UK Budget and US Election: A Tale of Two Nations at Crossroads
As the world watches two pivotal moments unfold on either side of the Atlantic, the UK government has unveiled its latest budget, laying out its economic vision amid a cost-of-living crisis and calls for fiscal restraint. Meanwhile, across the pond, the United States finds itself in the throes of an intense election cycle, with the 2024 presidential race shaping the future of the world’s largest economy.
In this article, we’ll explore the key takeaways from the UK budget, its implications for households and businesses, and the potential ripple effects on global markets. Simultaneously, we’ll examine how the dynamics of the US election could redefine international politics and the global economy in the years to come.
Section 1: Balancing the Books: Unpacking the UK Budget
The UK Autumn Budget 2024, presented by Chancellor Rachel Reeves, introduced significant measures focused on investment and economic reform. The budget addressed years of economic stagnation by promoting growth, tackling climate change, and improving public services.
Some key points include:
Economic Investment: A focus on infrastructure and clean energy, aiming to position the UK as a "clean-energy superpower." Reeves introduced new fiscal rules to enable increased government spending on public services and infrastructure while maintaining sustainable debt levels.
Taxation Changes:
Employer National Insurance Contributions will rise from 13.8% to 15% starting April 2025. Simultaneously, the Employment Allowance will increase to £10,500
Private jets faced higher taxes, and incentives for electric vehicles were extended.
Changes to Capital Gains Tax for non-residential assets included higher rates of 18% and 24%
Housing: Stamp Duty saw an increased surcharge on additional properties, alongside a future reduction in the first-time buyer relief threshold.
Environmental Initiatives: A windfall tax on oil and gas companies was increased, with commitments to green hydrogen and carbon capture technologies
TAX:
Chancellor Rachel Reeves unveiled significant tax reforms in her latest budget, including an increase in the capital gains tax rate from 10% to 18% for basic rate taxpayers and 20% to 24% for higher and additional rate taxpayers. Furthermore, employers' national insurance contributions willrise from 13.8% to 15% starting April 6, 2025. Reeves described the £40bn tax-raising budget, which includes £28bn in new borrowing, as a one-off fiscal "reset," pledging no further tax hikes or borrowing during the current parliament. She highlighted fixed public spending limits while acknowledging the need for flexibility amid global economic uncertainties. This adjustment is estimated to produce an additional £25 billion each year.Private equity managers will also face increased tax rates, with penalties on income from successful transactions increasing from up to 28% to 32%. Meanwhile, the main corporation tax rate, which applies to taxable profits beyond £250,000, will remain at 25% until the next election.
Alongside this, Labour's plan to increase employers' national insurance contributions has sparked widespread concern. Charities are among the most impacted, with the National Council for Voluntary Organisations estimating an annual cost of £1.4 billion. Smaller charities face an increase of £300,000 in salary bills, while larger ones could see hikes of over £3 million. This financial burden may force many to reduce services, cut investments, or raise prices.
Care providers also warn that the £600 million allocated to the sector in the Budget may be offset by the national insurance hike, worsening the NHS crisis by increasing operational costs and straining services. GPs, many of whom operate as private partnerships, will also feel the impact of the increased national insurance rates, with critics fearing that this could exacerbate existing pressures on the healthcare system.
While these measures aim to stabilise the UK's fiscal outlook and promote long-term economic growth, they also pose risks of dampened business confidence and potential reductions in investment activity. These reforms largely depend on external factors, such as global economic conditions and inflationary pressures.
Personal taxes, including income tax, national insurance, and VAT, will remain unchanged, with income tax band levels set to rise with inflation from 2028. Inheritance tax thresholds will be frozen until 2030, and unspent pension accounts will face taxation from 2027. The capital gains tax on property sales will remain unchanged.
The £40bn budget, including £28bn in new borrowing, aims to address fiscal sustainability, with Reeves promising no further tax hikes or borrowing in the current parliament. However, the long-term impact will depend on global economic conditions and how businesses and investors respond to these changes.
The Bank of England reviewed the £70 billion budget, finding that it had the potential to enhance GDP by 0.75% and consumer price inflation by 0.5% within a year. However, the long-term impacts, such as the impact of increasing employer national insurance contributions, are questionable. The Bank expects inflation to exceed its 2% target until mid-2027, due to tax adjustments such as VAT on private school fees, increased vehicle excise costs, and delayed fuel price rises. The monetary policy committee has taken a cautious approach to further interest rate decreases, emphasising the need to assess the budget's impact on businesses and labor markets.
Furthermore, the new budget will replace the current domicile requirements with long-term resident status. Under the new system, an individual's previous citizenship will no longer affect their income tax, capital gains tax, or inheritance tax duties. Individuals who have lived in the UK for at least ten of the last twenty years will be regarded as long-term residents, making them instantly liable for inheritance tax on their global assets, similar to the present considered domicile regulations. The revisions will abolish the "protected" status of offshore trusts for long-term residents, implying that foreign income and gains held in these trusts will be taxed on an increasing basis after the first four years of UK residence. Lastly, offshore trusts with long-term resident settlers will be subject to the applicable property rules, resulting in entrance, exit, and 10-year periodic charges. The first 10-year charge, set at 6%, will take effect in April 2025, pro-rated for individuals who already live in the UK.
Legal experts warn that unexpected exit fees may discourage wealthy foreigners from relocating or staying in the UK. According to government estimates, only 1,200 of the UK's 74,000 non-doms will leave, potentially generating £12.7 billion over the next five years. However, the fiscal watchdog challenges the projection's reliability. Critics claim that the measures will discourage affluent people from settling in the UK, but the government justifies the proposals as increasing fairness by aligning non-dom tax regulations with those for UK-domiciled individuals.
A new cap on inheritance tax relief for agricultural assets, scheduled to go into effect in April 2026, has generated concern among farmers, who believe it could put a financial burden on family farms. While the policy seeks to tighten loopholes exploited by affluent investors who use farms as a tax shelter, critics believe that it disproportionately targets asset-rich, cash-poor farmers, jeopardising the long-term survival of conventional agriculture. The National Farmers Union has criticised the measures, claiming that they could affect small rural enterprises, and food security, and spark protests. The government defends the cap as a means of focusing on the wealthiest estates and closing tax avoidance loopholes, all while encouraging improved succession planning.
Housing:
In the housing market, UK house price growth nearly stagnated in October, with a modest 0.1% increase month-on-month, down from 0.6% in September. Annual house price growth also slowed sharply to 2.4%, compared to 3.2% the previous month. The average house price now stands at £265,738.
The budget measures, which involve increased government spending, borrowing, and taxation, have raised expectations for medium-term inflation and economic growth. This has dampened predictions of significant interest rate cuts, with traders now forecasting a slower decline in mortgage rates. The Bank of England is expected to reduce its benchmark interest rate to 4.75%, but the average two-year fixed mortgage rate is anticipated to remain around 4.5% through the end of the year.
Moreover, the stamp tax surcharge on second residences increased from 3% to 5%. While this measure may reduce competition for primary dwellings, it is projected to worsen the lack of rental houses, resulting in higher rentals in high-demand areas. Furthermore, the government has earmarked £5 billion for affordable housing and regeneration, although the benefits of this investment are expected to take time to manifest.
Another key change is the temporary stamp duty threshold of £425,000, which will revert to £300,000 in March 2025. This shift is likely to prompt a rush of property transactions ahead of the deadline, followed by a potential drop in activity afterward.
Spending:
On the other hand, the government has decided to increase day-to-day spending on the NHS and education in England by 4.7% in real terms this year, with lower rises predicted the following year. Defence funding is also poised to increase, with an additional £2.9 billion planned for next year. Meanwhile, the Home Office budget will be reduced by 3.1% this year and another 3.3% the following fiscal year, owing primarily to anticipated savings from the asylum system. Local councils will receive an additional £1.3 billion in funding next year, and beginning next month, they will retain all revenues from Right to Buy sales.
The Chancellor has announced a £22 billion increase in NHS funding, marking the largest investment in the service since 2010. This includes £3 billion for equipment and infrastructure over the next two years. While the extra funding is substantial, the total health budget for this year exceeds £190 billion, and it’s expected to result in an annual increase of nearly 4% after inflation. However, the exact breakdown between this year and next remains unclear.
In the education sector, universities expect an additional £372 million in costs for the 2024-25 period, equivalent to 2.1% of their pay bills. Many institutions are already making cuts, and some, like the University of the West of England, are projecting significant job losses due to a £4 million rise in salary expenses. The university anticipates cutting 60-70 jobs in response to these higher costs. This raises concerns about the impact on staff and services.
Inflation and Debt:
The Office for Budget Responsibility predicts that the UK economy will increase by 1.1% in 2024, 2% in 2025, and 1.8% in 2026. Inflation is expected to average 2.5% this year, increase slightly to 2.6% in 2025, and then fall to 2.3% in 2026. The official definition of UK government debt now includes a broader range of financial assets, such as future student loan repayments.
The Office for Budget Responsibility also predicts that new budget policies will boost UK borrowing by £19.6 billion this year, with an additional £32.3 billion each year over the next five years. This fiscal easing has caused small upward adjustments to inflation and interest rate predictions. However, the Bank of England remains focused on lowering long-term inflation patterns, which lately dipped to 1.7% in September the 2% target.
Despite short-term inflationary pressures from Chancellor Rachel Reeves' budget, the Bank of England is expected to announce its second interest rate cut this year, lowering the benchmark rate to 4.75%. Economists predict this move following an earlier cut in August, as the Bank aligns with forecasts for continued rate reductions in the coming year.
Wages and benefits:
Starting in April, the legal minimum wage for individuals over the age of 21 will rise from £11.44 to £12.21 per hour, while the rate for those aged 18 to 20 will climb from £8.60 to £10. This change is part of a larger strategy to standardise all adult pay at a "single adult rate." Basic and new state pensions will grow by 4.1% next year, thanks to the "triple lock" mechanism, outpacing increases in working-age benefits. Furthermore, the maximum salary level will be raised from £151 to £195 per week, allowing more full-time carers to qualify for the carers allowance. Benefits for people under the State Pension age, such as Universal Credit, PIP, and ESA, will increase by 1.7% in April 2025. In addition, child benefit payments will be increased.
Section 2: US Election:
Trump’s Foreign Policy Vision: A More Disruptive and Unpredictable Approach
In a possible second term, Donald Trump has proposed a foreign policy approach that aims to influence global dynamics by renegotiating alliances and using economic pressure. Regarding the Ukraine conflict, Trump thinks he can rapidly broker an agreement to halt the war, potentially freezing the battle along the existing front lines. However, Ukrainian authorities are concerned that such a pact will compel them to make painful compromises, such as neutrality and relinquishing NATO aspirations.
Regarding Europe and NATO, Trump would encourage member countries to reach or exceed the alliance's 2% GDP defense budget target, thus decreasing US security commitments in the region.
Trump's planned foreign policy approach may result in a more efficient renegotiation of global alliances, promoting better burden-sharing among NATO members by urging them to meet defense budget commitments. His emphasis on economic pressure may help alleviate the budgetary strain on the United States by decreasing its security commitments abroad. A speedy agreement to end the Ukraine war might reduce conflict-related human and economic costs, potentially delivering regional stability. Analysts believe that this trend could signal the end of the United States' role as the major guarantor of Western security.
On the other hand, in the Middle East, Trump is expected to take a harder position against Iran while supporting Israel's military efforts, although without using US funding as pressure. He also intends to expand the Abraham Accords, thereby normalising relations between Israel and the Gulf states. While Trump is willing to renegotiate with Iran on nuclear problems, he may return to a "maximum pressure" policy to limit Iran's objectives. Trump's tougher attitude on Iran and support for Israel's military initiatives might strengthen US allies in the region while limiting Iran's nuclear ambitions. Expanding the Abraham Accords could lead to increased regional stability and collaboration between Israel and the Gulf states.
On China, Trump supports high tariffs to prevent aggressiveness, notably against Taiwan, and is willing to use sanctions to limit China's support for Russia and put pressure on its economic policies. Overall, a second term for Trump could result in a more unpredictable and combative foreign policy, with an emphasis on economic power rather than traditional diplomacy. His aggressive stance towards China, which includes tariffs and penalties, intends to reduce Chinese aggression and limit its backing for Russia, potentially increasing US economic and geopolitical influence.
Critics argue that Trump's aggressive foreign policy could escalate tensions in sensitive places such as the Middle East and Taiwan. The emphasis on economic power over diplomacy puts at risk major international partners and undermines the effectiveness of conventional alliances. His "maximum pressure" approach to Iran and the use of tariffs against China may stretch global trade and diplomatic relations, leading to retaliation and instability.
Trump’s Legal Challenges and Political Strength: How a Second Term Could Impact Ongoing Cases
Donald Trump has been charged with two major criminal offenses: mishandling sensitive materials and trying to change the outcome of the 2020 election. Nonetheless, these cases may be significantly impacted by his direct presidential power over the Department of Justice (DoJ). Trump might name an attorney general who supports his views, which could put a stop to the proceedings or perhaps result in Special Counsel Jack Smith being fired. These federal cases may also be further delayed by the DoJ's policy of not indicting sitting presidents.
Trump is involved in state-level legal disputes in addition to federal ones, such as a Manhattan "hush money" case and a Georgia action alleging he tampered with the 2020 election. Trump's ability to personally influence these state cases is limited because they fall beyond the DoJ's purview. Legal delays and questions around presidential immunity, particularly in the Georgia case where efforts to disqualify the district attorney are underway, could further complicate progress.
Trump's prosecution while in office is made more difficult by a recent decision by the U.S. Supreme Court that expanded presidential immunity for official activities. According to analysts, Trump is unlikely to get a sentence or be imprisoned while in office. This might successfully put a stop to these cases till after his term.
Trump also holds the power to pardon himself for federal crimes, though such a move would face significant legal challenges. However, state offenses cannot be pardoned by the president, and Trump would need to seek clemency from governors or state boards of pardons.
Trump's Economic Agenda: Tariffs, Deregulation, and Global Growth Projections
There are several possible advantages and disadvantages to Donald Trump's suggested economic plans. Though complete implementation is seen as doubtful due to the possible economic impact, his plan calls for a uniform 10% tariff on all U.S. imports and a tariff of up to 60% on Chinese goods. As increased trade barriers with Europe and Mexico come into place, these tariffs may cause disruptions for businesses in the UK and Europe, especially in the automotive and industrial sectors. Indirect effects on the UK could also come from specific trade restrictions imposed by the United States and decreased demand from Europe.
On the other hand, Trump's suggested deregulation would be advantageous for industries like oil and banking. Less stringent regulations for pollution, oil and gas production, and cutting-edge technology like artificial intelligence could encourage innovation and expansion in these industries.
According to Oxford Economics, looser fiscal policies will initially increase the U.S. GDP by 1.5 percentage points in 2026. However, because of trade costs, inflation, tighter monetary policy, and a stronger dollar, aggressive tariff policies might reverse this growth and could reduce U.S. GDP by 0.8 percentage points by 2029. Although GDP would decrease globally as well, the UK would be less affected, seeing a growth decline of 0.3 percentage points due to its reduced reliance on the exchange of goods between the US and the UK.
All things considered, Trump's economic strategy offers prospects in deregulated industries like technology, energy, and finance but also runs the risk of causing global disruption through tariffs.
Trump’s Victory Sparks Concerns Over Reproductive Rights and Abortion Access
Americans are increasingly concerned that access to abortion and other reproductive rights will be further curtailed as a result of Donald Trump's recent election triumph. Trump strengthened the anti-abortion movement during his first term by selecting conservative justices for the Supreme Court, which eventually overturned Roe v. Wade and abolished the 50-year-old constitutional right to an abortion. This time, there are mounting worries that Trump would advocate for a nationwide abortion ban.
Trump appeared to hesitate on the topic during his campaign, first expressing support for a nationwide ban on abortions at 15 weeks of pregnancy and then claiming that states should make the final choice. Several of his choices have made their stances on abortion obvious as he makes important appointments for his administration. This policy not only strips women of the right to choose what happens to their bodies but further limits abortion, according to critics, which would jeopardise women's autonomy and healthcare access, having negative effects on both.
Doug Burgum, nominated as Interior Secretary, signed some of the strictest abortion bans into law as Governor of North Dakota, limiting abortions with exceptions only for rape, incest, or serious risks to the mother's health, and only up to six weeks of pregnancy. He has expressed opposition to a federal abortion ban, stating that it should be a matter for individual states to decide.
Trump is undermining women's autonomy over their bodies. In addition to restricting access to necessary healthcare, these limitations put women at risk and frequently disproportionately impact marginalised and low-income groups. By doing this, Trump's policies deprive women of their reproductive freedom and health and deny them the fundamental right to make their own medical decisions.
In conclusion, the UK and the US find themselves at critical junctures, each confronting decisions with far-reaching ramifications for their citizens and the world stage. The UK's 2024 Autumn Budget aims to overcome economic stagnation and fiscal issues by implementing ambitious reforms while dealing with popular anger and probable market uncertainty. Across the Atlantic, the US election has revealed stark differences in vision, with economic and geopolitical policies poised to reshape alliances, trade, and domestic liberties.
Together, these key moments highlight a common contradiction between innovation and tradition, expansion and stability, and autonomy and partnership. As both nations traverse their separate crossroads, their choices will echo beyond borders, altering economic landscapes, international relations, and the balance of power in an increasingly interconnected globe.
Written by Sabina Rahman