Budget boost as growth forecast rises after inflation battle ‘won’ – live

Britons are already paying more inheritance tax as Rachel Reeves looks to squeeze millions more from the levy, official figures show.

Payments swelled the Treasury’s coffers by £4.3bn in the six months since April, £400m more than in the same period in the previous financial year and a rise of 10 per cent, new data from HM Revenue and Customs shows.

Government spending so far this financial year was £11.5 billion more than forecast by the OBR, points out The Resolution Foundation, which tallies with Rachel Reeves’ claim of a £22 billion “black hole” in the public finances.

The foundation’s senior economist Cara Pacitti said: “Six months into the financial year, Britain is borrowing £6.7 billion more than expected at the time of the Budget in March.

“This reflects central government spending which is £11.5 billion higher than anticipated, largely due to public sector pay rises and higher running costs.

“Today’s data highlights the scale of the public finances challenges facing the Chancellor as she grapples with overspending today, the need to avoid austerity in the future, and having to fund extra public service spending through tax rises.”

The IMF has said UK gross domestic product (GDP) is due to grow by 1.1 per cent in 2024 – a major uplift from the 0.7 per cent growth forecast from July.

The UK economy is then expected to grow by 1.5 per cent in 2025, with the IMF maintaining its prediction from earlier in the year.

The IMF report also found that UK inflation for 2024 is set to be slightly higher than expected at 2.6 per cent, having previously pointed towards a 2.5 per cent reading.

It likewise slightly increased its inflation projection for 2025 to 2.1per cent from 2per cent in its previous outlook.

Unemployment is also set to be slightly worse than previously expected by the IMF, according to the latest report.

It said the UK unemployment rate is set to have been 4.3per cent for 2024 as a whole, compared with a previous 4.2per cent estimate.

Rachel Reeves has welcomed an upgrade to the UK’s economic growth forecasts from the International Monetary Fund (IMF) as it said Britain’s battle against inflation has “largely been won”.

The chancellor stressed that there is “more work to do”, but added “it is welcome that the IMF have upgraded our growth forecast for this year”.

Ahead of her first financial statement as chancellor on Wednesday, Ms Reeves said: “The Budget next week will be about fixing the foundations to deliver change, so we can protect working people, fix the NHS and rebuild Britain.”

Capital Gains Tax (CGT) is paid on the profit made when an asset which has increased in value is sold. It is applied to things like the sale of personal possessions worth more than £6,000 (apart from a car), property that’s not the seller’s main home, shares and business assets.

It is charged at 10 or 18 percent for basic rate taxpayers, and 20 or 24 for higher or additional rate earners. There is a tax-free allowance of £3,000.

There are several ways CGT could be changed. In the run-up to the election, the Lib Dems and Greens both said they would rethink the tax bands to be more similar to income tax, raising an estimated £5.2bn a year.

Sir Keir Starmer’s government was hit by another day of Budget confusion after Labour was bounced into conceding that individuals earning above £100,000 are still “working people”.

On a day when the prime minister had hoped to get a grip on the political agenda with the launch of a major consultation over the future of the NHS, Sir Keir faced another series of rows and speculation over whether Rachel Reeves was planning further taxes on the rich.

Treasury Chief Secretary Darren Jones said the state of the public finances meant there would be “difficult decisions” in the October 30 Budget.

He said: “We have inherited a £22 billion black hole in the country’s public finances, including no plan to fund pay deals for millions of public sector workers.

“Strikes cost at least £3 billion last year, so it was the right thing to do to end those damaging disputes.

“Resolving this black hole at the Budget next week will require difficult decisions to fix the foundations of our economy and begin delivering on the promise of change.”

Pension tax relief is a reduction of the amount of tax paid on private pensions. It helps workers save for retirement by boosting their pension pots.

The amount of tax relief a person is granted is based on their income tax. It will effectively cancel out tax on pension contributions up to a maximum of £60,000.

After this, contributions will be taxed at either 20, 40, or 45 per cent, depending on which income tax rate the worker falls into.

However, the chancellor is thought to be considering a flat 30 per cent pension tax relief rate. This would mean that higher earners would effectively pay 10 per cent in tax, while those on the additional rate would pay 15.

The measure would raise around £3 billion a year, with 7 million earners paying more tax. But it would be better news for basic rate earners, who would actually begin to receive a 10 per cent boost to their pension contributions.

Evaluating the idea last year, the IFS said it would “redistribute the burden of taxation from the bottom 80 per cent to the top 20 per cent of earners.”