Top 5 takeaways from Keir Starmer’s speech – possible tax targets in Autumn Budget 2024

In this piece, a specialist accountant looks at the possible measures the chancellor will announce at Autumn Budget 2024 and tells us how key taxes and allowances may be affected.

Our prime minister’s ‘Working People’ preoccupation doesn’t bode well for high-earning IT contractors on October 30th, writes veteran chartered accountant Anthony Mellor, founder of Mellor & Co.

And it’s being called the “rose garden speech” but that paints a totally unreflective picture because what Sir Keir Starmer had to say on August 27th was anything but rosy.

The prime minister’s grim prognosis (“There’s a budget coming in October and it’s going to be painful”), was meant for taxpayers at large.

A few contractor lightning rods to fix the foundations? Probably…

But for being lightning rods at almost every budget I can remember, limited company contractors now have an additional reason to fear that, on October 30th at Autumn Budget 2024, they, and they alone, will be the ones “Fixing the Foundations.”

That is the official name of Starmer’s speech, according to No 10 Downing Street.

Here’s my guide for readers of IT.Contracting.Com on five key areas of Starmer’s speech and what it means for you at Autumn Budget 2024.

1.‘Working People.’ The phrase that just keeps on coming

Uttered three times in his first speech as PM, twice in the King’s Speech, and twice in his ‘Painful Autumn Budget’ speech (as I’m tempted to rechristen it), “Working People” is a phrase that Starmer can’t seem to keep out of his mouth.

But who exactly does “Working People” encompass?

The PM’s go-to phrase suggests there will be a focus in next month’s Budget on the average wage earner. For your reference, the latest median pay (according to the ONS) is £2,396 a month.

On and up the ladder? You’ve got a target on your back…

By contrast, high earners – like many IT contractors will be – are implied to not be ‘working people.’ If we look closer, the absence of any direct mention of high-earners or specific tax policies for professionals who’ve got on, and got up the earnings ladder, indicates that this group could be targeted on October 30th.

Don’t believe me? Starmer said in his un-rosy, rose garden speech warning about the budget: “Those with the broadest shoulders should bear the heavier burden.”

2. Income tax and National Insurance

If you search for the word ‘tax’ in Starmer’s August 27^th speech, you won’t come up with much.

There is, though, a vow by the PM to “introduce legislation and take decisions to protect taxpayers’ money.”

While accountants like me will usually take that as code to expect a raft of anti-avoidance measures in the incoming Green Book from No 11 Downing Street, it’s more likely a reference to the ‘covid corruption tsar’ which chancellor Rachel Reeves has tabled.

A non-dom? At least you’ve got certainty…

That’s not to say there won’t be a raft of HMRC crackdowns at Autumn Budget 2024; there probably will be. Anti-avoidance measures have become one of the usual suspects of chancellors’ fiscal events. And with a £22billion hole in the public finances to fill, Autumn Budget will invariably be no exception.

Instead, to get a good sense of the tax moves which chancellor Reeves will likely make on October 30th, you’ll glean more by looking at what’s been said already by Labour.

Maybe that seems a bit unfair to us taxpayers; Starmer warns the budget package will be painful – but then doesn’t give us anything specific so we can prepare for the pain. That is; of course, unless you’re a non-dom (“We’re cracking down on non-doms”). But if that’s you, your card has been marked for quite a while now, including by the last Conservative government.

That VAT promise, and that one big VAT sting…

In Labour’s 2024 election manifesto, the party said it would “not increase National Insurance, the basic, higher, or additional rates of income tax, or VAT.”

We know that this vow doesn’t preclude VAT being added onto school fees, but maybe some IT contractors – high earners – will be reassured by the above pledge to “not increase…higher, or additional rates”.

Personally, I’m not buying it. Or at least, I suspect that a possible increase in the higher rate of income tax could actually be on the horizon. Maybe the seed will be planted on budget day.

Similarly, I suspect that the government might explore raising the threshold for National Insurance contributions which, if it comes to pass, would predominantly affect higher earners, including many professionals in the IT contracting industry. Such changes would effectively increase the tax burden on those who are already paying significant sums.

3. Dividend tax thresholds

Another potential target at Autumn Budget 2024 is the thresholds for higher rates of dividend tax.

While dividend income is already taxed separately from salary, any changes in thresholds could make dividends less attractive.

This is particularly relevant for contractors who often rely on dividends as a tax-efficient way to draw income from their limited companies.

If the higher rate dividend threshold remains intact, then be on guard about the allowance…

Also watch out for a possible downgrade to the dividend allowance too, even if this has been massively cut already to a threadbare £500.

The allowance started off life at a much more palatable £5,000.

My reasoning for Reeves potentially intervening on the allowance is that it got set in stone way back in 2022 but right up until the current tax year, 2024-25. There’s been no mention of the dividend allowance for 2025-26, which commences on April 6th 2025. An opportunity for the chancellor, surely?

4. Corporation tax

Corporation tax has seen changes quite recently — on only April 6th 2023 with the Small Profits Rate, but hikes could very well be unveiled on October 30th.

For contractors, who already view corporation tax as a form of double taxation — bearing in mind they are taxed once on company profits and again when those profits are drawn as income in the shape of a dividend, a corporation tax increase at Autumn Budget 2024 would represent a significant financial hit.

With many smaller businesses and contractors clearly now fond of the £50,000 profits threshold, under which corporation tax doesn’t rise above 19%, it would seem especially cruel if this ceiling was mucked about with at the very first opportunity Labour got.

5. Inheritance Tax: A target too tempting to turn down?

Starmer’s un-rosy rose garden speech also raises questions in my mind about potential changes to inheritance tax.

With a 40% rate in place at the time of writing, the impact of IHT is substantial,

It is uncertain how much additional revenue the ‘death tax’ actually generates for the government, however. While the PM didn’t mention IHT explicitly, inheritance tax could still be a tempting target for adjustments, whether through rate increases or changes in existing allowances.

Preparing for what’s bound to come at Autumn Budget 2024: tax rises…

If you’re an IT contractor, it’s crucial not to get dispirited about the bleak outlook which the PM shared, but instead, try to stay alert to these potential tax changes and, where applicable, be proactive.

The lack of specifics in Starmer’s speech might be a deliberate move to keep his chancellor’s options open, while gauging public and political reactions to his ‘doom and gloom’ messages. Incidentally, not everyone thinks it’s the economy which is grim!

However, I’ll end where I came in.

The Labour leader’s emphasis on “working people” and “broad shoulders” with his political need to be seen as fiscally responsible, indicates that high earners, including IT contractors operating through umbrella and limited companies, are surely facing heavier tax burdens.

Keep in mind, in Labour’s election 2024 manifesto, the party said: “The Conservatives have raised the tax burden to a 70-year high. We will ensure taxes on working people are kept as low as possible. Labour will not increase taxes on working people”.

Final thought

With repeated rhetoric like this, it’s advisable for anyone earning more than £2,396 a month to keep a close eye on further announcements and consider consulting with a chartered tax adviser to prepare for any changes that could impact your tax planning. With the prospect of higher taxes now warned about — from no less than the First Lord of the Treasury — staying informed and proactive is more important than ever.