The first female chancellor ever, Rachel Reeves, has revealed the inaugural budget for the new Labour government.
The Chancellor says this budget will raise taxes by £40 billion to help stablise the economy and improve key services like schools and the NHS.
Here are some key points, then more detail on the bigger announcements below…
Minimum wage up by 6.7% from April
Rachel Reeves announced the national minimum wage would rise by 6.7% from April 2025.
Currently, the minimum wage for those over 21 is £11.44 but this will increase to £12.21.
This is well above inflation (currently 1.7%) and a much bigger rise than expected.
The government will also gradually introduce a single adult minimum wage as currently 18-20 year olds are paid at a lower rate.
In 2025, the 18-20 minimum wage will increase by 16.3% from £8.60 to £10.
1.2 percentage point rise in employer National Insurance - raising £25bn
Labour promised not to increase National Insurance in its manifesto for employees despite a series of Conservative cuts in the last government.
Rachel Reeves said instead she will increase the rate employers pay for National Insurance.
Currently employers pay NICs for most workers who earn over £9,100 at a rate of 13.8% of the employee's earnings over the threshold. For example, if you earn £25,000, the employer would pay 13.8% on £15,900, which is £2,194.20/yr.
From April 2025, this will rise to 15% and the minimum threshold will drop to £5,000.
To help small businesses, she will increase the employment allowance threshold at which businesses start to pay NI from £5,000 to £10,500. She says this means 865,000 employers won't pay any National Insurance at all next year and over one million will pay the same or less as they did previously.
While The NI changes will only hit employers for now, companies may increase prices or reduce future pay rises to cover the cost of it. So consumers may feel it down the line.
Income tax thresholds will be unfrozen in 2028
A freeze on the thresholds for income tax is currently in place and is due to last until 2028. The Chancellor was widely expected to extend this freeze until 2028 but she said she has decided against this.
Basic rate taxpayers earn between £12,571 to £50,270 and they pay 20% tax on earnings in that bracket. Anyone who earns £50,271 to £125,140 are higher rate taxpayers and pay 40% tax on earnings in that threshold. Additional rate taxpayers are pay 45% tax £125,140
The freeze means that as people get pay rises, more people move into the higher tax brackets and pay more tax (even though inflation and therefore the cost of living is rising). But Rachel Reeves says that from 2028, these thresholds will increase in line with inflation.
Fuel duty to remain frozen
Fuel duty has not risen in over 10 years. It was frozen in 2012, right through to 2022 and then the previous government announced a 5p cut in March 2022.
This cut was due to end in 2025 but the Chancellor has announced this will be extended again for a further 12 months.
The government says this represents a saving of £59 in 2025-26 for the average car driver.
It also plans to introduce a requirement for all UK retail petrol-filling stations to provide pricing information.
See our petrol prices comparison to find your cheapest forecourt.
Tobacco, sugar and alcohol taxes up - except on beer and cider
Tobacco taxes will continue to rise and a new tax on vaping liquids will be introduced at a flat rate of 22p/ml from October 2026.
The tax on sugary drinks will also be increased in line with inflation as it hasn't been updated since 2018.
Alcohol duty will also increase in line with RPI (a measure of inflation) except for draught drinks like beer and cider, where the duty by 1.7% will be cut, saving on average 1p per pint.
£2 bus cap rises to £3
The previous government had introduced a £2 cap on bus fares in many parts of England but the funding for this is due to run out at the end of 2024. Bus companies could sign up to this and the government funding helped cover some of the cost.
Over 5,000 routes are covered under the scheme but some bus companies have chosen not to include some routes in the scheme. The bus cap does not apply in London, Greater Manchester or West Yorkshire as separate caps already exist in those areas.
Free breakfast clubs for thousands more primary schools
£30 million will be provided to help create thousands more primary school breakfast clubs.
Breakfast clubs allow parents to drop children off before the school day starts, ensuring kids get a meal at the start of the day and parents have more time to get to work.
The government is also providing £1.8 billion for the expansion of government-funded childcare, which was announced by the previous government.
Debt repayment cap and Help to Save expansion for universal credit households
The Chancellor said she wants to ensure households who get universal credit (UC) and are in debt can repay what they owe over a longer time frame to allow them to keep more of their money each month.
The government will create a fair repayment rate which caps debt repayments made through UC at 15% of the standard allowance.
The government says this will benefit around 1.2 million households as they will keep more of their UC award each month, with households expected to be better off by £420 a year on average.
The government will also extend the current Help to Save scheme until April 2027 but make more people eligible from 2025. This is a savings account which gives a bonus of 50p for every 1p saved over four years. Currently, it's only available to some UC claimants who are in work but this will be expanded to include all UC claimants in work.
Plans to make mortgage guarantee scheme permanent
The government plans to make the mortgage guarantee scheme (helps with the supply of mortgages available with a 5% deposit) will become permanent. It is currently due to end in June 2025.
It says it plans to work with the mortgage industry on the plan this autumn and announce more details in 2025.
Carers can earn £45 more each week and keep carer's allowance
Currently, carers who claim carer's allowance can earn a maximum of £151 a week. If they earn over that, they are ineligible for the payment.
The government says from April 2025 this will increase to the equivalent of 16 hours work at the national minimum wage (which will be £196 in 2025-26), which allows carers to earn more alongside their caring responsibilities.
The government estimates this will make over 60,000 more carers eligible for support.
Stamp duty increase for second homes
Rachel Reeves has increased the stamp duty rate for anyone buying a second home. From tomorrow (31 October), stamp duty for those buying a second home will increase from 3% to 5%.
Rachel Reeves didn't reveal any other changes to stamp duty for people with a single residence. A stamp duty holiday was brought in under Liz Truss and is due to expire in March 2025. Some had hoped Labour may commit to extending but for now, there hasn't been any announcement.
First time buyers are exempt from stamp duty on properties up to £425,000, with a 5% duty on values between £425,001 to £625,000. From April 2025, it's expected first time buyers will pay 5% on property value between £300,001 and £500,000. If they buy a property valued at over £500,000, they won't get first time buyer relief.
Currently, home movers don't pay stamp duty on the first £250,000 of a new home, then 5% on values between £250,001 and £925,000, 10% on values between £925,001 and £1.5m, and 12% on the value over this. From April 2025, it's expected 2% will be charged on the value between £125,001 and £250,000.
Inheritance tax exemptions on pensions and businesses reformed
Inheritance tax is paid on what you pass on to loved ones when you die but thresholds and exemptions mean it is paid by just 4% of the population.
The current thresholds will remain in place until 2030 but Rachel Reeves has announced a number of changes to some of the exemptions:
VAT on private school fees confirmed from January 2025
Labour committed to start charging private schools VAT on fees in its manifesto.
Rachel Reeves says from 1 January 2025, private schools will pay 20% VAT on fees and from April 2025, a business rates charitable rate relief from private schools in England will be removed.
Together, these policies are expected to raise £1.8 billion per year by 2029-30.
Non-dom status to be scrapped
Labour will abolish 'non-dom' (non-domicile) status. This refers to UK residents with a permanent home outside the UK for tax purposes.
It means they only pay tax on any money earned in the UK but they don't have to pay tax to the UK government on money made elsewhere in the world, unless it's paid into a UK bank account.
This loophole is entirely legal and it means some wealthy people nominate a country with a much lower tax rate as their domicile.
Labour had pledged to end this loophole before the election, expanding existing Conservative plans.
Rachel Reeves announced this will be abolished from 2025 and replaced with a new residence-based system.
Non-property capital gains tax increase
Capital gains tax is charged on profits you make when you sell an asset, for example a property or valuable possession.
Right now, you pay 18% if you're a basic rate tax payer or 24% if you're a higher rate tax payer for residential property that isn't your home. For other sales, it's 10% for basic rate tax payers and 20% for higher rate taxpayers.
Rachel Reeves plans to increase the rates on non-property assets to 18% for basic rate tax payers and 24% for higher rate taxpayers.
She says this will raise £2.5 billion by the end of the five-year economic forecast.
Hope that gives you an overview of the budget and how it impacts you
The Chancellor says this budget will raise taxes by £40 billion to help stablise the economy and improve key services like schools and the NHS.
Here are some key points, then more detail on the bigger announcements below…
- £40bn to be raised from taxes in this budget, following a £22bn blackhole from the previous government.
- Employer's National Insurance will rise from 13.8% to 15%. This will raise £25bn of the £40bn.
- The national minimum wage will increase from £11.44 to £12.21 (6.7%) from April next year.
- The income tax threshold freeze (which means thresholds don't go up with inflation) will end from 2028 (this was unexpected).
- Fuel duty will be frozen next year and the existing 5p cut will remain for another year.
- Tobacco duty will rise by RPI + 2% and there will be a new flat rate duty on vaping liquids.
- Duty on draft alcohol will reduce. Other alcohol duties will rise in line with RPI from February next year.
- The bus fare cap will rise from £2 to £3.
- Investment for breakfast clubs will triple.
- Counter-fraud teams will crack down on benefits fraud.
- Carers can now earn up to £10,000 while still receiving carer's allowance.
- Limit on the amount of debt repayment that can be taken from universal credit payments will be reduced from 25% to 15%.
- £500m promised to fix potholes.
- Commitment to the pension triple lock.
- The lower rate of capital gains tax will rise from 10% to 18%, and the higher rate from 20% to 24%.
- Inherited pensions will come into inheritance tax.
- The current non-domicile tax arrangements will be scrapped.
Minimum wage up by 6.7% from April
Rachel Reeves announced the national minimum wage would rise by 6.7% from April 2025.
Currently, the minimum wage for those over 21 is £11.44 but this will increase to £12.21.
This is well above inflation (currently 1.7%) and a much bigger rise than expected.
The government will also gradually introduce a single adult minimum wage as currently 18-20 year olds are paid at a lower rate.
In 2025, the 18-20 minimum wage will increase by 16.3% from £8.60 to £10.
1.2 percentage point rise in employer National Insurance - raising £25bn
Labour promised not to increase National Insurance in its manifesto for employees despite a series of Conservative cuts in the last government.
Rachel Reeves said instead she will increase the rate employers pay for National Insurance.
Currently employers pay NICs for most workers who earn over £9,100 at a rate of 13.8% of the employee's earnings over the threshold. For example, if you earn £25,000, the employer would pay 13.8% on £15,900, which is £2,194.20/yr.
From April 2025, this will rise to 15% and the minimum threshold will drop to £5,000.
To help small businesses, she will increase the employment allowance threshold at which businesses start to pay NI from £5,000 to £10,500. She says this means 865,000 employers won't pay any National Insurance at all next year and over one million will pay the same or less as they did previously.
While The NI changes will only hit employers for now, companies may increase prices or reduce future pay rises to cover the cost of it. So consumers may feel it down the line.
Income tax thresholds will be unfrozen in 2028
A freeze on the thresholds for income tax is currently in place and is due to last until 2028. The Chancellor was widely expected to extend this freeze until 2028 but she said she has decided against this.
Basic rate taxpayers earn between £12,571 to £50,270 and they pay 20% tax on earnings in that bracket. Anyone who earns £50,271 to £125,140 are higher rate taxpayers and pay 40% tax on earnings in that threshold. Additional rate taxpayers are pay 45% tax £125,140
The freeze means that as people get pay rises, more people move into the higher tax brackets and pay more tax (even though inflation and therefore the cost of living is rising). But Rachel Reeves says that from 2028, these thresholds will increase in line with inflation.
Fuel duty to remain frozen
Fuel duty has not risen in over 10 years. It was frozen in 2012, right through to 2022 and then the previous government announced a 5p cut in March 2022.
This cut was due to end in 2025 but the Chancellor has announced this will be extended again for a further 12 months.
The government says this represents a saving of £59 in 2025-26 for the average car driver.
It also plans to introduce a requirement for all UK retail petrol-filling stations to provide pricing information.
See our petrol prices comparison to find your cheapest forecourt.
Tobacco, sugar and alcohol taxes up - except on beer and cider
Tobacco taxes will continue to rise and a new tax on vaping liquids will be introduced at a flat rate of 22p/ml from October 2026.
The tax on sugary drinks will also be increased in line with inflation as it hasn't been updated since 2018.
Alcohol duty will also increase in line with RPI (a measure of inflation) except for draught drinks like beer and cider, where the duty by 1.7% will be cut, saving on average 1p per pint.
£2 bus cap rises to £3
The previous government had introduced a £2 cap on bus fares in many parts of England but the funding for this is due to run out at the end of 2024. Bus companies could sign up to this and the government funding helped cover some of the cost.
Over 5,000 routes are covered under the scheme but some bus companies have chosen not to include some routes in the scheme. The bus cap does not apply in London, Greater Manchester or West Yorkshire as separate caps already exist in those areas.
Free breakfast clubs for thousands more primary schools
£30 million will be provided to help create thousands more primary school breakfast clubs.
Breakfast clubs allow parents to drop children off before the school day starts, ensuring kids get a meal at the start of the day and parents have more time to get to work.
The government is also providing £1.8 billion for the expansion of government-funded childcare, which was announced by the previous government.
Debt repayment cap and Help to Save expansion for universal credit households
The Chancellor said she wants to ensure households who get universal credit (UC) and are in debt can repay what they owe over a longer time frame to allow them to keep more of their money each month.
The government will create a fair repayment rate which caps debt repayments made through UC at 15% of the standard allowance.
The government says this will benefit around 1.2 million households as they will keep more of their UC award each month, with households expected to be better off by £420 a year on average.
The government will also extend the current Help to Save scheme until April 2027 but make more people eligible from 2025. This is a savings account which gives a bonus of 50p for every 1p saved over four years. Currently, it's only available to some UC claimants who are in work but this will be expanded to include all UC claimants in work.
Plans to make mortgage guarantee scheme permanent
The government plans to make the mortgage guarantee scheme (helps with the supply of mortgages available with a 5% deposit) will become permanent. It is currently due to end in June 2025.
It says it plans to work with the mortgage industry on the plan this autumn and announce more details in 2025.
Carers can earn £45 more each week and keep carer's allowance
Currently, carers who claim carer's allowance can earn a maximum of £151 a week. If they earn over that, they are ineligible for the payment.
The government says from April 2025 this will increase to the equivalent of 16 hours work at the national minimum wage (which will be £196 in 2025-26), which allows carers to earn more alongside their caring responsibilities.
The government estimates this will make over 60,000 more carers eligible for support.
Stamp duty increase for second homes
Rachel Reeves has increased the stamp duty rate for anyone buying a second home. From tomorrow (31 October), stamp duty for those buying a second home will increase from 3% to 5%.
Rachel Reeves didn't reveal any other changes to stamp duty for people with a single residence. A stamp duty holiday was brought in under Liz Truss and is due to expire in March 2025. Some had hoped Labour may commit to extending but for now, there hasn't been any announcement.
First time buyers are exempt from stamp duty on properties up to £425,000, with a 5% duty on values between £425,001 to £625,000. From April 2025, it's expected first time buyers will pay 5% on property value between £300,001 and £500,000. If they buy a property valued at over £500,000, they won't get first time buyer relief.
Currently, home movers don't pay stamp duty on the first £250,000 of a new home, then 5% on values between £250,001 and £925,000, 10% on values between £925,001 and £1.5m, and 12% on the value over this. From April 2025, it's expected 2% will be charged on the value between £125,001 and £250,000.
Inheritance tax exemptions on pensions and businesses reformed
Inheritance tax is paid on what you pass on to loved ones when you die but thresholds and exemptions mean it is paid by just 4% of the population.
The current thresholds will remain in place until 2030 but Rachel Reeves has announced a number of changes to some of the exemptions:
- From April 2027, inherited pension pots will be subject to inheritance tax. Until now any money left in a pension pot that was left to your loved ones was not subject to inheritance tax.
- Reliefs on agricultural and business property will change. Currently, these are exempt from inheritance tax but from April 2026, the first £1 million of combined business and agricultural assets (this is on top of the existing nil-rate bands), will be exempt but the rate of relief will reduce to 50% after the first £1 million.
VAT on private school fees confirmed from January 2025
Labour committed to start charging private schools VAT on fees in its manifesto.
Rachel Reeves says from 1 January 2025, private schools will pay 20% VAT on fees and from April 2025, a business rates charitable rate relief from private schools in England will be removed.
Together, these policies are expected to raise £1.8 billion per year by 2029-30.
Non-dom status to be scrapped
Labour will abolish 'non-dom' (non-domicile) status. This refers to UK residents with a permanent home outside the UK for tax purposes.
It means they only pay tax on any money earned in the UK but they don't have to pay tax to the UK government on money made elsewhere in the world, unless it's paid into a UK bank account.
This loophole is entirely legal and it means some wealthy people nominate a country with a much lower tax rate as their domicile.
Labour had pledged to end this loophole before the election, expanding existing Conservative plans.
Rachel Reeves announced this will be abolished from 2025 and replaced with a new residence-based system.
Non-property capital gains tax increase
Capital gains tax is charged on profits you make when you sell an asset, for example a property or valuable possession.
Right now, you pay 18% if you're a basic rate tax payer or 24% if you're a higher rate tax payer for residential property that isn't your home. For other sales, it's 10% for basic rate tax payers and 20% for higher rate taxpayers.
Rachel Reeves plans to increase the rates on non-property assets to 18% for basic rate tax payers and 24% for higher rate taxpayers.
She says this will raise £2.5 billion by the end of the five-year economic forecast.
Hope that gives you an overview of the budget and how it impacts you
