The UK’s recent budget, announced by Chancellor Rachel Reeves on Wednesday 30 October 2024, introduces major economic reforms impacting law firms and their clients across sectors. With a focus on growth, investment, and fiscal responsibility, the budget outlines changes that will affect legal practices advising on tax, employment, corporate finance, and estate planning. Here is a concise overview of the key elements and their implications.
1. Employment and National Insurance Contributions (NICs)
One of the most notable changes is the rise in employers’ National Insurance Contributions, increasing by 1.2 percentage points to 15% starting in April. This hike in employment costs is expected to drive demand for legal advice on workforce planning, payroll compliance, and employment law. Law firms will likely assist clients in exploring restructuring options, cost-saving measures, or potential redundancies to offset these added expenses. Smaller businesses, in particular, may need guidance on qualifying for exemptions or managing their bottom lines in light of the new NIC thresholds. Employment law practices will be essential in helping businesses remain compliant and efficient as they adapt to higher labour costs.
2. Capital Gains and Inheritance Tax Increases
The budget raises the lower capital gains tax (CGT) rate from 10% to 18% and the higher rate from 20% to 24%, along with adjustments to inheritance tax (IHT) thresholds. These changes mean that high-net-worth individuals and business owners will face new tax burdens on asset transfers and estates, prompting a need for fresh tax planning strategies. Law firms advising private clients will likely explore trusts, gifting, and other tax-mitigation tools to minimise the impact of increased CGT and IHT.
Private equity firms will also feel the impact of higher CGT rates, which may reduce post-tax returns and dampen investor enthusiasm, especially for sectors with longer or uncertain exit timelines. Law firms specialising in tax and private equity will play a key role in helping clients restructure exit plans to optimise tax efficiency. This may include considering staggered sales, timing exits strategically or exploring alternative investment structures to reduce CGT burdens.
3. Corporate and Public Sector Investments
The budget’s focus on investment aims to create a favorable environment for corporate transactions, infrastructure projects, and public-private partnerships. This opens opportunities for law firms specialising in corporate finance, mergers, and acquisitions to provide strategic counsel on new tax and regulatory frameworks. Public sector clients and contractors may require support in compliance advisory services, especially as the government moves to balance its budget by 2027.
Increased public spending in sectors like housing, energy, and transportation will likely bring legal complexities in regulatory compliance and contract negotiations. Law firms may see an uptick in demand from clients involved in these projects, needing guidance on navigating tax implications, securing project financing, and ensuring regulatory compliance.
4. Transparency and the Office for Budget Responsibility (OBR) Review
The Chancellor’s emphasis on transparency, supported by an Office for Budget Responsibility (OBR) review, highlights the government’s commitment to fiscal responsibility and accountability. This includes addressing a £22 billion fiscal deficit, which may lead to increased scrutiny of regulatory compliance and public contracts. For law firms with clients in regulated sectors, this focus on transparency could mean more reporting requirements and potential audits.
Law firms specialising in regulatory compliance and public law will be essential in guiding clients through potential changes in reporting standards and ensuring they meet the heightened requirements. Businesses with public or government contracts, particularly in heavily regulated areas like finance and infrastructure, may look to legal advisors to help them maintain compliance as fiscal accountability becomes a priority.
5. Minimum Wage Increases
The budget raises the national living wage to £12.21 for workers over 21, affecting labour costs across many sectors. This increase may prompt businesses to seek legal advice on managing rising labour expenses, balancing wage costs against operational efficiencies, or exploring automation options. Employment law practices will likely experience a rise in consultations on wage compliance, redundancy strategies, and operational adjustments.
Law firms advising on employment law may find themselves assisting clients in managing the risks associated with non-compliance, helping to navigate redundancy procedures, and resolving potential employment disputes. This increase in minimum wage costs could lead businesses to seek guidance on labour law complexities as they navigate both cost management and compliance.
6. Inflation, Growth, and Economic Forecasts
The Office for Budget Responsibility (OBR) forecasts inflation to remain slightly above the Bank of England’s 2% target until 2029, with only modest growth expectations. In response, businesses may require legal advice on contract renegotiation, financial restructuring, and investment risk management. Law firms can assist clients in revising long-term contracts, managing intellectual property valuations, and restructuring financing terms to cope with inflation.Corporate clients may also turn to law firms for help with currency hedging, investment diversification, or renegotiation of financing arrangements to safeguard their financial stability amid inflation and slow growth. Law firms specialising in contract and financial law will play a critical role in helping clients adjust to economic pressures while preserving business continuity.
Summary Remarks
The UK’s new budget introduces comprehensive reforms that will affect legal practices in tax, employment, corporate, and regulatory compliance. Law firms advising businesses, investors, and high-net-worth clients will be essential in helping them understand and adapt to the complex fiscal changes. This new economic landscape will require legal expertise to navigate evolving compliance standards, tax structures, and strategic restructuring. As the government pursues fiscal reform, law firms will play a vital role in guiding clients through the challenges and opportunities of this transformative period.