New Chancellor, Rachel Reeves, is set to present her first Budget to the House of Commons on 30 October.
While the Labour Party outlines its economic plans, speculation is growing about potential tax rises and spending cuts. The announcement will undoubtedly have an impact on the UK’s economy, but what can expatriates living in the European Union expect from these changes? This article breaks down what we know so far, based on current reports.
Labour’s economic challenges
Labour faces significant economic hurdles as it prepares to present its Budget. The UK’s public services, including the NHS and local councils, are under intense pressure, struggling with the aftermath of the COVID-19 pandemic, an ageing population, and ongoing backlogs. Labour has committed to resolving these issues with a £9 billion (€10.35 billion) pay deal for public sector workers.
However, as reported by Sky News, ‘Reeves accused the previous government of leaving a £22 billion (€25.34 billion) shortfall in public finances they had not disclosed.’ This now needs to be addressed to protect vital departments from further cuts.
Despite these ambitious goals, some critics argue that Labour’s approach might not be enough to overcome the economic difficulties. The Conservative Party has pointed out that Labour’s spending plans could lead to increased borrowing, which may place further strain on the national debt.
Labour’s plan to manage public finances
The BBC reported that Reeves is set on removing or tightening some exemptions and reliefs to inheritance tax, which currently brings in £7billion (€8.06 billion) a year. In addition, as reported by Daily Mail, ‘The Chancellor also plans to end a temporary increase to the stamp duty threshold, landing buyers with a £2,500 bill that will add £1.8billion to Treasury coffers.’
Both of these plans could have significant implications for both the housing market and family wealth planning. These changes have been met with mixed reactions, with some praising the potential relief for homebuyers, while others worry about the broader economic impact of altering these long-standing tax rules.
Potential tax rises in the UK
While Labour aims to protect working people from direct tax increases, other areas could see rises. A report by Upday suggest that Capital Gains Tax (CGT) may be increased by a few percentage points, potentially generating billions in revenue for the government. This is an area to watch for expatriates with investments in the UK, as changes to CGT could impact returns on property sales and other assets.
Another possibility is an increase in National Insurance contributions from employers, which could be seen as a way to raise funds without directly impacting employees, although it may affect the overall business landscape. Such a decision could raise concerns for companies and investors, especially as the UK tries to maintain its attractiveness as a destination for international investment. As noted in an article by Sky News, ‘The Tories have accused Labour of breaking their manifesto promise not to increase National Insurance.’
Fuel duty is also being considered for the first time in over a decade. This tax which is included in the price motorists pay for petrol at the pump was frozen by the Tories between 2010 and 2022, and was then cut by 5p to 52.95p per litre, where it currently remains. This is another potential area for revenue generation. Given the significant role that fuel duty plays in government income, expatriates driving in the UK or traveling back frequently could be miffed to see higher costs at the pump.
Labour is considering restructuring and raising Inheritance Tax threshold. According to the BBC, the Chancellor is considering multiple changes to the tax, which is charged at 40 per cent on the property, possessions and money of somebody who has died above a £325,000 threshold.
However, there are a variety of tax breaks available, so the actual rate can often be far lower. Two of the most common inheritance tax breaks allow family enterprises and agricultural land to be passed down tax-free. According to research published yesterday by the Centre for Analysis of Taxation, these reliefs contribute to significant differences in the effective tax rates paid by different estates.
According to their findings, one in every six estates worth more than £10 million pays an effective tax rate of less than 4 per cent, while a quarter pay almost the 40 per cent headline rate.
The BBC also noted that rules governing gifts given during someone’s lifetime may change.
Additionally, a recent report highlighted the government’s decision to delay voting on winter fuel payment cuts, which could affect pensioners, including many expatriates who have older family that are reliant on such payments.
Rcahel Reeves’ plans for Stamp Duty and Council Tax
Stamp Duty is another area where changes may be introduced. Reeves is reportedly looking into cutting Stamp Duty. Bringing the Stamp Duty threshold down would see it return to £125,000 from £250,000 for most buyers and to £300,000 from £450,000 for first-time buyers. This could make it easier for young people to get onto the property ladder, a key focus for Labour.
On the other hand, extending stamp duty relief may lead to a surge in property prices, as seen in previous instances where relief was applied. Critics argue that such a move could make housing less affordable in the long run.
Council tax changes are also on the table, with Labour aiming to make the system fairer and more progressive. Currently, council tax is set in bands based on property valuations from 1991, which has led to discrepancies across different regions.
Labour’s plan to reassess property values and introduce new council tax bands could address these disparities, ensuring that wealthier homeowners contribute more. However, this reform could face resistance from those who may see their council tax bills rise significantly.
How will the UK budget affect expats?
For expatriates based in the EU, especially those with financial ties to the UK, these Budget proposals could have a tangible impact. Potential tax changes, particularly around CGT, fuel duty, inheritance, and National Insurance, could affect everything from property investments to pension income. Additionally, any shifts in the UK’s fiscal policy could influence the broader economic landscape, affecting exchange rates and the value of savings or remittances.
Additionally, the recent shock over potential wine tax changes, which could see many beloved bottles disappear from the shelves by 2025, is another example of how fiscal policy may impact consumer prices and lifestyle.
We will be watching closely to see how these decisions unfold and what they mean for UK residents and expatriates in the EU.
