UK Chancellor Rachel Reeves has delivered the new Labor government’s first budget.
What’s in it?
There will be an increase of around £2.9 billion ($3.76 billion) next year in the Ministry of Defense’s budget.
The UK will give Ukraine a new £2.26 billion ($2.9 billion) military loan, Reeves announced earlier in October. The loan is to be repaid using profits on illegally frozen Russian sovereign assets.
“Ensuring the UK comfortably exceeds our NATO commitments and providing guaranteed military support to Ukraine of £3 billion [$3.8 billion] per year, for as long as it takes,” Reeves told MPs.
Boosted military spending was slammed as “an insult to all those struggling during a cost-of-living crisis and diverts funds from underfunded public services” by Peace Pledge Union campaigner Geoff Tibbs.
“This government is addicted to war and yet again money is earmarked for weapons to continue wars in Ukraine and the Middle East,” said founding member of the Stop the War Coalition Lindsey German.
What Else Is in the Budget?
The budget will hit taxpayers with £40 billion (~$51.8 billion) in tax rises. The amount businesses will pay on their employees' national insurance contributions will increase from 13.8% to 15% from April 2025. The rise in taxes is the largest since former PM John Major's government in 1993.
Households won’t be entitled to the Winter Fuel Payment from winter 2024/2025 (unless receiving Pension Credit/other means-tested benefits).
Taxes on capital gains and inheritance are to be raised. The freeze on income tax thresholds will end in 2028/29 (to be later uprated in line with inflation).
Fiscal rules will be tweaked to allow more space for borrowing. A broader measure of government finances, known as “public sector net financial liabilities” (PSNFL), will reportedly include student loans and other financial assets.
What Has the Office for Budget Responsibility Said?
“This budget delivers one of the largest increases in spending, tax and borrowing of any single fiscal event in history,” OBR chair Richard Hughes said.
The UK budget deficit was £49 billion ($63.5 billion) in 2023/24, equivalent to 1.8% of GDP. Britain's budget deficit is projected to be £26.2 billion ($33.9 billion) in the 2025/26 financial year.
The budget will push up inflation and interest rates, while the pace of economic growth will peak next year at 2% before falling back to around 1.5%.
Average interest rates on the stock of mortgages are expected to rise from around 3.7% in 2024 to a peak of 4.5% in 2027.
Inflation will remain above the Bank of England's 2% target until 2029.
Budget policies will increase UK borrowing by £19.6 billion ($25.4 billion) this year and by an average of £32.3 billion ($41.9 billion) over the next five years.
Both Keir Starmer and Rachel Reeves have blamed the preceding Conservative government for all of the country’s economic woes. During the election campaign, Reeves claimed that if victorious, Labour would get the “worst economic inheritance since World War Two.” Last year, Reeves told the Financial Times: “Taxes are at a 70-year high — I don’t have plans to be a big tax-raising chancellor.”