Introduction:

The UK has recently experienced significant political and economic shifts. With the Labour Party winning the general election, Keir Starmer has taken the helm, promising change and renewal for the country. As we await the 2024 Autumn Budget, it’s worth reviewing the results of the 2023 Autumn Budget and understanding its impact on those already managing tight budgets. Below, we break down the key takeaways from the 2023 Autumn Budget and explore what might be ahead in the

2023 Autumn Budget Summary:

The 2023 Autumn Budget was set against persistent inflation, cost-of-living challenges, and a global energy crisis exacerbated by the war in Ukraine. Here are the key measures that were introduced:

1. Halving Inflation:
   1. Inflation Control Measures: Inflation peaked at 11.1% in October 2022. The Energy Price Guarantee (EPG) played a crucial role in easing household energy bills, helping to bring inflation down to 2.9% by the end of 2023.
   1. Energy and Fuel Support: The EPG was maintained at £2,500 for three months starting in April 2023 to further alleviate pressure. Additionally, the government froze fuel duties for the year, offering support to motorists.
   1. Broad-Based Cost-of-Living Relief: The 2023 Autumn Budget also introduced measures like childcare reforms, offering 30 hours of free childcare to parents with children aged 9 months to 4 years.

• Boosting Economic Growth:
  • Investment Incentives: The 2023 Autumn Budget introduced full expensing for qualifying plant and machinery investments from April 2023 to stimulate business growth.
  • R&D and SMEs: Additional tax relief was provided for research and development (R&D) investments to encourage innovation, particularly benefiting small and medium-sized enterprises (SMEs).
  • Employment Initiatives: The government introduced a Universal Support program to help people with long-term health issues find employment. Other reforms targeted older workers and parents with childcare responsibilities.

• Debt Reduction Efforts:
  • Managing Public Debt: UK public debt stood at almost £2.5 trillion, or 98.9% of GDP, in 2023. Despite the high borrowing levels, the government committed to reducing debt as a share of GDP over the medium term, with a target set for 2027-28.
  • Cost Control: The government made tough decisions to limit borrowing while supporting public services and investment, aiming to stabilize the economy.

Impact on Budgeters from the 2023 Autumn Budget:

The 2023 Autumn Budget provided a much-needed respite for those diligently managing their finances. The support for energy bills and the freeze on fuel duties effectively reduced immediate costs. However, inflation in other crucial areas like food and rent continued to put pressure on household budgets. While government interventions did alleviate some financial burdens, many families still grapple with structural cost-of-living issues.

The Labour Government’s Election Victory and the Road Ahead Following the Autumn Budget:

With Keir Starmer now leading the Labour Party after their resounding victory, there’s a palpable sense of hope and anticipation. For many, this election represents a new beginning—a chance for the country to recover from the economic turmoil of the past few years and embark on a path toward renewal and progress.

But with hope also comes uncertainty. People across the country are wondering, “How will these changes impact me?” There’s excitement at the prospect of long-awaited economic reform but also a hint of anxiety about the potential challenges that might lie ahead. Rachel Reeves, the new Chancellor, has already signalled a bold shift toward a more active economic strategy, promising increased investment in infrastructure, green energy, and healthcare.

For many voters, these promises evoke relief—a belief that help is on the way for struggling public services and overstretched households. The commitment to green energy speaks to the growing environmental concern, while infrastructure projects hint at new jobs, modernized cities, and better transport systems. Yet, behind the excitement, there’s an understanding that such reforms take time, and patience will be needed as the country transitions toward this new vision under the 2024 Autumn Budget.

Fundamental Likely Changes in the 2024 Autumn Budget:

1. Economic Growth and Business Investment:

The Labour government’s industrial strategy, including the National Wealth Fund, is poised to bring about significant changes. This strategy aims to foster large-scale investments in infrastructure, green technologies, and innovation over a 10-year plan. The potential benefits of this strategy could lead to job creation, wage increases, and an overall improvement in living standards, instilling a sense of hope for the future.

• Impact on Budgeters:
• In the long term, this could lead to job creation and wage increases, improving living standards. However, higher government borrowing may lead to increased taxes or interest rates in the short term. Households may feel squeezed if inflation or loan costs rise, reducing disposable income.
• Mitigation Strategies:
• Given the potential for increased inflation or interest rates, it’s crucial for budgeters to take proactive steps to protect their finances. Building emergency savings should be a top priority, with the aim of setting aside 3-6 months of living expenses. If considering borrowing for significant expenses, securing lower interest rates now is advisable. For mortgages due to renew soon, exploring fixed-rate options could provide a sense of financial security.

• Potential Tax Increases:

Tax adjustments: While Labour has promised not to increase the largest taxes on working people, targeted increases in areas like National Insurance Contributions (NICs) or energy windfall taxes could occur.

• Impact on Budgeters:
• A hike in National Insurance or indirect taxes would reduce take-home pay while increasing the costs of everyday goods. This could make it harder to manage household budgets, particularly for lower and middle-income earners.
• Mitigation Strategies:
• Reassess discretionary spending to limit the impact of rising costs. Start by identifying non-essential items like entertainment or subscriptions and cut back on these to create a buffer for more pressing needs. Planning ahead for potential tax hikes by setting aside a portion of your income now can help soften the blow.

• Inflation and Interest Rates:

Falling inflation but potential interest rate cuts: After reaching 11.1% in 2022, inflation has now dropped to 1.7%, with expectations of modest rate cuts starting in November 2024

Autumn Budget.

• Impact on Budgeters:
• Lower inflation means everyday costs may stabilize, offering some relief. However, rising household energy bills in late 2024 could increase inflation. Interest rate changes could also affect mortgages, savings accounts, and loans.
• Mitigation Strategies:
• Lock in fixed mortgage rates now to protect yourself from future increases. For savers, compare rates and consider switching to a high-interest savings account. Even if interest rates drop, having an emergency fund will help you avoid borrowing at higher costs later.
• Labour Market and Wage Growth:

Unemployment and wage growth: Unemployment remains stable at around 4%, and wage growth is currently outpacing inflation. Real-term wages are expected to continue rising.

• Impact on Budgeters:
• Wage increases will help many recover from the inflationary shock. However, if business taxes rise, wage growth could slow, affecting living standards.
• Mitigation Strategies:
• Focus on career development and additional income streams to maximize earnings. Also, consider reducing debt to free up more income for savings or future expenses.

• Consumer Spending and Public Services:

Spending review and public services: Labour has committed to prioritizing public services like healthcare, with more funding likely directed to the NHS and social care in the 2024 Autumn Budget.

• Impact on Budgeters:
• Enhanced public service funding could reduce out-of-pocket expenses, but tight government finances may limit broad increases in welfare payments or public sector pay.
• Mitigation Strategies:
• Plan for potential delays or cuts in non-essential services. If you rely on healthcare, consider personal health insurance to cover any gaps in the NHS. Look for digital alternatives for public services, like virtual GP consultations.

General Suggestions for Budgeters:

1. Increase Emergency Savings – Ensure you have enough for unexpected cost rises, particularly for energy bills and potential tax hikes. The stronger your savings are, the less you may be impacted once the 2024 Autumn Budget is announced.
2. Re-evaluate Debt and Loans – Take advantage of the current lower interest rates for borrowing and aim to lock in fixed-rate deals for mortgages or loans. Market sentiment suggests interest rates may come down in the next few months. For example, the current two-year fixed mortgage rate is 4.64%, as shown on Rightmove.
3. Monitor Energy and Utility Costs – With energy bills expected to rise, consider switching to more energy-efficient home solutions or finding better deals from suppliers. Review current deals online or with your provider and look for cheaper options that provide the same level of coverage.
4. Be Cautious with Discretionary Spending—Potential tax changes and public spending cuts might squeeze personal budgets, so reduce non-essential expenses now. Careful budgeting will be more crucial if the 2024 Autumn Budget brings tax increases or interest rate cuts.

In Summary:

The 2024 Autumn Budget is likely to focus on long-term growth and investment, but there will be challenges from inflation, tax increases, and public sector constraints. By proactively adjusting their budgets and planning for potential changes, individuals can manage the financial impacts of the upcoming policies.