Was Labour’s first Budget in 14 years, something for Londoners to cheer about? The impact for those living in the capital will be judged by what it means for the everyday living standards and long-term prospects of its more than 9 million residents.
Overall, it was a Budget of contradictions .On the one hand the Chancellor promised investment and growth, but yet on the other hand the headlines are captured by the £25 billion employer’s NIC increase.
Not only will employer’s NIC rise by 1.2% to 15% from April but a reduction of the threshold at which employers start paying NIC to £5,000 will be the real tax riser, representing an additional cost of £615 per employee.
A business employing five people will face an increase its costs of over £5,500.And whilst the announcement that the Government will increase the National Living Wage by 6.7% to £12.21 from 1 April 2025 will be welcomed by those on low pay it can’t escape notice that many on the National Living Wage are employed in the retail, leisure, hospitality, cleaning and maintenance sectors, sectors that feature heavily across London’s working population.
These businesses operate on low margins, and most will need to increase the pay of employees over the National Living wage to maintain pay differentials.
As an example, an employee on the National Living Wage, who works 40 hours a week will get a pay rise from 1 April 2025 of £1,602 per year. Adding this to an NIC rise means that businesses in these sectors could be faced with difficult decisions around retaining, recruiting and paying staff. Growth might be hard to achieve faced with such additional costs.
However, there was some welcome news with a change to the Employment Allowance.
The Employment Allowance currently allows eligible employers to reduce their annual Employer’s NIC liability by a maximum of £5,000 per tax year if their Employer’s NIC threshold was less than £100,000 in the previous tax year.
From 6 April 2025, the Employment Allowance will more than double to £10,500 and the £100,000 cap will be removed.
In the context of the broader changes, this represents a welcome silver lining, particularly for the smallest businesses with only a handful of employees.
Another change that could have a disproportionate effect on Londoners, where many inhabitants live in rented accommodation was the announcement that the additional rate of stamp duty for second properties will rise from 3% to 5%.
This will be a concern for buy to let landlords and whilst the government promises greater house building these changes may filter through in terms of less choice and higher costs in the rental sector.
London is an international city, welcoming individuals from all over the globe. As expected, Rachel Reeves confirmed that the UK non-dom regime will be abolished from 6 April 2025. In a disappointing move and despite months of representations made to Government, the proposals from earlier this year remain largely unchanged. This feels like a significant missed opportunity to create a world class regime to attract international wealth to the UK.
For non-doms currently resident in the UK, the new regime and transitory reliefs are mired in complexity and will take time to work through.Only time will tell the full effect that this will have on London as an international centre and whether it leads to an exodus of wealth.
In advance of the Budget, talk of a £40bn tax grab had raised severe concerns around alignment of Capital Gains Tax (CGT) to Income Tax. As a result, there was certainly an uptick in transactions across the board as individuals banked the existing rates.
As widly rumoured, CGT was increased with immediate effect – but the increases, from 10% to 18% and 20% to 24%, will be welcomed by investors who were fearing the worst. This aligns the top rate with the current rates applicable to disposals of residential property. So, not as bad as perhaps feared.
In the run up to the Budget, the government heralded the fact that it would be those with the broadest shoulders that would carry much of the additional tax burden, yet across London it will be employers and therefore their employees that carry the majority of this.
Paul Noble is a partner at Blick Rothenberg
Blick Rothenberg’s Budget Analysis is here Autumn Budget 2024 Analysis - Blick Rothenberg
