The Government’s Autumn 2024 Budget included several major fiscal changes, including a revision of the method by which national debt is measured for national accounting purposes, an upcoming rise in national insurance contributions for employers and commitments related to regional devolution. Some of these changes could significantly influence London’s economic trajectory.

On October 30^th 2024, the Chancellor of the Exchequer, Rachel Reeves, revealed the newly-elected government’s first Budget, which was billed as a “Budget to fix the foundations of the economy and deliver change by protecting working people, fixing the NHS and rebuilding Britain”. In a broad and all-encompassing document, the Chancellor tackled a variety of issues impacting both the London and UK economies- from low productivity and growth to chronic underinvestment and increasing public debt. This supplement will highlight some of the key economic measures announced in the Budget and suggest potential implications for London’s economy where these exist.

Macroeconomic outlook

Inflation is forecast by the Office for Budget Responsibility (OBR) to average 2.5% in 2024, peaking at 2.6% in 2025 before gradually declining to 2% by 2029. Additional budget policies, such as increases in alcohol duty and the soft drinks levy, could lead to a minor upward pressure on inflation.

Other things equal, this stability in inflation is welcome news given that Londoners have been disproportionately impacted by the cost-of-living crisis. For example, a September 2024 GLA/YouGov poll of London residents revealed that over 50% of Londoners reported either struggling financially or just about managing to afford daily expenditure on necessities.

Real GDP is expected to grow modestly, bottoming out at 1.25% below pre-COVID levels in early 2024 and recovering to pre-pandemic levels by 2025. GLA Economics forecasts that London’s GVA growth forecast is 1% for 2024 and 1.6% for 2025. In general, London’s growth rates exceed their national counterparts due to the city’s higher productivity and its competitiveness in knowledge-based economic sectors.

The tax-to-GDP ratio is forecast to reach a historic 38.2% by 2029-30, while spending will decrease slightly from 44.9% to 44.5% of GDP over the same period. Day-to-day spending will rise by 1.5%, and total government spending, including capital spending, will increase by 1.7% in real terms. Meanwhile, net public sector debt (excluding Bank of England holdings) is projected to rise annually, with a significant 5 percentage-point increase in 2024 driven by expanded government borrowing. Debt is expected to stabilize around 97.1% of GDP by 2029-30, though heightened sensitivity to interest rates persists due to the debt burden.

Strengthening the fiscal framework

Enshrining fiscal stability is a key commitment made by the Chancellor to put public finances on a sustainable footing, and to do so two rules were announced:

• A stability rule to move the current budget into balance, so that daily operating expenditures are balanced and offset by revenues, and
• An investment rule that would involve using Public Sector Net Financial Liabilities (PSNFL) as a new definition and measure of public debt. At present, the UK government’s measure of debt does not include financial revenue streams that it gets, for example, from students who pay back student loans. By including these (which PSNFL does), it would reduce the amount of debt used in the national accounts and permit an increase to the amount borrowed and invested in the economy without jeopardising the sustainability of public finances. It is worth noting that PSNFL is commonly used by other countries in their accounts, and so the UK would not be an outlier as such. PSNFL is expected to fall as a share of GDP by 2029-30, applying to the third forecast year when 2029-30 enters the three-year window.

Other things equal, London is likely to benefit from these attempts to strengthen the fiscal framework by virtue of its role as a magnet for investment in key sectors for future economic growth. For example, data from fDi Market Intelligence shows that London ranks first amongst global cities in terms of foreign direct investment (FDI) attraction, while data from HMRC and the Office for National Statistics shows that the city is the principal contributor to the national Exchequer.

Housing-related measures

The government announced a £500 million increase (to the £2.6 billion budget) to the Affordable Housing Programme (AHP) 2021-26. London is expected to receive about £100m of that increase; details on how this will be spent are yet to be agreed with the Ministry of Housing, Communities and Local Government (MHCLG). The Chancellor also made clear that funding for a future programme will be announced at the Comprehensive Spending Review in ‘late Spring’ 2025. The funding announced in the Budget, and particularly the certainty of a new programme post-2026, could provide more confidence to the sector and enable it to plan for the future via the Taskforce Joint Position Statement.     

The government also said that local authorities will be able to keep 100% of the Right to Buy receipts. The government also announced a reduction in the discount available to tenants who plan to buy their home via Right to Buy. Retaining 100% of Right to Buy receipts will allow local authorities to have more funding available to deliver new affordable homes. Reducing the discount will reduce the number of affordable homes ‘lost’ to the private sector, maintaining the social housing stock. It is however important to highlight that, by reducing the discount, the number of transactions may reduce and with them the receipts that local authorities will be able to access. This would mean that a ‘funding stream’ for affordable housing could reduce over time.

Moreover, the government stated that it will extend the Public Works Loan Board Housing Revenue Account rate until March 2026. This enables local authorities to borrow at only 0.2% over gilt rates. This will support local authority financing of capital expenditure on social housing in their Housing Revenue Account.

Last but not least, additional housing-related welfare support was announced that would be beneficial to Londoners with protected characteristics (especially low-income households); examples include a £3.2 billion Warm Homes Plan to improve 320,000 homes, £1 billion to extend the Household Support Fund and Discretionary Housing Payments, and £233 million of additional spending in 2025-26 on homelessness.

Labour market and skills

The government reiterated its target of an 80% employment rate, which would represent 2 million more people in work. It is also worth noting that economic inactivity has a lower incidence in London than other UK regions; in London, the rate currently stands at less than 20% (19.7%), while the employment rate is also higher than the UK’s. The latest data shows that 263,000 working-age people (16-64) are economically inactive in London due to long-term health conditions (representing about 20% of economically inactive people in London). This total has been rising since the pandemic, but much less sharply than in the UK. That being said, the claimant count in London (the % of working-age Londoners claiming unemployment-related benefits) has been on the rise in 2024 and stood at 5.9% in September 2024. This would suggest that some of the Budget measures targeting workers rights and protections could benefit socioeconomically-disadvantaged Londoners despite the city’s higher overall employment and lower overall inactivity rates.

Meanwhile, apprentices will see an 18% increase to the minimum hourly wage next year (from £6.40 to £7.55 an hour from April 2025). Higher wages are an incentive for young apprentices to pursue such apprenticeships at a time when apprenticeship uptake has been decreasing in London in recent years. In addition, £1.4 billion has been allocated to school rebuilding, reaffirming the government’s commitment to improving the school estate, although it is unclear (at present) how this will be distributed across regions. An extra £300 million was allocated for further education, while the apprenticeship levy was also reformed, with a £40 billion investment that is focused on delivering shorter and foundation apprenticeships in key sectors. That said, no information was provided on whether apprenticeships will be devolved.

Infrastructure and Transport

£485 million was allocated for Transport for London (TfL)’s capital renewals programme in 2025-26. This includes funding for rolling stock on the Piccadilly and Elizabeth Lines. The Fiscal Year 2025-26 capital settlement is to enable TfL to continue to deliver its current capital programme and its committed major capital projects and is inclusive of funding for the procurement of additional Elizabeth Line trains as per the settlement letter dated 14th June 2024. The DfT will continue to work with TfL with the aim to place it on a long-term financially sustainable footing as part of Phase 2 of the upcoming Comprehensive Spending Review (CSR).

The expansion of London City Airport was approved by the Deputy Prime Minister in line with the government’s position to support airport expansions where such a move could contribute to environmentally-sustainable economic growth. A 10-year infrastructure strategy will be published alongside Phase 2 of the CSR, and the government has also created the National Wealth Fund to catalyse over £70 billion of private investment into infrastructure and growth sectors.

Furthermore, £500 million was announced to deliver Project Gigabit and Shared Rural Network to drive the rollout of digital infrastructure to underserved parts of the UK, including delivering full gigabit broadband coverage by 2030. It is worth noting that in London, full fibre broadband was available to 62% (or 2.5 million) of premises (business and residential) as of January 2024, compared to 61% in the rest of the UK. Over time, the gap in full fibre availability between London and the rest of the UK has been getting smaller as the government targets underserved regions for greater access to digital infrastructure.

Last but not least, the Budget reaffirmed the government’s commitment that HS2 trains will run to Euston, with funding provided for tunnelling to the Central London terminus, attracting private investment into the station and local area. Investment at Euston will be complemented by a strategy to drive forward an ambitious housing and regeneration initiative for the local area.

Innovation

Protected R&D investment will rise to £20.4 billion in the 2025-26 fiscal year. This includes at least £6.1 billion of support for core research. The R&D investment also fully funds Horizon association (£2.7 million), meaning that UK researchers and businesses can participate in the world’s largest programme of research cooperation, worth more than £80 billion. Other things equal, London is likely to disproportionately benefit from this given the city’s role as an R&D hub for the rest of the country. Many of the sectors to which funding has been allocated (e.g., life sciences, advanced manufacturing and biotech) happen to be ones in which London has a competitive advantage. Moreover, the Chancellor also announced a new Public Sector Reform and Innovation Fund, to support the development of a new approach to improving public services. The Budget allocates £100 million of this over the next three years to deliver innovative projects, partnering with Mayors and local leaders, and developing new approaches to public service reform with a focus on experimentation and learning.

Devolution and local governance

Several London-related announcements were made on this topic. For example, it was announced that the GLA’s 67% business rates retention pilot will continue to the 2025-26 Fiscal Year. Moreover, the government will explore a single settlement deal (similar to the one in place with Greater Manchester and West Midlands Combined Authorities) for the GLA from 2026-27. The GLA’s 67% local business rates retention pilot (i.e., GLA share 37% and borough share 30%) is maintained for at least one more year; this higher retention share allows the GLA to retain a greater level of business rates growth and provides greater fiscal flexibility and room.

As mentioned, TfL was also awarded £485 million of additional capital renewals funding in 2025-26, including funding for Elizabeth and Piccadilly line rolling stock. In addition, the Budget provides an increase in core spending power for local government (i.e., estimated funding from government grant, council tax and locally retained business rates) by around 3.2% in real terms in 2025-26. This equates to an estimated additional £1.3 billion in grant funding for local government.

Taxation

A key measure announced in the Budget is the increase in the rate of employer National Insurance contributions (NICs) from 13.8% to 15%, and the reduction in the per-employee threshold at which employers become liable to pay National Insurance (the Secondary Threshold) to £5,000. These changes are set to take effect in April 2025. At the same time, the government is increasing the Employment Allowance. The current Employment Allowance gives employers with NICs bills of £100,000 or less a discount of £5,000 on their employer NICs bill. The government will protect the smallest businesses by increasing the Employment Allowance to £10,500 next year. The government will also expand the Employment Allowance by removing the £100,000 eligibility threshold, to simplify and reform employer NICs so that all eligible employers now benefit. Taken together, this means that 865,000 businesses will pay no NICs at all, and more than half of employers with NICs liabilities will either see no change or will gain overall next year. As London hosts at least 20% of the UK’s small and medium-sized enterprise (SME) population, London’s SMEs are likely to benefit from the expansion in the Employment Allowance. That said, the extent to which the increase in NIC employer contributions would undermine London SMEs’ recruitment, retention and expansion (and by extension, London’s and the UK’s growth and labour-market outcomes) remains to be seen.

Another announced measure is the removal of the income tax threshold freeze from the 2028-29 fiscal year; these thresholds would rise in line with inflation, which (other things equal) would reduce the fiscal drag (i.e., the number of people dragged into paying tax or facing higher tax rates). While this would support low and middle-income households on one hand, it also lowers the tax receipts government uses to fund public services on the other.

The main Capital Gains Tax (CGT) rate will increase from 10% to 18% for the lower rate and from 20% to 24% for the higher rate, effective October 2024. The government is increasing Capital Gains Tax (CGT) to boost revenue while maintaining international competitiveness, with UK rates remaining lower than those in France, Germany, and Italy. CGT, which applies to profits made on the sale of assets, is currently paid by fewer than 1% of adults each year. The main CGT rates, currently at 10% (lower rate) and 20% (higher rate), will rise to 18% and 24% from 30 October 2024. The government also announced that the freeze on inheritance tax (IHT) thresholds will be extended from 2028 to 2030. The adjustments to CGT, alongside the inheritance tax threshold freeze, reflect a broader strategy to address wealth inequality. By increasing CGT rates and maintaining the freeze on IHT thresholds, the government seeks to ensure high-value estates and substantial capital gains contribute more to public finances, while still safeguarding sectors like agriculture and family businesses. As the most unequal region of the UK, London is likely to benefit from measures that mitigate income and wealth inequality, especially as incomes (after housing costs) of the top decile of Londoners are 9 times those of the bottom decile.

Last but not least, the small business rate multiplier (for properties below £51,000 Rateable Value) will be frozen, and the standard multiplier will be indexed in line with 1.7% September CPI (i.e. rise 55.5p). Moreover, from 2026-27, new sectoral multipliers will be introduced, with permanently lower multipliers for Retail, Hospitality, and Leisure (RHL) properties potentially met via applying a higher multiplier on large premises above £500,000 Rateable Value including warehouses. As London is acutely reliant on the RHL sector, such changes could support businesses in this sector to the benefit of London’s economic growth and its attractiveness as a cultural and tourist destination.

Concluding Thoughts

Through this Budget, the Chancellor attempted to present a new economic paradigm centred on fiscal sustainability to reassure financial markets and investment for future growth. While it is premature to fully establish its consequences for London and the UK, the key measures highlighted above present a step towards further investment in key economic sectors and broader public services while targeting taxation and fiscal measures towards supporting low and middle-income households. In that sense, London could stand to benefit from some of the measures presented, but to what extent remains to be seen.