Addressing the £22 Billion Gap

The Chancellor is prioritizing efforts to stabilise the economy, aiming to reduce financial pressure by £5.5 billion this year and over £8 billion next year. Immediate measures include cutting winter fuel payments for those not receiving pension credits and halting funding for certain infrastructure projects. Ms. Reeves emphasized the government’s commitment to ensuring that taxpayers’ money is spent wisely and efficiently.

Immediate Savings and Funding Cuts

A range of savings have been announced, which may impact various sectors:

• Rwanda Migration Partnership: Cancelled, saving £800 million this year and £1.4 billion next year.
• Investment Opportunity Fund: Scrapped, resulting in £70 million in savings this year.
• Advanced British Standard: Cancelled, saving £185 million next year.
• Infrastructure Projects: Certain road and railway schemes have been deemed unaffordable, saving £785 million next year.
• New Hospital Programme: A review has been initiated to assess its future.

Manifesto Commitments and Tax Changes

Ms. Reeves also outlined steps to fulfil key Labour election promises. Notably:

• VAT for Private Schools: Tax breaks will end on 1 January 2025, with the aim of funding the recruitment of 6,500 new teachers.
• Non-Domicile Regime: To be replaced by a new residence-based regime that is internationally competitive.
• Energy Profits Levy: Extended to 31 March 2030, with tighter investment allowances and a three-percentage point rate increase from 1 November 2024.

What to Expect Next

Further tax and spending measures will be detailed in the upcoming Autumn Budget. Ms. Reeves reassured that there will be no increases in National Insurance, income tax, or VAT rates. There has been no confirmation to changes in Corporation Tax, Capital Gains Tax or Inheritance Tax. However, the government is committed to closing tax loopholes and enhancing efforts to prevent tax avoidance. There is speculation that the chancellor will bridge the gap by:

• Stealth: by focusing on freezing tax thresholds beyond 2028 although there is concern that this will not be sufficient to address the shortfall.

• Increase Capital Gains Tax (CGT)

• Reduce Pension Tax Relief: this would hit high earners by reducing the amount of tax relief they would enjoy when contributing to their pension schemes

• Raise Inheritance Tax