Budget 2025

(Please note these are my own interpretations of the UK budget 2025 as seen on TV and should not be acted on without discussing first with Hatch Accountancy)

The beginning

Racheal Reeves, the juggernaut of the current government, the thing 2 to thing 1 that is Starmer. She played the same tactics that Trump does. It is either Joe Biden or Chinas fault; Racheal does the same by blaming Tories or the EU. Good to feel that politics is the same wherever you are. Blame the predecessor or something that was out of your control.

As she goes into the discussions of what she has done, something struck me as odd - let's see if anyone can spot it, remember these are the things she is super happy to have achieved to date - she says:

• Reformed the planning system
• New Trade deals with America
• Change of VISA system
• Overhauled the fiscal rules
• Stability on public finances

Now, I do follow UK politics and economic policy extremely closely, as it is a passion of mine but also involved my job, and potentially then this is super obvious to me and maybe not others so let me just breakdown what her opening speech really says:

Reformed the planning system - Not been actioned or changed but may do in the future. This could help building, but probably not as people will still hold onto land to grow the value and not build out the houses.

New Trade deals with America - USA put a tariff on us, don't worry guys we got it down to 10%. So, it’s basically a win, and I will call it a trade deal - when it is not.

Change of VISA system - Pretty sure Borris Johnson overhauled the system, but we will tweak it and call it a really big change

Overhauled the fiscal rules - Rishi Sunak was the one to put into place the guardrails and today’s incarnation is a take on his fiscal rules

Stability on public finances - the house of commons laughed when she said this, that is all you need to know.

The same convoluted truth hidden in lies, but somewhere there might be truth in their lies.

As every year, they breakdown the GDP to debt ratio. This year, they decided to use the PSNFL, a new way of looking at public debt to ratio. The benefit of this... it's not near 100%, it’s nearer to 84%. So basically, that’s our new %. There was a lot of chiming about how the debt is reducing. By 2% in 5 years. Bringing it down to 82% by 2030 from 84%. I am just thrilled by this news, but then she must ruin it and speak

“There will be a surplus in 2030”

No, no there will not. There has not been a surplus since 2000-2001. And whatever your fancy excel spreadsheet says, I as an economist/accountant/excel expert can tell you, in 2030 we will not have a surplus unless you redistribute. Which there is no policy of that.

She continued to talk up Entrepreneurs, the bank bone of the economy – spoiler alert, she does not really do much to help them. So more of a “thank you” at the beginning of the budget. Aww that’s nice.

And then the numbers. A staggering 1.5% growth on average each year over this parliament. Okay that’s good, positive. Let’s just do the simple math here.

Base rate – What we pay interest on, around 4%. So if growth + inflation is above the base rate all good. Inflation is 2% + 1.5% gets to 3.5%. Emm Oh. That’s fine, surely the ex-chequer for the United Kingdom of Great Britain and Northan Ireland can spot this mathematical issue and put our minds at ease.

Nothing.

So, we are effectively losing 0.5% in cash terms. I would only imagine that the plan here is to wait, get base rate down to 2% and keep growth up. Else interest payments will be higher than growth and that actual growth won’t be growth. So currently we are in a declining economy, but don’t worry Racheal knows how to talk this up, so smoke and mirrors will win over the financial markets. She adopted the age-old trick of “oops” the report was leaked 20 mins before my speech! I’m shocked. Markets are happy – yes? – Okay, will read Speech 1 not speech 2, let’s ask for an investigation so to point the blame away from us.

The BIG changes

So rather than chronological order, Rachel this year made my note taking job a litter harder. So, I will breakdown the big changes which actually matter, the headliners:

Tax Threshold Freeze to 2031. Okay, so hopefully by now most people get fiscal drag, but if not. Then basically locking in the thresholds you pay certain taxes, means over time more people pay more taxes as wages increase but thresholds stay the same. For every year, 1% of GDP is saved or around £30bn. Yes £30 BILLION. You will see later on (in the section - not so big) that they talk up big investment, but it is like £100 million. So where is all these savings going freezing threshold to 2031 that’s like 6 years of £30bn – it’s paying debt.

Salary Sacrifice will be capped at £2k per employee. This is to stop people from avoiding their Employers national insurance. When they put it up last year, they did not foresee a huge explosion of salary sacrifice. But if you ask them, its to level the playing field. Which is odd, because I thought they wanted pension contributions?

EVs taxed per mileage at around 3p per mile. So for 10,000 miles you will pay around £300. This would be seen as fair to most people, but maybe ill-timed when they are trying to phase out petrol. Presumably they wanted to wait but had no choice but to bring in sooner for the cash.

Two Child Benefit cap has been removed and the rape clause. I won’t go into these too much, but suffice to say they are sensible and logical steps to take. Given that 440k children from this move will be pulled from poverty. The only policy I would agree with in this entire budget.

2% increase in dividend tax, minor but will impact most of my clients.

Triple lock has remained. I will keep writing this, as it is my belief that a government not too soon in the future will be left with that hot potato and will need to reform the triple lock. Who will it be? If you don’t know the triple lock is the state pension increase. They get much higher increase than minimum wage historically and so some economists and bloggers – such as myself – would argue that the money is being taken from the younger generation and given to the older – who no longer work but have worked. It’s a impossible philosophical question I will not be answering today – mainly because I cannot.

Remote gambling tax % have increased hugely, 21% to 40%. But in house gambling has remained the same – presumably as they are the last things on the Highstreet. That and the odd tanning shop.

Alcohol, vaping and nicotine all increased as well. All of which is good, but by taxing the very thing you wish to eliminate, buts the government at odds, presumably they don’t want everyone to stop gambling or smoking, else where would they get the tax money from? Also, it disproportionately affects lower earning individuals as the £5 they might gamble as a % of earnings is far more than a higher worth individual. So, one could argue a further taxes on the working people. But that would be against their policies, no?

The small things - but given a lot of attention!

So pretty standard tactic here, talk up the small things like they are big deals.

Let’s take the one closest to my heart - the wealth tax. Did they take high net worth individuals an asset tax? – No. Is the tax of any significant value. No. Right…

So homes over £2.5m and £5m will pay £2.5k and £7.5k increase in council tax. How much is this worth to the UK finances. £5 million. Yup. Great work guys. I could get more by asking for donations on KickerStarter.

Landlord National insurance increase. This is under small things as most landlords have their property in limited companies to avoid the future messing of the government and therefore, they won’t be affected. But if you own your rentals personally, this will increase your burden by 2% and probably lead to you selling your assets.

Motability came under fire, BMWs and Mercedes are premium cars and not allowed under the disability moto rules. Personally, I don’t think people with disabilities are that bothered about the type of car, more the modifications so they can use the car. Seems a very odd thing for labour to make a big deal. It is probably to talk to the right wing politics of what they are doing to “appease” the benefit scroungers – which these people are not. They just want a modified car to travel with to increase social mobility. Being disabled they cannot afford the modified car and ask the government for help. I don’t think they ask for a C63 Mercedes with room for a wheelchair.

Under 25s will have apprenticeships for free! – This is minor, because there are various incarnations of this policy around the UK depending on what sector. So this really will not have a huge impact on small business owners too much but could be a little win for us.

Face to face disability assessments being rolled back, again making a big deal about this, but honestly it was temporary from Covid. They are “looking into” youth inactivity. Great I will wait for that report in 2030 - add to my calendar now.

The government will also “guarantee” yes guarantee that youths will have either school, college or work. Odd thing to say when it is illegal for under 18s to not be doing one of those. So, the government is promising to uphold its own laws? Interesting.

£80m to improve all playgrounds - see what I mean, £80m won’t go far and they have saved £30 BILLION from the freezes. Good idea, probs needs more cash though.

Inheritance tax exemption for blood scandal payments. Which if they paid out in good time would not be a requirement, but as they are taking so long. Inheritance tax is now being asked about the payments, as some people have died before receiving the compensation. Probably be the same for the post office In a few years.

£20k Cash allowance being reduced to £12k and £8k being investments. The government wants everyone to risk their own money on the economy rather than a risk-free bank account - seems a bit off coming from a labour government. This has 'Tory policy' written all over it.

What they should have done

People always ask me, "so Lloyd - you write these blogs and tell us the government is making the wrong move, what is it that you would do?" Pretty simple, fix inequality like the Nordic states have done. Adequately fund public services so tax payers don’t mind paying the tax.

Policies like, simplification of income tax and national insurance. Merging capital gains within income rates. Introducing wealth tax for £20m or more.

Carbon tax to make imports and exports equal playing field. Government should procure everything from itself does not outsource to cheaper labour economies.

The list goes on, one day I will write a book and send a copy to the ex-chequer. Easier said than done though, right?

Summary

And that’s it. Another budget gone by. In all honestly, it’s not that bad. It’s standard tweaks. The biggest thing is the huge increase in taxes via the fiscal drag going into 6 years in the future. That’s unheard of. Most people reading this blog will be paying 40% in 6 years just through the time value of money and inflationary effects.

The money being saved is going towards the increase in public sector pay and investment – which is needed, and loan interest on loans we took out at ultra low rates and are now 4%.

Hopefully an exchequer will be bolder and brighter in the future to really tackle the issues at hand, rising inequality, hoarding and transfer of assets outside of the country, selling off of government assets and the decline of middle class wealth. But that hope is on another day now.

All the best.

Lloyd

The Finance Guy