Starmer's 'painful' Budget warning puts contractor dividends and CGT in the frame

The Prime Minister's 27 August garden speech spared income tax, NI and VAT, and in doing so told company-based contractors exactly where the Budget axe would swing.

Sir Keir Starmer used a Downing Street garden address on 27 August 2024 to warn that the new Labour government's first Budget, set for 30 October, would be "painful", signalling that the £22 billion the Treasury said it had found missing from the public finances would be clawed back largely through tax. For the UK's limited-company IT contractors, who draw much of their income as dividends and lean on capital gains reliefs when they close a company, the speech read as a map of where the pain would fall.

'Broadest shoulders', but working people spared

Starmer told the audience that "those with the broadest shoulders should bear the heavier burden" and that "those who made the mess should have to do their bit to clean it up". He restated Labour's manifesto pledge not to raise income tax, National Insurance or VAT, the three levies that between them raise the bulk of Exchequer revenue. Advisers read the pairing as narrowing the risk rather than lifting it.

Chris Bryce, chief executive of the Freelancer and Contractor Services Association (FCSA), said the speech "paints a bleak picture for the October Budget". Labour would honour its pledge on income tax, NI and VAT, he noted, "but he left the door open for other rises." Whatever was decided, Bryce added, "will undoubtedly affect millions", even with headline rates held.

Capital gains and dividends in the frame

With the headline rates ruled out, contractor-sector commentators pointed to the taxes that fall on company owners. Andy Chamberlain, director of policy at the Association of Independent Professionals and the Self-Employed (IPSE), said: "Unless it reneges on the manifesto vow not to raise income tax, NI or VAT, Labour's options are limited. So CGT could be hiked and BADR could be reduced or removed." The change, he warned, "could impact contractors seeking to wind up their company", and he told readers to watch too for changes to pensions tax relief and inheritance tax.

Business Asset Disposal Relief then charged 10% on qualifying gains up to a £1 million lifetime limit, the route many contractors use to extract retained profit when a personal service company is closed. The dividend allowance had already been cut to £500 a year, a fraction of the £5,000 available a few years earlier. Accountant Graham Jenner, of Jenner & Co, said he had "seen nothing to say that Labour is not intending to increase corporation tax", already at a 25% main rate.

What it meant for contractors

The practical message was one of timing and uncertainty. With CGT, BADR and pensions all flagged and the Budget nine weeks away, a contractor weighing whether to close a company, take a dividend or top up a pension faced doing so without knowing the rules that would apply. Accountants reported clients asking whether to act before 30 October. Anthony Mellor, of Mellor & Co, observed that the address "looks like it's all about what he didn't say, more than what he did say", a warning that the silence on owner-manager taxes was itself the signal.

The detail would wait for 30 October. By the end of August, though, the direction of travel, protection for "working people" and scrutiny for those the Treasury did not count among them, was already set.