Labour marked 100 days in power over the weekend, following their return to government for the first time since 2010.
The Party secured a majority victory in July’s General Election, as Sir Keir Starmer headed into Downing Street four years after being elected Labour leader.
However, it has been far from a quiet first few months for the new government. Labour haven’t been shy in announcing the fiscal position they have inherited with Chancellor Rachel Reeves stating she was facing a £22 billion “black hole” and warned that the government would have to raise some taxes as a result.
With the Autumn Budget set to take place in the last week of October, we review what we’ve seen so far.
Winter fuel allowance sees spike in credit claims.
Labour announced in July that that those not in receipt of Pension Credit will no longer receive the Winter Fuel Payment from this year onwards. The Government will continue to provide Winter Fuel Payments worth £200 to households receiving Pension Credit or £300 for households in receipt of Pension Credit with someone aged over 80.
Latest data released by the Department for Work and Pensions figures showed applications for pension credit hit nearly 75,000 in the eight weeks since the new Chancellor announced the payment would be means-tested for the first time. This is up from nearly 30,000 claims in the eight weeks before the announcement.
Announcement of £7.3 billion National Wealth Fund.
The National Wealth Fund is designed to boost growth and unlock investment in the new industries of the future.
The government stated: “£7.3 billion of additional funding will be allocated through the UK Infrastructure Bank so investments can start being made immediately, focusing on further priority sectors and catalysing private investment at an even greater scale.”
Great British Energy pledge and aims.
One of the new UK Government’s key energy pledges from the 2024 general election is the creation of Great British Energy, with the aim of creating new jobs through local energy generation, lowering bills and providing energy security.
There will be five key functions to Great British Energy:
- Developing clean energy projects through its partnership with the Crown Estate.
- Investing in and owning renewable energy projects.
- Incentivising local power through the Local Power Plan.
- Help build clean energy supply chains in the UK.
- Work with Great British Nuclear to deliver new nuclear projects.
Looking ahead to the Autumn Budget.
The Budget will take place in Parliament on 30th October. It is expected that any potential changes will come into play in the new tax year next April. This is usually the case, despite a mid-year change to Capital Gains Tax rates in June 2010 following George Osborne’s Budget in the wake of the Conservatives’ election victory.
Can we take anything from Labour’s manifesto?
In Labour’s manifesto, the party confirmed that they would not be raising the three main forms of taxes: Income Tax, National Insurance Contributions (NICs), and VAT.
In light of this, it’s likely the Chancellor will need to look elsewhere to raise vital revenue, bringing in smaller changes and tweaks which could make a big difference when combined.
There has also been no indication of changes to Capital Gains Tax. The rate of Capital Gains Tax which you pay depends on the size of your gain, your taxable income and whether your gain is from residential property or other assets.
The manifesto* also confirmed that they will look to cap corporation tax at the current level of 25% – however, they will act “if tax changes in other countries pose a risk to UK competitiveness”. This featured alongside a promise to retain a permanent full-expensing system for capital investment.
Labour also said it will maintain the freezing of the income tax thresholds (until 2028). The Institute for Fiscal Studies has warned this would mean 6.5 million more income tax payers and 4.5 million more higher-rate taxpayers by 2027 than there were in 2020.
Pension tax relief and Pension Commencement Lump Sum (tax-free cash).
To help you to save more for retirement, the government gives you tax relief each time you make a payment into your pension. For basic rate taxpayers in the UK, the government will automatically add an additional 20% of your eligible contributions.
Two key ways in which you can get tax relief on your pension contributions are ‘relief at source’ and ‘net pay.’
Relief at source
You get relief at source in all personal and stakeholder pensions, and some workplace pensions. Your pension provider will tell you the certain conditions you need to agree to regarding your contributions. Your pension contributions are taken from your salary after both National Insurance and income tax are deducted. For workplace pensions, your employer may give your pension provider the details required if you’re automatically enrolled in their pension scheme.
Net pay
With net pay, your pension contributions are made before your wages are taxed, so you get relief on the amount at your highest rate of tax. Whatever rate of tax you pay, you get full tax relief straight away without having to claim it.
Claiming tax relief yourself
In some cases, you need to claim tax relief on pension contributions yourself. You’ll need to make a claim if:
- You pay Income Tax at a rate above 20% and your pension provider claims the first 20% for you (relief at source)
- Your pension scheme is not set up for automatic tax relief
- Someone else pays into your pension
The government has not officially announced any changes to the current pension tax relief prior to the autumn Budget.
An important thing to bear in mind with pension tax relief is your annual allowance limits. This means that you will only benefit from tax relief on a certain amount each tax year, subject to your own personal circumstances. You can contribute up to the annual limit of £60,000 (in the current 24/25 tax year) or 100% of your eligible annual earnings – whichever is lower. It’s important to remember that, while you can still contribute to your pension above this amount, you won’t benefit from tax relief on any payments above this threshold and any contributions beyond these limits are subject to income tax at your marginal rate.
The level of Pension income could change due to investment/fund performance. Pension funds are still subject to market risks, and economic downturns can affect the value of a fund, potentially impacting retirement income.
Pension funds also often have restrictions on when you can access (usually not until a certain age), which can limit flexibility. For example, once funds are committed, you can’t access the money until age 55 (rising to 57 from 2028). However, when you do so, there are several ways to take tax-free cash. You can take 25% of your pension savings tax-free in one go or in stages. The remaining 75% can be left in your pension with the aim of potential growth inside a tax-efficient wrapper.
There have also been no announcements from the government to suggest any changes will happen regarding how tax-free cash is paid from a pension.
What announcements have already been made?
Winter fuel payments
The government has said that “from winter 2024/2025, households in England and Wales will no longer be entitled to the Winter Fuel Payment unless they receive pension credit or certain other means-tested benefits”.
State pension
The full state pension is set to rise by about £460 per year from April 2025, in line with average earnings which grew by 4%.
The increase is due to the government’s commitment to maintain the triple lock on the state pension, which guarantees annual increases in line with whichever is the higher of inflation, flat figure of 2.5% or annual earnings.
We expect the increase to be confirmed by Work and Pensions Secretary Liz Kendall around the time of the Budget.
In April 2025, the earnings link is expected to make the State pension worth:
- £230.05 a week (£11,963 per year) for the full, new flat-rate state pension (for those who reached State pension age after April 2016).
- £176.30 a week (£9,168 per year). for the full, old basic State pension (for those who reached State pension age before April 2016).
VAT on private schools
The government has said they will be ending tax breaks for private schools from the start of 2025, to better invest in state education. Some private schools will lose business rates relief. The government is also removing charitable rates relief for private schools with charitable status in England. As business rates are fully devolved in Scotland, Wales and Northern Ireland, this policy change will apply in England only.**
Energy windfall tax
The government is increasing the energy profits levy tax on the profits oil and gas firms make in the UK. The energy profits levy is due to rise to 38% from 35% on 1st November and will remain in place until 31st March 2030.
Listen to our expert panel as they review Labour’s first 100 days in power in our latest do more with your money podcast.
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With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. This material is not a personal recommendation or financial advice and the investments referred to may not be suitable for all investors.
It’s important to remember tax is subject to an individual’s personal circumstances and tax rules can change at any time.
As always, Pension eligibility and tax rules apply. You should ensure your contribution does not result in your total Pension contribution within the tax year exceeding £60,000 or 100% of your earnings, whichever is lower.
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Sources
*See page 28 for reference of Corporation Tax and full expensing system.
**Section 4.6
