UK finance minister Rachel Reeves is expected to announce the highly anticipated 2024-25 budget plan to the parliament today, 30 October 2024.
The budget includes the first significant tax hikes in three decades and billions of pounds in increased borrowing to fund public services and economic investment.
This will be the new Labour government’s first budget after 14 years of the Conservative party rule. It aims to address the country’s troubled public services and fulfill its election pledges without causing bond (gilt) market chaos. Businesses and wealthy individuals are expected to face higher tax bills, while the government plans to relax fiscal rules to allow for increased infrastructure investment.
Reeves said that she plans to fund the budget by raising UK bond issuance to about GBP 300 billion (USD 389 billion) this fiscal year, a 6% increase from the current target. Her plans sparked concern among some investors, as they are expected to raise the budget deficit and lead to more debt issuance.
Banks eligible to bid directly at government bond auctions have a median forecast of GBP 294 billion for bond issuance in the 2024-25 financial year, an increase from the current plan of GBP 277.7 billion.
Rich Britons to pay more in taxes
If Reeves’ 2024-25 budget plan is implemented, the wealthiest Britons may face increased tax obligations on capital gains, dividends, inheritances, and overseas assets. This will further increase the country’s tax burden, which has been at its highest since World War II.
Reeves’s plan to raise taxes resonates with UK Prime Minister Keir Starmer’s announcement of a “painful” October 2024 budget involving spending cuts to address a GBP 22 billion shortfall.
“Those with the broadest shoulders should bear the heavier burden; that’s why we’re cracking down on non-doms,” Starmer said in the announcement.
Non-doms are UK residents living abroad for tax reasons.
Reeves also plans to introduce around GBP 40 billion (USD 52 billion) in fiscal measures, mainly through tax increases, to cover day-to-day spending. Additionally, she aims to assure investors that a GBP 20 billion rise in borrowing for public investment will benefit the economy.
“The only way to drive economic growth is to invest, invest, invest. There are no shortcuts. To deliver that investment we must restore economic stability,” Reeves said.
UK stocks in the downfall
Due to the upcoming budget announcement, UK stocks have experienced a downward trend, mainly driven by losses in the energy sector, particularly BP. UK’s benchmark FTSE 100 fell 0.8% on Tuesday, 29 October 2024.
BP reported a 30% decrease in third-quarter profit, down to USD 2.3 billion – the lowest in nearly four years – due to weak refining margins and oil trading results. The aerospace and defense industry also fell 1.2%, while the personal goods index slid 2.6%.
