These measures include radical revisions to taxes, pensions, and benefits. This budget isn’t just another financial statement; it’s a blueprint of a new economic reality for millions of families, workers, and businesses across the UK.

The budget, however, does not come without controversy. For many, Reeves’s plan inspires hope, a progressive path forward in tough times. For others, particularly within the Conservative camp, there are concerns about rising tax rates, potential effects on investments, and a perceived strain on higher-income groups and businesses. As British citizens, it’s our role to weigh both the positives and negatives and understand our collective role in helping shape the future of Great Britain.

A New Direction for Tax and Wages

Reeves’s budget makes significant changes in income tax, particularly targeting middle and higher earners. A freeze on tax brackets, originally implemented in 2021, has resulted in “fiscal drag,” where more of people’s income becomes taxable as wages increase. This will remain in place until 2028, when tax bands are due to be unfrozen.

For those on typical earnings, the budget means increased taxes due to rising wages without corresponding adjustments in tax bands. This gradual increase, though not easy on everyone’s pockets, is designed to steadily increase national revenue, enabling the government to fund crucial public services. For high earners, the tax burden is more noticeable, with capital gains taxes climbing from 28% to 32% and the child benefit repayment threshold moving from £50,000 to £60,000—decisions likely to spark debate.

Supporting Pensioners and Low-Income Families

Pensioners and low-income households find some relief in this budget, as Reeves announced an increase to the “triple lock” guarantee, which will boost state pensions by 4.1% starting in April 2025. For lower-income pensioners receiving pension credit, an additional increase in the state minimum guarantee will supplement their incomes to keep pace with inflation.

These increases, while modest, come at a critical time. Many seniors rely on state pensions as their primary income, and inflation continues to put pressure on household budgets. Reeves’s decision to retain pension credit top-ups and fuel payment benefits for those on the lowest incomes shows her commitment to shielding the most vulnerable from the hardest hits. However, some wealthier pensioners will lose the winter fuel payment, which has been a reliable source of extra support each winter.

A New Reality for Inheritance and Business Taxation

One of the boldest moves in Reeves’s budget is her overhaul of inheritance tax (IHT) and business taxation. In an attempt to bring more equality to wealth transfer, Reeves has announced that undrawn pension pots will no longer pass tax-free to heirs starting in 2027. Additionally, shares in junior market companies (AIM) that were previously IHT-exempt will now face a 50% tax. The Conservatives warn that these changes could disincentivize investment, potentially hitting family businesses the hardest.

For small business owners, who have previously enjoyed IHT relief on business assets, this budget is particularly impactful. Going forward, business owners will be liable to a 20% IHT on anything above £1 million, which could reshape plans for generational succession. This change is likely to bring additional revenue to the government but may force business owners to rethink their estate planning strategies.

Empowering Families and Drivers in the Cost-of-Living Crisis

With the cost-of-living crisis looming large, Reeves took measures to help working families. Parents earning up to a combined £75,000 per year will now see the child benefit repayment threshold increased, meaning families have slightly more breathing room before benefits taper off.

In a gesture to ease transportation costs, Reeves retained the 5p reduction in fuel duty, keeping it at 52.95p per litre. This move, while relatively minor in scale, brings welcome relief to drivers and helps ease the sting of high living costs. The fuel duty freeze is a clear win for working families and commuters alike, showcasing a compassionate approach amid economic uncertainty.

The Conservative Response: A Call for Caution

As expected, the Conservatives have voiced reservations. They argue that the budget disproportionately places the tax burden on businesses and higher earners, potentially dampening entrepreneurship and investment. The decision to apply VAT to private school fees, for example, is particularly divisive. With VAT now added to private school fees at a 20% rate, many families will see an additional £10,000 or more tacked on to their education costs—a change that the Conservatives fear could lead to a larger shift away from private schooling or place a higher strain on the public education system.

Capital gains tax (CGT) increases are another contentious point. For private equity and high-income professionals who rely on investment gains, the rise in CGT—from 28% to 32%—may shift behavior, especially if these rates increase further in the coming years as projected. The Conservatives warn that these hikes could have a chilling effect on investment and economic growth, stifling job creation and wealth accumulation.

Our Role in Building a Greater Britain

In evaluating this budget, it’s essential to recognise both the gains and the challenges. Rachel Reeves’s budget acknowledges a need for increased revenue to fund essential services like healthcare, education, and infrastructure—areas critical to strengthening our nation. Her approach, rooted in progressive ideals, aims to distribute the tax load more evenly while focusing benefits on those who need them the most. For lower-income families, pensioners, and working parents, there are clear wins.