The British Minister of the Economy, Rachel Reeves, announced on Wednesday that the Government will increase the Social Security contributions, NICs, paid by companies by 1.2 percentage pointsup to 15%, from April next year, in order to increase funding for public services, including the National Health Service.
Reeves also lowered the threshold at which companies begin paying contributions from 9,100 pounds (US$11,818) annually to 5,000 pounds (US$6,493). These combined changes will probably be the largest factor in the increase in revenue expected in the budgets.
“25 billion pounds ($32.467 million) a year will be raised by the end of the forecast period,” Reeves told parliament. Employers paid 60% of the 179 billion pounds ($23.246 million) collected by NICs in the last financial year, the second largest source of income after income tax.
Increase in capital gains tax for most assets
Rachel Reeves announced on Wednesday that capital gains tax on most assets will rise to 18% from 10% at the lowest rate and to 24% from 20%. for the highest incomes, stating that the changes in the regime will allow 2,500 million pounds (US$3,246 million) to be raised.
The increase in capital gains tax brings the rate of most assets into line with that of real estate, which, according to Reeves, will remain at 18% and 24%.
Capital gains tax is paid on profits over £3,000 (US$3,896.70) obtained from selling an asset, and the rates depend on what is usually paid in income tax and the amount of the gain. .
Taxes of US$52 billion a year
Reeves said he will raise taxes by £40 billion ($52 billion) annually in his first budget. while accusing the Conservative Party of leaving public services bankrupt after 14 years in power.
Reeves said the £22bn ($28.571bn) shortfall in public finances inherited by the Labor Party when it came to power in July was worsened by the failure to pay compensation, including to victims of a scandal. of infected blood, and the underfinancing of public services.
“Any minister standing here today would be faced with this reality,” Reeves said in his budget speech. “And any responsible minister would take action. That is why today I am returning stability to our public finances and rebuilding our public service.”
According to the Institute for Fiscal Studies, a tax increase of 40 billion pounds (US$51,947 million) would be equivalent to 1.25% of economic production., second only in recent history to a 1993 Conservative budget plan that raised taxes to shore up public finances after a recession and currency crisis.
Reeves also said that the British economy will grow more than expected this year and in 2025, but less than expected in the following three years. Reeves is likely to announce changes to the government’s budget rules that will allow it to borrow more to invest in infrastructure and accelerate the pace of British economic growth.
Bond strategists say they are confident that Reeves, a former Bank of England economist, will be more prudent than former Prime Minister Liz Truss, whose big tax cut plans plunged British debt prices in 2022 and caused his resignation.
Labor has also promised voters that it will reduce long waiting lists in public health, build more homes and improve schools, but will finance increased spending on public services primarily through tax rises, not more debt.
Growth projections
The British economy would grow 2.0% next year, Chancellor of the Exchequer Rachel Reeves said on Wednesday, citing the latest forecasts from the Office for Budget Responsibility (OBR).
The new figure is slightly higher than the 1.9% for 2025 OBR forecast published in March, when the previous Conservative Government presented its last budget. The OBR expects economic output to expand by 1.8% in 2026 and 1.5% in 2027, Reeves said, in his first budget speech to Parliament.
The forecasts compare with the OBR’s previous expectations of 2.0% growth and 1.8% in 2026 and 2027. Growth in 2024 rose to 1.1%, up from the previous estimate of 0.8% for this year.
Reeves said he would publish a new “Budget Responsibility Charter” which will provide a detailed assessment of the growth effects of Labor policies over the next decade.
