Autumn 2024 Budget: Economic Outlook and Consumer Prospects

The Autumn 2024 Budget was historic for a number of reasons. Rachel Reeves’ statement was the first delivered by a Labour Chancellor in 14 years, and the first ever by a female Chancellor. Most pressingly, though, the Budget delivered one of the largest tax rises in British political history.

Labour delivers a tax revolution

In total, Labour has announced around £40 billion of tax rises across the economy. Much of this comes from hiking employers’ National Insurance (NI) contributions. Changes to capital gains tax, inheritance tax, stamp duty for additional properties, and VAT on private education fees are among a range of other rises designed to help fuel what is also a substantial rise in public investment. The government hopes this will kickstart growth in the UK economy, but consumers will be most concerned about how it impacts their bank balance.

Tax rises are always a tough sell

Almost any political announcement in the current environment is met with wide disagreement and division. This Budget will be no different. Regardless of where they are targeted, tax increases – never mind at this scale – are guaranteed to cause fury in some quarters.

Before the Budget, Mintel research shows only a fifth of people felt supported by the government. Just a quarter believe the government makes decisions with people’s best interests in mind. Whether and how these attitudes change following the Budget will depend on individuals’ circumstances, but this sentiment gives a good steer as to how we can expect Brits to respond to post-Budget headlines.

Consumers will worry about how this will affect their pay packet…

For individuals, the impact of this Budget will take time to truly materialise. 

Income tax, VAT and employees’ National Insurance contributions have been left untouched, and the lowest earners will benefit from a 6.7% rise in the minimum wage. This will help those among the hardest hit by the cost of living crisis and experiencing the slowest recovery. Mintel research shows 43% of those in households earning less than £25,000 a year – the new full time minimum wage from April 2025 – described their finances as tight, struggling or in trouble in October, while 37% felt worse off than a year before.

Any increase in earnings at this level will be well-received. However, those earning above the minimum wage face less certain prospects.

Raising employers’ NI contributions, and cutting the threshold at which employers start to pay it, will cost businesses an extra £25 billion a year, according to the government’s calculations. It’s almost certain that most of this will be passed on to individuals through weaker wage growth and higher prices.

For many, this will mean a further prolonged squeeze on household incomes and, in turn, consumer expenditure. The Office of Budget Responsibility’s (OBR’s) Economic and Fiscal Outlook, which accompanied the budget, forecasts weaker household spending growth every year through to 2028, relative to what it forecast in March.

… impacting consumer confidence

It’s not just the material effects of tax hikes that will stifle expenditure. Significant tax increases were widely expected, and in October, before the Budget was announced, 72% of Brits predicted them in the next year. But confirmation of these rises will impact consumer confidence.

We’ve already seen confidence sag this year as Brits continue to wrestle with the cost of living. In October, 56% still thought the cost of living crisis wasn’t getting any better. Regardless of the actual effects on household finances, the narrative of a high-tax Budget will cause many to look ahead with greater concern and caution, especially given two-thirds thought taxes were already too high.

Immediate spending will remain constrained…

Given the previously announced changes to the Winter Fuel Payment and October’s rise in the energy cap, fuel costs were already a hot topic of debate. This will ramp up as we move into the coldest months of the year. Half of Brits are concerned about being able to afford their energy bills this winter, and two-fifths expect to reduce energy use in the next two months to save money.

More broadly, well-established savvy shopping behaviours, such as shopping at low-cost retailers and buying own-label products, will remain widespread. Most brands will need to prioritise proving value, as consumers continue to focus on price and value for money.

… but we’re still in recovery, and that’s broadly a good thing

Beyond the headlines, there are still reasons to be positive. Ultimately, the average consumer won’t be affected by higher capital gains tax (CGT) rates, bigger duties for private air travel, or the end of the non-dom tax regime. Most Brits won’t be impacted by any of the measures in the immediate term, and while forecasts for household income and spending are weaker than in March, both are still projected to grow.

More than anything, the Autumn 2024 Budget is likely to extend the recovery from the cost of living crisis, slowing the rebound in household finances and consumer spending in the short term for a promise of long-term growth that should benefit everyone. So, effectively, more of the same that we have become accustomed to for longer.

But even in recovery, there are opportunities for brands. Most Brits are still getting by financially and expect to do so over the coming year. Many are looking to treat themselves where they can after a chastening few years. The lipstick effect is in full swing everywhere from beauty to food and leisure, while travel has enjoyed a bumper year in 2024. Heading towards Christmas, many consumers remain cautious about spending, but are generally more bullish about opening their wallets than in the last two years.

Consumers are willing to spend on goods and services that make them feel good. Brands just have to work hard to prove their value. Rachel Reeves’ Budget doesn’t change this.