Sixteen weeks after the General Election that put her party in power, Chancellor of the Exchequer Rachel Reeves has delivered the first Labour Budget in 14 years and seven months. We summarise some of the measures relevant to the industry.

Ending weeks of speculation, Britain’s first female Chancellor promised that she would “invest, invest, invest” for "an economy that is growing, creating wealth and opportunity for all" – an echo of the mantra of “change” Labour used during the election campaign.

After denouncing, earlier this year, the “£22 billion black hole” left in the nation’s finances by the previous government, Reeves was today trying for a more upbeat tone, emphasising the historic nature of this “once in a generation” budget, developed, she said, to match the scale of the challenges the country is facing.

Rumours of major rises in spending, borrowing, and certain taxes have been part of the mood music for the past week – all recognised economic levers to tackle budget deficit and promote economic growth, as per the mission the new government has set itself. There was therefore little suprise in the general teneur of what was presented to the House of Commons today. In total, this budget represents £74 billion of spending by the end of this parliament, and £41 billion in tax rises.

Following a scathing assessment of the previous government’s record, which had resulted, she said, in broken public finances and broken public services, Reeves explained that her aim with this budget is to restore stability.

This would be achieved by "putting the public finances on a sustainable path by strengthening the fiscal framework, growing day-to-day departmental spending at an average of 2.0% per year in real terms, and boosting capital investment by over £100 billion over the next five years".

The Office for Budget Responsibility (OBR)’s Economic and Fiscal Outlook forecasts growth to increase to 2.0% in 2025 before moderating to 1.6% by 2029, as a result of today’s announcements. It expects annual CPI inflation to remain just over the 2% target throughout the forecast period.

As expected, the Chancellor announced that she would not increase the basic, higher or additional rates of income tax, National Insurance contributions (NICs) or VAT. The freeze to income tax and National Insurance contributions thresholds introduced by the Tories will not be extended, and, from April 2028, these personal tax thresholds will be uprated in line with inflation.

However, as had been widely trailed, the rate of employer NICs will increase by 1.2 percentage points to 15%. The per-employee threshold at which employers start to pay National Insurance will be reduced from £9,100 per year to £5,000 per year. These changes will apply from 6 April 2025. The OBR warns that this increase will “reduce Labour supply by 50,000 average hour equivalents”.

To support small businesses with these changes, the government is increasing the Employment Allowance from £5,000 to £10,500 and removing the £100,000 threshold, expanding this to all eligible employers. This means that 865,000 employers will pay no NICs next year.

The National Living Wage will increase from £11.44 to £12.21 an hour from April 2025; a 6.7% increase – worth £1,400 a year for a full-time worker. As part of a progressive move towards a single adult rate, the National Minimum Wage for 18 to 20-year-olds will also rise from £8.60 to £10.00 an hour.

The Budget increases the lower rate of Capital Gains Tax (CGT) from 10% to 18% and the higher rate from 20% to 24%. CGT rates for Business Asset Disposal Relief and Investors’ Relief will rise gradually to 14% from 6 April 2025 and match the main lower rate of 18% from 6 April 2026, to allow business owners time to adjust to the changes.

The OBR estimates that those changes to CGT will raise £2.5 billion by the end of the forecast, while the UK will continue to have the lowest CGT rate of any European G7 country.

From April 2026, inheritance business property relief will be reformed. The highest rate of relief will continue at 100% for the first £1 million of combined business assets on top of the existing nil-rate bands, fully protecting the majority of businesses. The rate of relief will reduce to 50% after the first £1 million.

The lifetime limit for Investors’ Relief will be reduced to £1 million for all qualifying disposals made on or after 30 October 2024, matching the lifetime limit for Business Asset Disposal Relief. This will be legislated in Finance Bill 2024-25.

The government will cap the rate of Corporation Tax at 25%, the lowest in the G7, for the duration of the Parliament.

The Enterprise Investment Scheme and Venture Capital Trust schemes will be extended to 2035; committing over £250 million in funding in 2025-26 for the British Business Bank’s small business loans programmes.

To support small businesses’ digitisation efforts, the government will extend the SME Digital Adoption Taskforce, which will produce an interim report early in 2025. The Department for Business and Trade will soon announce details of a £4 million pilots package to encourage tech adoption for SMEs.

Fuel duty will remain untouched while the temporary 5p cut will be extended for another year, at a cost of £3 billion next year. This will save the average car driver £59, £126 for van drivers, and £1,079 on Heavy Goods Vehicles next year.

To help drive the transition to electric vehicles (EVs) the government is strengthening incentives to purchase EVs by widening the differentials in Vehicle Excise Duty First Year Rates between EVs and hybrids or internal combustion engine cars. The government is also maintaining EV incentives in the Company Car Tax regime and extending 100% First Year Allowances for zero emission cars and EV chargepoints for a further year.

Lower business rates multipliers will apply for retail, hospitality and leisure (RHL) properties from 2026-27. The budget also provides £1.9 billion of support to small businesses and the high street in 2025-26 by freezing the small business multiplier, and providing 40% relief on bills for RHL properties, up to a £110,000 cash cap.

While waiting for the development of a 10-year infrastructure strategy to be published alongside Phase 2 of the Spending Review, before the publication shortly of the Get Britain Working White Paper, and the establishment of Skills England, Reeves announced that capital investment would increase by £13 billion next year, taking total departmental capital spending to £131 billion in 2025-26.

A new housing package will include £500 million in new funding for the Affordable Homes Programme, increasing it to £3.1 billion. This brings total investment in housing supply to over £5 billion and supports the delivery of tens of thousands of new homes. £3 billion of additional support will be provided to SMEs and the Build to Rent sector by expanding existing housing guarantee schemes to support the private housing market.

In addition, £1 billion will be allocated to removing dangerous cladding, £3.4 billion to the Warm Homes scheme, as well as £1.4 billion to rebuild schools, £2.1 billion for school maintenance, and £1 billion for repairs to NHS buildings. All of which will benefit the construction industry.

In its assessment the OBR states that the budget delivers a “temporary boost to GDP in the near term and some crowding out of private activity in the medium term”. It estimates that the policy package boosts GDP by 0.6% at its peak in 2025-26 as the fiscal loosening temporarily raises output about its potential level. This temporary stimulus fades to zero over the remained of the forecast period”.

“Taken together, budget policies leave of output broadly unchanged” is the overall verdict.

Concluding her speech, Reeves said that the choices she had had to make were not easy but were responsible, emphasising the fact that in her view, this is “a moment of fundamental choice for Britain.”

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