Rachel Reeves' budget released

Rachel Reeves has finally revealed her much anticipated Budget – with increases in Capital Gains Tax and Stamp Duty on second-homes. The announcements seem to have done the job of not spooking the swap rate market as UK bond prices strengthened a little during the speech, pushing the yield on 10-year bonds down to 4.2%, down from 4.3% last night.

The first female Chancellor of the Exchequer in its 800-year history, announcing the first Labour Budget in 14 years, in a deeply challenged economy, Reeves knew how much was riding on this. She knew all eyes would be on her, as she revealed the secrets of the famous red box this afternoon.

Reeves (pictured with Prime Minister Keir Starmer) told the MPs who had gathered in Parliament: “This government was given a mandate to restore stability to our economy and to begin a decade of national renewal, to fix the foundations and deliver change, through responsible leadership in the national interest.  That is our task and I know we can achieve it, My belief in Britain burns brighter than ever and the prize on offer is immense.”

She continued: “More pounds in people’s pockets, an NHS that is there when you need it, an economy that is growing, creating wealth and opportunity for all, because that is the only way to improve living standards, and the only way to drive economic growth is invest, invest, invest! There are no short cuts and to deliver that investment, we must restore economic stability and turn the page on the last 14 years.”

How are the bond markets reacting so far to the UK budget announcement?

Favorably: UK yields are sharply lower in both absolute and relative terms (please see Bloomberg chart below).#economy #budgetday #uk #markets #econtwitter @markets pic.twitter.com/4JQSX1JZ56

— Mohamed A. El-Erian (@elerianm) October 30, 2024

Referencing the former Tory government, Reeves said: “The British people have inherited their failure, a black hole in the public finances, public services on their needs, a decade of low growth and the worst Parliament on record for living standards… Every budget that I deliver will be focused on our mission to grow the economy.”

Reeves said the Office for Budget Responsibility (OBR) has published a detailed assessment of Labour's policies for the next decade. Listing its forecasts, she says real GDP growth will be 1.1% in 2024, 2.0% in 2025, 1.8% in 2026, 1.5% in 2027, 1.5% in 2028, and 1.6% in 2029.

This budget will raise taxes by £40bn the Chancellor told the House of Commons – which is thought to be one of the very largest tax rising Budgets outside of a recession. And, finally, to cheers from her fellow Labour MPs and jeers from the Opposition, the budget details came thick and fast:

• The Stamp Duty land tax surcharge for second-homes – known as the higher rate for additional dwellings – will increase by two percentage points to 5%, with effect from tomorrow. This will support over a 130,000 additional transactions from people buying their first home, Reeves said, or moving home over the next five years.
• Capital gains tax (CGT) will increase from 10% to 18%, and the higher rate from 20% to 24%. The rates on residential property will remain at 18% and 24%.
• More than £5bn to deliver the government’s housing plan, increasing the Affordable Homes Programme to £3.1bn. This will provide £3bm worth of support and guarantees to increase the supply of homes and support small housebuilders – including investment to renovate sites across the country, to deliver 2,000 new homes.
• Right to Buy discounts will be reduced, and local authorities will be able to retain the full receipts from any sale of social housing, so the government can reinvest them back into housing stock and into new supply, to “give more people a safe, secure and affordable place to live”, said Reeves.
• A social housing rent settlement of CPI plus 1% for the next five years, and the government will deliver on its manifesto commitment to hire hundreds of new planning officers to “get Britain building again”, the Chancellor added.
• The Inheritance tax threshold freeze will be extended for a further two years, to 2030, meaning the first £325,000 of any estate can be inherited tax-free, rising to £500,000 if the estate includes a residence passed to direct descendants.
• An increase in employers’ National Insurance contributions, by 1.2 percentage points to 15% from April 2025, and a reduce the level at which employers start paying National Insurance on each employee’s salary from £9,100 a year to £5,000 a year.
• The National Living Wage for people aged 21 or older will rise by 6.7% from £11.44 an hour to £12.21 from next April.

Reaction from the mortgage industry was swift.

Ryan Etchells, chief commercial officer at specialist mortgage lender Together, said: “The Chancellor’s reduction in the discount allowing tenants to buy their council homes under the Right-to-Buy (RTB) scheme will mean they will have to pay, in most cases, tens of thousands of pounds more to be able to get on the housing ladder. 

“The Government says this will make the RTB scheme ‘fairer and more sustainable’ but the move seems incredibly unfair, when some people who may have lived in their council homes for years and had planned to make it their own will now be simply locked out of home-ownership for good.

"Together’s own research shows nearly a third want to see housing and planning reforms addressed in the first 12 months of Labour's government, with 12% wanting more help for first-time buyers and 7% keen to see the creation of new property schemes to help assist people’s property ambitions by January 2025. Disappointingly, the ruling on RTB works directly against the public's wishes."  

Joshua Elash, chief executive officer of lender MT Finance Group, commented:  “In the short term, the increases to NI employers’ contributions may have a negative impact on wage growth and may lead to a slower labour market but we expect this higher rate to be quickly normalised. 

“Equally, the increases to capital gains taxes aren’t as aggressive as mooted and at the new levels will not dampen any serious private equity activity.  We don’t see asset holders across any sector sitting tight for an extended period, or relocating, at the new tax levels. 

“The SME community has the most to gain from a more balanced economy and is more resilient than the press would suggest. This Budget is the right step in the right direction.”

Meanwhile, Terry Woodley, MD of Development Finance at Shawbrook, commented: "Reducing planning red tape and streamlining processes is going to play a crucial role in delivering the ambitious 1.5million new homes target. But it’s not the only answer: a multi-faceted approach is needed to really address the issues currently facing developers.

“The recruitment and training of additional planners will take time, and any further planning reform remains unclear. The Government must prioritise effective, comprehensive planning overhauls to kickstart progress and unlock the UK’s full housebuilding potential.”

John Fraser-Tucker, head of mortgages at Mojo Mortgages, said the failure to extend the Stamp Duty relief beyond 31st March 2025 is incredibly disappointing for aspiring homeowners.

"With over a third (36%) of first-time buyers already seeking financial support from family, this additional cost could push homeownership even further out of reach for many,” said Fraser-Tucker.

"For an average-priced property (£328,036), first-time buyers will now face an extra £3,901 in upfront costs. This change could force many to delay their dreams of homeownership. Even more so, this saving could have been money allocated towards furnishing their new home, covering solicitor fees, or building an emergency fund – a substantial boost for those taking their first step on the property ladder.”

Karl Wilkinson, CEO of broker firm Access Financial Services said: “This is a strong Budget for renting professionals who are looking to get onto the housing ladder. The freeze in fuel costs, National Insurance, VAT and income tax is all potentially good news for first-time buyers who are thinking about their first mortgage. Still, the huge disparity between salaries and the size of deposit usually required, will continue to make first-home acquisition impossible for many first-time buyers without a zero-deposit mortgage to help them.”

Simon Webb, managing director of capital markets at LiveMore, said the Budget has introduced significant changes with potential implications for older borrowers, particularly those aged 55 and over who may be considering property purchases or equity release options to support their retirement.

“The Chancellor's focus on stability and growth in public finances, coupled with increased support for affordable housing, sends a clear message about the Government's commitment to addressing long-term economic challenges,” Webb said. “However, for those nearing or in retirement, the adjustments to Stamp Duty and Capital Gains Tax will add an extra layer of consideration when planning for later-life financial stability. These changes may lead many older borrowers to rethink their property investments or inheritance strategies, especially with additional financial pressures on second homes and buy-to-let properties."

Ryan Davies, strategy director at Bluestone Mortgages, said it was welcome news to see the Chancellor’s commitment to boost the UK’s housing supply.

“The pledges for the provision of new homes through change is a good start,” Davies said. “However, this needs to be combined with buying initiatives to help make homeownership a reality. Our own research found that nearly two fifths (37%) of first-time buyers said affordability is their main barrier to homeownership, while a third (34%). This combined with the removal of the Help to Buy Scheme and lack of detail on the Mortgage Guarantee Scheme is putting an additional strain on first-time buyers who are already feeling the squeeze. 

“Looking ahead, we would like to see greater collaboration between the government and the mortgage industry to support the root causes of the housing crisis. While housing stock is, and should be a priority for this government, equally important is providing innovative solutions that help buyers get onto the property ladder, as well as easing the affordability pressures that prospective buyers face.”

For John Phillips, CEO of Spicerhaart and Just Mortgages the Budget was a missed opportunity for Labour to show that its plans for housing are far more than just increasing supply.

“Sadly, this wasn’t the case, with a real lack of support for buyers and the wider housing market,” Phillips observed. “While increasing supply is necessary, we also need tangible support right now to increase routes to homeownership and reduce affordability pressures, particular for first-time buyers.”