Specialist Lawyers React To Chancellor’s Statement

The Chancellor Rachel Reeves delivered her first budget yesterday, outlining the government’s economic strategy and spending priorities.

Some of the key points for businesses include a £40bn tax increase, with higher National Insurance contributions for employers starting in April. The freeze on income tax and National Insurance thresholds will end in 2028, and the minimum wage will rise in April.

Growth

There were several announcements geared at growing the economy and commenting on the government’s commitment to Freeports and Enterprise Zones, Bryan Bletso, partner and Head of International at Irwin Mitchell, said:

"We welcome the government’s commitment to freeports and investment zones, which are pivotal in enhancing the UK’s appeal to foreign direct investment (FDI). These initiatives not only stimulate economic growth but also create a conducive environment for international businesses to thrive.

“Our joint research with the Centre for Economics and Business Research (Cebr) has revealed that locations in the north of England and Scotland have become increasingly attractive to overseas investors. This is largely due to their strategic proximity to these investment zones and freeports, which offer significant logistical and economic advantages.

“Irwin Mitchell is closely connected with a number of organisations which are actively involved in running these freeports, and we are being increasingly being contacted by organisations looking to explore opportunities within them.

“By continuing to support and expand these zones by adding new customs sites within existing freeports, the government is laying a strong foundation for sustained economic development and international investment in these regions."

People & Pensions

Dan Bastide, Corporate partner said:

"Although not mentioned in Rachel Reeves budget speech the Government has also announced some changes to the Employee Ownership Trust (EOT) regime. These changes emanate from a consultation exercise run between July and September 2023.   The key changes, which are effective immediately, restrict former owners from controlling companies sold to EOTs, require the trustees of EOTs to be UK resident and extend the vulnerability period in which the EOT relief can be withdrawn to 4 years."

Penny Cogher, Pensions partner said:

"Good news - the Chancellor has kept to her word, with no change to the April 2024 pension tax reforms – the two new allowances LSA and LSBDA are still in place, there is no return to the Lifetime Allowance, no change to the higher Annual Allowance of £60k and no change to the tax relief system or the taxation of the lump sum benefit withdrawal.

"The government will maintain the State Pension Triple Lock for this Parliament. The basic and new State Pension will increase by 4.1% from April 2025, in line with earnings growth. The Pension Credit Standard Minimum Guarantee will also increase by 4.1% from April 2025.

"It will be interesting to see whether the Government’s position on the Mineworkers Pension Scheme where surplus is to be used as additional pension for members of the scheme will impact more generally on the Government’s broader review of how surplus should be shared in respect of other schemes.

"Buried in HC295, the 165-page supporting document, is a short statement that the UK’s net financial debt includes an additional £507 billion worth of funded public sector pensions liabilities. This is a mind-boggling amount for UK taxpayers to fund.

"To encourage savers, the starting rate for savings will be kept at £5,000 for that tax year 2025-26. This allows individuals with less than £17,570 in employment or pensions income to receive up to £5,000 of savings income tax free.

"The government is to continue its work in partnership with the private sector to further increase investment, in part through its pensions review to unlock greater investment in UK growth assets.

"There is, however, a change back to the position before 2015 as regards the use of defined contribution pension plans as tax efficient saving vehicles for IHT purposes for the wealthiest members of society ie those who have not used their defined contribution pension savings up during their lifetime. This change is to come into effect from 6 April 2027. In monetary terms, this is forecast to amount to £640m +£1,340m +£1,460m for the tax years 2027/28,2028/29 and 2029/30 respectively for unused pension funds and death benefits payable from a pension. Some people might interpret this as a green light to use their pension savings up while alive and / or give them away thus becoming a burden on the state in their later years. The detail will be important here, and we wonder whether there might be a de minimis for this.

"The Government is making an immediate change from budget day today (30 October 2024) to take away a little known pension tax loophole that applies in respect of QROPS, ie Qualifying Recognised Overseas Pension Schemes, in the European Economic Area (EEA) or Gibraltar so that individuals cannot obtain double tax free allowances for transfers to them. This issue arose due to how the Overseas Transfer Charge applies in respect of such transfers. This is forecast to earn the Government £5m for each of the next 5 tax years on overseas of UK tax-relieved pension funds.

"The Government will require scheme administrators of HM Revenue & Customs registered pension schemes to be UK resident from 6 April 2026. This will not result in any change for the vast majority of UK HMRC registered pension schemes.

"Additionally, from 6 April 2025, to reflect the current position on the free movement of workers and their ability to transfer their pension savings with them as they move from state to state, the government will update the conditions as to what amounts to Overseas Pension Schemes (OPS) and Recognised Overseas Pension Schemes (ROPS) established in the EEA, compared to those established in the rest of the world."

Joanne Moseley, from the Employment team, highlights the impact on businesses and the possible repercussions.

“The government is raising taxes by £40 billion, and over half of this will come from employers via the increase in employer NI which will come into effect from the new tax year. That, coupled with the substantial increases in the national living wage of 6.7%, national minimum wage of 16.3% and apprenticeship rate of 18% will squeeze profits and we may see an increase in the numbers of employers that lower their benefits packages to fund these.

“It's also possible that employers will need to reorganise their workforces to accommodate these increased costs and that may, ultimately, lead to redundancies.”

Planning

Nicola Gooch, Planning partner said:

“Despite the hopes and fears that this first Labour budget in over a decade has inspired, it has in many ways been business-as-usual for the planning system.  As expected, Labour is prioritising immediate funding for the provision of social and affordable housing; unlocking the delivery of housing on brownfield sites - particularly those which are already either on site or within the planning system; and existing funding streams - such as the nutrient neutrality fund, the affordable homes programme and the brownfield release fund.

“The real terms increase in local government funding, and changes to the right to buy programme will come as a relief to local authorities; and more funding for sticky delivery issues - such as nutrient neutrality - are always welcome. That said, the real reforms for the planning system will be delivered through other means… in particular, the government's response to the recent NPPF changes, the Planning & Infrastructure Bill and the multi-year spending review. 

“For planning, at least, the real change is yet to come.”