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UK TAX
Weekly News 4th Nov
Pound plunges after major tax hikes in Autumn Budget
The pound fell sharply against the dollar and euro after the Chancellor announced the largest tax increase in a generation in the autumn budget. Over the past three days, the pound has dropped by 1.2% (trade-weighted), marking the biggest decline in 18 months.
Additionally, the UK’s 10-year bond yield (the cost or interest rate of long-term government borrowing) exceeded 4.5% for the first time in a year. This figure means the government has to pay more on borrowing, and bond yields also guide everyday loan and mortgage rates. Although European bonds are also rising, the UK’s increase is faster than most other countries.
In September 2022, former Prime Minister Liz Truss’ ‘mini-budget’ disastrously led to soaring borrowing costs for consumers, with the pound hitting a 37-year low against the dollar, followed by a sudden rise in UK 10-year bond yields. Although the Labour government’s Autumn Budget has not appeared to have the same impact – bond yields have risen by about 0.3% compared to around 1.5% in 2022—analysts still say that the market’s response will be significant enough to catch the Treasury’s attention.
Some economists are focusing on how the budget might affect inflation and any potential ripple effects on the Bank of England’s interest rate decisions in the coming months.
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Stamp duty hikes expected to trigger housing demand surge
In the recent Autumn Budget, the UK government announced an increase in the additional stamp duty rate for purchasing a second property, raising it from 3% to 5% effective October 31, 2024, to support first-time and primary home buyers.
Additionally, Chancellor Reeves has decided not to extend the ‘stamp duty holiday’ introduced by the previous Conservative government in 2022. This means that after March 2025, the stamp duty threshold in England will decrease from £250,000 to £125,000, and for first-time buyers, from £425,000 to £300,000.
Nationwide, one of the UK’s largest lenders, predicts this could drive a significant increase in home sales early next year, potentially encouraging one-fifth of prospective first-time buyers. However, the impact of these changes may be smaller than before, as high interest rates still deter potential buyers.
The building society also indicated that the impact of this budget will be minor in lower-priced areas (e.g. Northern Ireland and northern England) but greater in high-priced regions (e.g. London and southeastern England), leading to a decrease in property purchases by landlords for rentals.
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Ryanair to cut flights by 10% in response to Air Passenger Duty hike
Following Labour’s decision to increase air passenger tax in the autumn budget, the budget airline Ryanair plans to reduce flights to and from UK airports by 10% in 2025.
Under the new budget, Air Passenger Duty (APD) will rise in the 2026/27 fiscal year, with rates depending on flight duration and class. The cost of economy class tickets on short-haul flights will increase by £2, while taxes on private jet flights will jump by 50%.
The airline stated that it would review its flight schedules, and the planned reductions could result in up to 5 million fewer passengers at UK airports. Ryanair CEO Michael O’Leary sharply criticised the tax hike, arguing it damages growth prospects for the UK aviation sector and makes air travel more expensive for the public.
Ryanair set a passenger record in August 2024, with 20.5 million travellers in that month alone. In contrast, Ryanair’s profits had dropped by 46% earlier this year due to a 15% drop in average ticket prices over the three months ending in June.
