In her first speech as Chancellor of the Exchequer Rachel Reeves outlined her plans to “rebuild Britain” and reiterated the government’s commitment not to increase national insurance, income tax rates and VAT.

Central to Labour’s bid to stimulate investment in industry and economic growth is reform of the planning system and meeting targets for house building, in line with their manifesto and election campaign promises. Major private sector investors have already said they will back the new Chancellor’s plans for investment to fund big infrastructure and green energy projects.

Rachel Reeves promised, as part of a broader plan for reform, to turn attention to the pensions system “to drive investment in homegrown businesses and deliver greater returns to pension savers”. What measures she might have in mind may become clearer in her first Budget expected in the autumn. No tax changes are expected before the Budget because the Chancellor will want to wait for the pre-Budget economic and fiscal outlook report from the Office for Budget Responsibility, which will take at least 10 weeks to complete.

The Labour Party’s election manifesto and what stayed in and what was omitted from the King's Speech during the State Opening of Parliament give an idea of what can be expected from the new government.

Income tax

Income tax thresholds and the personal allowance will remain frozen until April 2028, continuing the previous government’s policy. This will bring more people into the higher and additional tax rates.

Capital gains tax

The only guarantee given is that CGT will not be charged on the sale of a main residence. There have been mixed messages about whether CGT rates will go up.

Non-doms

The last government announced changes to the non-dom tax regime but they have not been legislated. Labour wants to abolish non-dom status for tax and replace it with a modern scheme for people who stay in the UK for only a short period. The new rules can be expected to incorporate this aim.

Inheritance tax

Labour’s election manifesto promised an end to “the use of offshore trusts to avoid inheritance tax”. There has been speculation that business and agricultural property reliefs might also be targets for reform. 

VAT

From 1 January 2025 all education services and vocational training supplied by a private school will be subject to VAT at the standard rate of 20%. Some smaller private schools may close as a result. Parents should start planning now for increased fees or a transfer to a state school. In England, the business rates exemption for private schools will also be removed.

Business taxes

Within six months, the government is expected to set out key policies for the next five years with the aim of helping “businesses to plan investments with confidence”. Also expected is clearer guidance on what expenditure qualifies for full expensing and the annual investment allowance.

Labour has promised not to increase corporation tax but will review tax breaks for businesses. It has also said it will replace business rates with a new system that will put online retailers on a par with high street businesses.

Employment

Labour has pledged the early introduction of a “new deal for working people”. Expected measures, some or all of which will be preceded by consultation with businesses, include the abolition of age differences in minimum wage rates, a ban on zero-hours and ‘fire and rehire’ contracts, the repeal of some trade union laws and giving employees rights to parental leave, sick pay and protection from unfair dismissal from day one.

Further ahead

The government faces spending pressure in several areas including the NHS and defence. Its funding plans rely on economic growth. If that does not materialise, future tax increases may become inevitable.