Fixing the foundations: Publication of public spending audit 2024-25

When the Chancellor Rachel Reeves addressed Parliament on 29 July 2024 to set out the findings of the HM Treasury (HMT) audit of public spending, ‘Fixing the foundations: Public spending audit 2024-25’, there were not expected to be any tax announcements beyond confirmation of the date of the Autumn Budget.

The Chancellor did indeed confirm the date of the Budget – Wednesday 30 October 2024. However, she also – unexpectedly - announced publication of draft legislation for Finance Bill 2024-25 and technical tax documents. These documents set out further detail on Labour’s flagship manifesto tax raising commitments, as well as draft legislation on certain other measures, to allow for technical consultation and stakeholder input ahead of the Budget.

This article summarises the tax highlights from the Chancellor’s speech and these accompanying documents.

The Chancellor confirmed the Autumn Budget will be held on 30 October 2024. As expected, this will be accompanied by a forecast from the Office for Budget Responsibility (OBR).

HMT’s audit revealed a £22 billion ‘black hole’ in public spending and in her address to Parliament, Reeves set out immediate cost saving measures to mitigate this. However, she advised that more would need to be done to reduce this deficit in the Autumn Budget, labelling Labour’s first fiscal event “a Budget to fix the foundations of our economy”.

She advised that HMT would be publishing further detail on Labour’s tax raising manifesto commitments to “ensure we bring that money in as fast as possible”. A summary of these releases, alongside other draft legislation published on 29 July, is set out below.

Reeves went on to warn that the Budget will involve “difficult decisions to meet our fiscal rules across spending, welfare and tax”, although she also reiterated Labour’s manifesto commitments not to increase National Insurance, the basic, higher or additional rates of income tax or VAT for the duration of this Parliament.

At a press conference after her speech, Reeves was asked directly by the press if there would be further tax rises in the Autumn Budget. Although her response reiterated that Labour will honour its manifesto commitments not to raise taxes on working people, she concluded by saying “but the truth is we did not know about this £22 billion black hole in this fiscal year when we went to the polls on 4 July and so there will be more difficult decisions around spending, around welfare and around tax at the Budget”. This has fueled speculation in the press that there could be tax rises in areas not specifically mentioned in the manifesto such as inheritance tax or capital gains tax.

The Government has published draft legislation to consult on how the transitional safe harbour anti-arbitrage rule is legislated in the UK. See our separate article for more details.

The Government has released much-anticipated details on its proposed reforms to the non-dom regime: these are explored in detail in our articles covering non-dom reform and Inheritance Tax changes from 6 April 2025 .

A policy paper was released detailing changes to the oil and gas windfall tax, the Energy Profits Levy (EPL), that had been well trailed in the manifesto. Four changes were announced:

• An increase of the EPL rate to 38 percent with effect from 1 November 2024, bringing the headline rate for UK oil and gas producers to 78 percent. The Energy Security Investment Mechanism (ESIM) will remain, removing EPL where low oil and gas prices are sustained;
• A further extension of the EPL period to 31 March 2030. The previous extension to 31 March 2029 had been announced in the March 2024 Spring Budget but not enacted;
• Abolishing the investment allowance for expenditure incurred after 1 November 2024 (the decarbonisation allowance remains); and
• Changes to the availability of capital allowances, although comments were limited to saying: “the Government will also reduce the extent to which capital allowance claims (including First Year Allowances) can be taken into account in calculating levy profits”.

The Government will now engage with stakeholders on the proposals and will work with the industry to develop and implement a successor regime post EPL. Further details will be announced as part of the Autumn Budget with legislation included in the next Finance Bill.

In her address to Parliament, the Chancellor reiterated Labour’s manifesto commitment to take action in respect of the ‘carried interest loophole’. The Government has therefore launched a call for evidence on the tax treatment of carried interest. The call for evidence sets out a series of areas where the Government would particularly value input from stakeholders, including how the tax treatment of carried interest can most appropriately reflect its economic characteristics; what are the different structures and market practices with respect to carried interest; and what lessons can be learned from approaches taken in other countries. The call for evidence closes on 30 August 2024 and further announcements will then be made in the Autumn Budget.

The Government published a technical note outlining changes to the VAT and business rates regime for private schools. Draft legislation on the VAT policy change, accompanied by an explanatory note, has also been published. 

The technical note confirms that the Government will remove private schools’ eligibility for charitable rates relief under business rates in England, and will engage with schools before setting a final proposal in due course. This change is intended to take effect from April 2025, subject to Parliamentary passage.

The imposition of 20 percent VAT on education and boarding services provided for a charge will take place from 1 January 2025 and will also apply to pre-payments of fees for terms starting on or after 1 January 2025 made on or after 29 July 2024. Where pupils have acute special educational needs that can only be met in a private school, the Local Authority funder will be able to claim the VAT back under s33 of the VAT Act 1994.

The consultation on these changes will close on 15 September 2024.

The Government has published draft legislation to abolish the Furnished Holiday Lettings (FHL) tax regime from April 2025. This will advance proposals set out in Spring Budget 2024 and remove the tax advantages that landlords (including individuals, corporates and trusts) offering short-term holiday lets have over those providing standard residential properties. The legislation also contains details of transitional arrangements that will apply, including anti-forestalling rules applying from 6 March 2024. Comments on these proposals should be provided by 15 September 2024.

Finally, in a written statement to Parliament, the Exchequer Secretary to the Treasury, James Murray, advised that the Government will provide an update in the Budget on the implementation and development of measures to implement its manifesto pledge to close the tax gap.

The Government has also now launched its Autumn Budget representation portal where individuals, organisations and Members of Parliament can submit comments on existing policy for consideration in the Budget. The portal will close at 23:59 on Tuesday 10 September 2024.