What Chancellor Reeve’s Speech means for your finances
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincolnshire or other local offices.
On 8 July 2024, Rachel Reeves delivered her first speech to Parliament as the new UK Chancellor. It will arguably set the tone for the rest of her tenure in the role, highlighting the difficulties of the UK’s economic position and the “painful” decisions that might be required to address them.
Below, our Grantham financial advisers identify the key announcements in Reeve’s speech which could bear upon our clients’ financial plans. We also discuss more recent announcements from the Chancellor following this speech – e.g. Reeve’s admission on 30 July that the government will “need to raise taxes”.
We hope these insights are useful. To discuss your own family financial plan with us, please get in touch to arrange a no-obligation financial consultation at our expense:
01476 855 585
info@casfin.co.uk
Highlights from the Chancellor’s speech
After the Labour Party emerged victorious from the 4 July general election, the Chancellor announced that the following weeks would involve a careful review of the public purse. This culminated in her speech on 8 July, where she expressed her shock in identifying a £21.9bn “Black hole” in the nation’s finances.
In reality, the fiscal deficit was known before the election for “Anyone who dared to look”, according to the Institute for Fiscal Studies (IFS). As such, many experts – including the IFS – were predicting that any new government (whichever political party) would likely need to raise taxes, cut spending or both.
The headline policy announcement from Reeve’s 8 July Speech is the planned abolition of the Winter Fuel Payment for certain pensioners. Previously, anyone over their State Pension Age was entitled to receive £100 – £300 to help with their energy bills at the end of the year. Now, only those receiving pension credit or other means-tested benefits. This will potentially affect over 10m people in 2024.
Other notable announcements included a pay rise for public sector workers such as junior doctors, NHS nurses and teachers – amounting to £10bn in extra spending. Reeves also confirmed a planned acceleration in housebuilding in designated “green” and “grey” zone areas, cancellation of Rishi Sunak’s A-level reforms and scrapping certain infrastructure projects (e.g. the A303 Stonehenge Project).
What lies ahead?
Whilst many (e.g. in the public sector) will undoubtedly welcome Reeve’s pay rise promise, the scrapping of the universal Winter Fuel Payment will be painful for many. However, more challenges could be coming later in the year. The Autumn Statement will likely be a key moment when we find out more about Labour’s plans for tax.
The Chancellor recently stated that the government will need to raise certain taxes to balance the books. Labour promised not to raise taxes for “working people” during the 2024 general election campaign – explicitly ruling out increases to VAT, income tax and National Insurance (NI). However, the door has been left open in other areas of taxation, most notably for:
- Capital gains
- Pensions
- Dividends
- Inheritance tax (IHT)
What this all means for you
If you are likely to lose the Winter Fuel Payment in 2024, then now (August) is a good time to plan ahead with your finances. If you are receiving a pay rise (e.g. as a teacher or Armed Forces member), then be mindful of the continuation of “frozen” income tax bands. For instance, the 20% Basic Rate is planned to stay unchanged until April 2028, as is the 40% Higher Rate. Certain public sector workers may find themselves pushed into a higher tax band due to the Chancellor’s pay rise announcement in her 8 July Speech. This can have significant knock-on effects to your wider finances – e.g. a reduction in the Personal Savings Allowance (PSA) by £500, for someone moving from the Basic Rate into the Higher Rate. Seek financial advice if you may be affected.
Of course, many will have pressing questions about what the new government’s planned tax rises might entail. Two notable areas to watch include CGT (Reeves recently did not rule out increasing this in the Autumn Statement) and pension tax relief. On the latter, analysts have proposed a range of possible outcomes, such as changing the 25% tax-free lump sum and/or changing the tax relief rules (e.g. equalising it for all taxpayers).
We caution readers not to make significant changes to their financial plans by themselves based on what “might happen” with taxes. Instead, we suggest seeking professional advice to help maximise your maneuverability, helping you to adapt your plan, if necessary, should the landscape shift. Contact our financial planners in Grantham for more information.
Invitation
If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
01476 855 585
info@casfin.co.uk
Lucy Guinness
Financial Planner
In early 2023, Lucy became a member of the Castlegate team with a focus on demystifying the complexities of the financial world and facilitating client comprehension.
Email: lucinda.guinness@casfin.co.uk
