Chancellor Rachel Reeves has delivered the Labour Government’s first budget of this new parliament, following their election in July. Whilst some of the proposals were anticipated, others have caused the inevitable surprise.
As with the previous 2023 Autumn Statement and 2024 Spring Budget, the purpose of this summary is to provide a perspective on the main proposals, for those involved in resourcing Church ministries.
It is not an in depth economic assessment.
Whilst it could be argued that the Chancellor’s budget contains some encouragement for those with lower household incomes, this is negated by higher business costs which will inevitable feed through to higher prices and increased living costs.
General Economic Outlook
Whilst inflation has fallen during the year to 1.7% , it is generally accepted this will rise during the latter part of this year and through 2025 peaking at around 3%. The cost of living is likely to remain at its current level for some time to come.
The Bank of England Base Interest Rate currently stands at 5% and is not expected to fall below 4% before 2029. The cost of borrowing and mortgage rates are also unlikely to ease significantly.
As we have seen in recent years, our national economy is adversely influenced by global events. The conflicts in Ukraine, Middle East in addition to the outcome of the forthcoming US Presidential election will continue to add to the financial uncertainties, the consequences of which ultimately are felt in higher living costs.
General economic growth which should ultimately result in lower prices and higher standards of living, continues to be less than 1%. In real terms. This means that we are simply not producing enough goods and service as a nation to sell to the rest of the world. As a consequence our expenditure exceeds our income and that is far from satisfactory.
So, the question is whether the chancellors budget is likely to ease the pressures of those currently struggling to balance their finances and how might we respond in our churches?
A welcome increase in the National Living Wage to £12.21 per hour for those aged over 21, which at 6.7% is well above inflation. Similar increases for those aged 16 -20.
Working age benefits will rise in 2025 by 1.7% in line with the Consumer Price Index
State pensions will rise in 2025 by 4.1%
Full- time carers will be able to earn more without losing their allowance. The maximum earnings threshold is being increased from £151 per week to £195 per week.
These above inflation increases, will be welcomed by those on lower incomes or who are dependent on state benefits and pensions. However, the continuing freeze on the personal allowance for a further year will cause many low paid workers to pay more tax.
Taxes
As indicated above, the freeze on the personal allowance for a further year will increase the individual tax burden.
Employers National Insurance Contributions will increase from 13.8% to 15% and the threshold at which it becomes payable reduces from £9,100 to £5,000.
The rise in employers National Insurance Contributions is offset by an increase in the employment allowance to £10,500, which eligible small businesses can claim to reduce their annual National Insurance contributions.
Capital Gains Tax on assets such as shares will rise for higher rate taxpayers to 24% and lower rate taxpayers to 18%. CGT on residential property will remain at 24% & 18% respectively.
Alcohol duty on draught drinks will be cut by 1.7%. Duty on non-draught drinks will rise by level of the retail price index.
The 5p reduction in petrol and diesel duty will continue for a further year.
Single bus fare cap on many routes will rise to £3 increasing the cost of travelling to work by bus, unless of course you have a bus pass.
Stamp duty land surcharge on second homes will rise to 5%.
Whilst it could be argued that the tax burden has been placed firmly on the shoulders of business and the higher rate taxpayers, increased employer costs, will be passed on to the consumer. Maintaining the fuel duty reduction and reducing duty on draught drinks will please motorists and the hospitality industry. However, this will be small consolation to those whose income will rise with the National Living Wage increase but pay more tax because the personal allowance remains the same.
The Longer-Term Investment Strategy in Public Services
The aim of the budget has been to secure the national economic foundations by allowing Public Services spending to grow by 3% over the next year in addition to providing capital funding over the 5 year term of this government as follows:
An additional £22.6 billion for day-to-day spending over two years for the Department of Health and Social care, supporting the NHS to provide an extra 40,000 elective appointments per week, aimed at reducing waiting times.
Approximately £1.5 billion NHS capital funding for new surgical hubs, diagnostic scanners and new beds to create more treatment space in emergency departments, reduce waiting times and provide greater support for care in the community.
£100 million Has been set aside to upgrade 200 General Practice buildings to enable more surgery-based appointments.
The additional £4 billion for education sector, including £2.3 billion into the core schools’ budget aims to increase per pupil spending in real terms. This will also fund building programmes aimed at providing modern safe facilities in which to study
The budget also provides £1.4 billion for the school rebuilding programme, including an increase of £550 million in the current year.
This ambitious programme of capital investment and above inflation day to day spending growth aims to restore the economy whilst at the same time providing 21st century public services
The Labour Government is on record as acknowledging the role of churches in community support (see October Newsletter). But the continued support for food banks remains a sad indictment of our society’s inability to provide realistic incomes for those with financial challenges.
It is difficult to see how this budget will demonstrably improve the living standards of those on the margins, who struggle each day to feed their families, heat their homes and pay the bills.
The increased rate in the National Living Wage at 6.7% is still well below the rise in the October energy price cap and estimated further increases predicted in 2025.
Churches will continue to be required to provide warm space and hospitality in addition to spiritual support. All of which will provide a strain on scarce resources. This will call for even more careful financial planning on the part of Treasurers and Trustees combined with a willingness on the part of those members who can contribute a little more through planned giving and donations, to do so.
More information about the Autumn budget will be in the November newsletter sent at the end of this month.
