The New Chancellor’s First Announcement – What It Means For You

Rachel Reeves addressed the House of Commons on Monday (29th July 2024) as Chancellor following her initial assessment of the country’s finances. She spoke about the state of the country’s finances at present and how this has shaped her short, medium and long-term goals.  

Chesterton House Paraplanner, Jack, shares some of the announcements from her speech which could impact you: 

VAT Changes for Private School Fees

The Government has confirmed their intentions to remove the VAT exemption on private school fees, beginning January 2025. This will mean that the fees will now attract 20% VAT.  If you have children at a private school, or if you expect to have in the future, this could have significant implications for your future planning, depending on the degree to which the school seeks to recover the additional tax from parents. If you are affected by this change we can help you plan your future expenditure to be able to achieve your objectives.

Means Testing for Winter Fuel Payments

Winter fuel payments for the 2024/25 winter will now be means tested. Anyone aged over State Pension age receiving Pension Credit, Universal Credit, Income Support, income-based Jobseeker’s Allowance and income-related Employment and Support Allowance will continue to receive £200 (for eligible households) or £300 (for eligible households with someone aged over 80). Those who do not receive these benefits will no longer be eligible for winter fuel payments. – This will affect around 10 million pensioners.  

State Pension Triple Lock Reaffirmed

However, she did reconfirm the Government’s pledge to keep the state pension triple lock.  

Social Care Costs Cap Scrapped

The long-delayed cap on social care costs, originally proposed by Sir Andrew Dilnot in 2010, has been scrapped again. A cap of £86,000 on care fees over a person’s lifetime was due in October 2023, and subsequently pushed forward to October 2025, and is now indefinitely on hold. This is an issue that has been repeatedly put back by successive governments and it appears that it is going to be a long time before definitive action is taken, leaving people needing to budget for the full costs of care during their lifetimes. It’s a topic we cover as part of our regular reviews to ensure that our clients are prepared for possibility of having to pay for care in later life, or to deal with the costs they face now.

Changes to Non-Domiciled Tax Status

The Chancellor announced Labour’s plans to replace the non-domiciled tax status from April 2025. This will see around 74,000 people potentially having to pay tax on their earnings generated outside of the UK.  

Upcoming Multi-Year Spending Review

A full multi-year spending review to help with the Government’s fiscal plan will be launched, which will conclude in March 2025. Along with legislation that has already been put forward, the Chancellor stated that she is keen to improve the transparency of the information that the treasury shares with the OBR so that incoming Governments in the future have a better idea of what they are walking into.  

Junior Doctors’ Pay Rise Agreement

Junior doctors have been offered a back-dated pay rise of 22% in a deal to end strike action. The latest five-day strike led to the postponement of 61,989 appointments and operations according to NHS England. Doctors had originally been campaigning for a 35% pay rise. Pay rises for many other public sector workers have been agreed by the Chancellor following recommendations from the independent pay review bodies. Junior doctors will now vote on the proposed pay rise.  

Implications of the Treasury Audit

Following the Treasury audit, the Chancellor has made it plain that the public finances are in a worse state than expected, undoubtedly laying the groundwork for tax rises in a few months’ time. As the new government has pledged not raise Income tax, National insurance or VAT. That means that Capital Gains tax, Inheritance tax and Pension tax reliefs could all be in the firing line. Careful financial planning is now more important than ever, and we will be working closely with all our clients to use the combined expertise of our financial planners, solicitors and accountants to navigate the new fiscal landscape. 

Upcoming Budget Announcement

The Chancellor’s initial set of plans will be laid out in her first budget which has been scheduled to take place on the 30th of October. At Chesterton House, we will be watching closely and will follow with a budget summary.  

If any of the points from Monday’s announcement are of concern to you, then please contact us.  

The Government’s full public spending audit can be found here – https://assets.publishing.service.gov.uk/media/66a793cba3c2a28abb50d8a1/E03171937_-_Fixing_the_foundations_-_public_spending_audit_2024-25_-_Final_Web_Accessible.pdf