Chancellor says "Invest, invest, invest"

“Invest, invest, invest” said the Chancellor in her first few minutes on her feet delivering the first Labour budget.

And she wasn’t kidding

Her budget will boost public investment by more than £100 billion over the next five years, partly by raising taxes by a total of £40 billion, and increasing borrowing.

Some measures had been widely reported already – see our story on the National Living Wage increase. 

The headline rate of national insurance for employers has been increased from 13.8 per cent at present to 15 per cent from April next year was confirmed, along with earnings thresholds at which employers start making national insurance contributions, currently starts at £9,100, has been lowered to £5,000.

Richard Maitland, head of national employment tax at accountants MHA, said: "Whether you agree or not on whether this announcement breaches the manifesto pledge most UK companies won’t really care. What they are facing is a triple whammy of a rise in NICs, a significant jump in the statutory minimum wage (impacting some employers) and no prospect of a cut in corporate tax during this parliament. 

"Our calculations highlight that the costs for business of the average employee on the minimum wage have increased over 10 per cent today."

He went on: "Offering some comfort for qualifying smaller businesses is the increase in the Employment Allowance, which will allow them to reduce their annual Employer NIC bill by £10,500, up from £5,000."

A permanently lower business rates multiplier for retail, hospitality and leisure properties from 2026-27. A 40 per cent business rates relief for retail, hospitality and leisure business will be provided, capped at up to £110,000 per business for next year and 2026.

Surprisingly, perhaps, fuel duty has been frozen yet again, with the ‘temporary’ cut of 5p per litre extended for a further year.

Oh, and she's cutting duty on draught beer, announcing a 1.7 per cent cut in duty on draught alcoholic drinks, the equivalent of 1 pence off the cost of a pint of beer. I bet that makes the front page of the red-tops tomorrow.

Second homeowners got an unpleasant shock with stamp duty on second homes raised by two per cent, to five per cent from tomorrow.

Not content with putting VAT on school fees, private schools will have to pay business rates on fees from next April.

The freeze on income tax thresholds will not be extended and will be uprated in line with inflation for the 2028-29 tax year.

The Chancellor clearly doesn’t approve of private jets. She has applied air passenger duty of £2 per passenger on an economy short-haul flight, but those flying on private jets will see an increase of 50 per cent – that’s about £450 per passenger on a private jet.

She also increased the Ministry of Defence budget by £2.9 billion next year, and promised that 2.5 per cent of GDP will be spent on defence.

Education, along with the NHS, was a winner in the budget. She announced a £2.3 billion increase in school budgets from next year, along with £300 million for further education.

Capital investment in education is also to increase by 19 per cent to £6.7 billion.

The NHS will see a £22.6 billion increase in its budget, along with a £3.1 billion rise in capital investment.

Aerospace will see investment of £1 billion, automotive £2 billion and a new life sciences investment manufacturing fund will see £520 million from the new National Wealth Fund.

Claus Andersen, Partner at national law firm Freeths, said: “Amongst today’s budget measures is to secure this include a modern industrial strategy and protection of funding for the science sector. Also, a Life Sciences manufacturing fund will be set up and further support for biotech and related technologies will be made available. We will need to see the details of these proposals, but I think that such measures could support and further develop the sector, which generates jobs and tax revenue for the UK.”

R&D relief will stay the same to drive innovation, and the £1 million annual investment allowance and full expensing rules will be maintained.

Stephen Phipson, Chief Executive of Make UK, the manufacturer's membership organisation, said: “There is no escaping the fact that raising Employer National Insurance contributions and, the surprising change in thresholds, at a time of other cumulative increases in employment costs will be challenging for many businesses and especially SMEs.”

“However, looking at the bigger picture and, the medium to long-term, we welcome the governments' clear path to growth for manufacturing with a number of positive measures. In particular, the commitment to an Industrial Strategy, the Corporate Tax Road Map and, continued support for vital programmes such as Made Smarter, are key elements of a growth plan which will enable UK manufacturing to make significant progress over the coming years.”

But Toby Tallon, tax partner at professional services group Evelyn Partners said that after romancing business before the election, the business community is now feeling the pain.

“Rachel Reeves actively courted the business community well in advance of the election. However, since the election business owners have been on a rollercoaster of uncertainty in the run-up to the Budget with an array of tax rises suggested by or leaked to the press. They are today feeling the pain given the significant changes confirmed to CGT, IHT and employers’ NIC contributions.    

“These tax changes will leave many business owners questioning whether they should invest their time, energy, risk and money in starting and growing businesses. Many will face difficult dilemmas about whether it is worth taking on more staff, or indeed retaining the ones they currently have given that costs of employment will rise. 

“In the run up to today we saw numerous reports of entrepreneurs planning to move abroad if the budget didn’t deliver for them, with our own research of 500 business owners revealing that almost half would consider leaving the UK if the tax changes were clearly unfavourable. But perhaps the greater risk is inactivity. If the business owners lose confidence in the government's economic or fiscal plans, they might decide that striving for that extra growth is not worth it if the rewards are more heavily taxed.” 

Matthew Fretten at south coast law firm Frettens, said: “As a result of recent speculation in the run-up to this highly-anticipated budget, our corporate team have handled a number of business sales and purchases on very tight timelines." says Matthew Fretten.

"Now that we have some certainty around changes to Capital Gains Tax and Business Asset Disposal Relief, we anticipate the next five months to be a very busy period for the department.”

Inheritance tax

The government announced 50 per cent inheritance tax relief for AIM shares.

Nicholas Hyett, Investment Manager at the Bristol-based Wealth Club, said: "The threat of removing inheritance tax relief from AIM shares has dragged on the market for months. Today at least provides some certainty about what the future looks like, even if the IHT relief on offer has been cut in half. That certainty has driven a 3.9% spike in the AIM all-share index.

"While the cut to tax relief will probably weigh on valuations long term, making it more expensive for small UK companies to raise funding, not abolishing it altogether has avoided the worst-case scenario of significant disruption as capital fled the market.”

The freeze on the inheritance tax threshold of £325,000 has been extended until 2030. Inherited pensions will be brought under the inheritance tax regime for the first time from 2027. It is also capping agricultural property relief at £1 million.

That has not been welcomed by the Country Land and Business Association.

President Victoria Vyvyan said: “Labour made repeated assurances over the last 12 months that it would not tamper with inheritance tax reliefs, and its decision to now rip the rug from under farmers is nothing short of a betrayal.

“This puts dynamite beneath the livelihoods of British farming, and flies in the face of growth and investment. We estimate that capping agricultural property relief at £1 million could harm 70,000 UK farms, damaging family businesses and destabilising food security. In its attempts to raise more revenue the government will cause great damage, jeopardising the future of rural businesses up and down the country.

“Many farmers, operating on slim margins, will now face having to sell land to pay inheritance taxes. At a time of profound change in the industry, adjusting to new agricultural policies, the government is offering no vision for a positive economic future for us in the rural community. We will continue to argue the case for these vital reliefs.”

The NFU agrees. It co-ordinated a letter to the Chancellor before the budget to warn the Chancellor about the crippling effect changes to inheritance tax reliefs, including APR and BPR, would have on family farms, tenant farmers, domestic food security and environmental delivery.

NFU President Tom Bradshaw, said: “Let me be clear – changes to agricultural property relief and business property relief would be a devastating blow to British farming as we know it, the effects of which will be felt for generations to come."

Phil Smith, Managing Director at business support organisation Business West, said:

"We recognise that the Government faces a tight fiscal position and has had to make hard decisions. However, we are really concerned that raising the tax burden on the business community could hinder the Government’s much sought after growth and undermine investment decisions.

"Through our quarterly economic survey, businesses have told us that rising taxes are an increasing worry. Employer NIC increases will leave companies with less money to invest in their staff and business’s success. 

"We welcome measures for small businesses such as changes to the employment allowances, and business rate relief for our region’s retail, hospitality, and leisure sectors.

"However, such fine margin industries, where employment costs form a large share of their cost base, will be disproportionately impacted by these extra employee contributions.

"Our region has a strong economy that plays a key role in the UK’s overall economic success. We welcome the Government’s commitment to ‘invest, invest, invest’ in our country through the Government’s seven key pillars of economic growth, particularly commitment to supporting our region’s vital industries, such as aerospace, advanced manufacturing, creative industries, and clean energy. 

"However, we regret that the South West seems to have been missed out from the Autumn Statement plans. Hence now more than ever it will be important for our devolved local and regional leaders to make the case for the government and private sector to invest in our region and its economic growth."

The hike in employers’ National Insurance contributions was unwelcome news for more than 50 people attending a Budget event at Crowe’s Midlands offices in Oldbury.

Johnathan Dudley, Crowe’s head of SME Corporates and Head of Manufacturing, said: “These measures will be inhibitors in terms of job creation and job retention in the UK. It could actually be a disincentive to a business scale-up being UK based.”

Richard Bull, Crowe tax partner, added: “Instead of employing one person full-time, if you employ two people part-time you will have a lower National Insurance exposure, which is almost the opposite of what the Government has said: they don’t want more people on zero hour contracts, they want more people on full time. This measure doesn’t sit with that.” 

Looking at the Budget as a whole, Mr Dudley said: “I didn’t see anything directly to get British businesses investing as an incentive, unless some of these capital projects are shared out amongst the UK supply chain.

“I totally get the need for investment; I totally believe that investment will drive growth - if that growth is kept inside this country.”

“The big concern about stimulating growth is the combination of the Employment Rights Act, the increase in the National Minimum Wage – which, while laudatory, is setting an agenda for all pay settlements next year – and of course the increase in NI employer contributions, will cost every employer money if they are employing more than about nine or ten people.”

Steve Hardeman, co-owner of Sutton Coldfield manufacturer Clevedon Fasteners which employs 28 people, said the combination of the NI contribution hike and the rise in the National Minimum Wage was going to cost his business £16,250 per year.

Alongside the two previous hikes in the minimum wage since 2020, “It is the equivalent of employing two non-productive employees. It is driving up our costs to no benefit.”

Steve Morley, president of the Confederation of British Metalforming, said there had been little help for manufacturing SMEs employing between 25 or 30 people and 200 people. The increase in NI contributions, he said, “is more cost for employers”.

Paul Johnson, MD of West Bromwich road transport and logistics firm Transervice Group, said the NI hike would make them think twice about taking on more staff and about investing in further expansion.

“The increase in the National Minimum Wage will also have an impact, because other employees will now also be expecting a 6.7 per cent increase next April. I don’t think the Government realises the impact of these decisions.

“Freight companies already operate on low margins and these extra employee costs could push some of them over the edge.

“However the decision to maintain the freeze of fuel duty, and not to re-start the escalator, was a real curve ball and a massive win for our industry. Fuel accounts for 33% of our costs, so an increase would have been disastrous.”

Philip Stanley of TWP Manufacturing, which employs around 50 people, said: “It’s just a knock-on all the way. It will mean we have to increase prices; we can’t absorb that as manufacturers. We are already paying the highest fuel costs, we are competing against a lot of foreign countries, and we don’t manufacture raw steel in this country anymore so that is becoming a problem. It’s getting harder and harder.”

Partner at accountants Saffery David Chismon, said: “It was well publicised that the Chancellor would raise taxes in her Budget and she has definitely stuck to her promises.  Whether everyone can agree that the tax changes will not affect ‘working people’ will be a topic of debate in the pub – whilst probably drinking a draught beer rather than from a bottle!  

"With the Chancellor deciding to raise the CGT rates with effect from 30 October to 24% (or 18% for some taxpayers) it will be a relief to people who undertook sales before Budget day that they secured the 20% CGT rate.   There had been some concern that the Chancellor may scrap Business Asset Disposal Relief “BADR” (which provides a 10% tax rate on sales of qualifying businesses or company shares on £1million of gains).  Whilst this has not been abolished the CGT rates on the £1million qualifying gain will increase to 14% (in 2025-26) and 18% (in 2026-27).   Therefore by 2026-27 the amount of CGT saved by claiming BADR will reduce to £60,000 from the current £100,000.

"There have been significant and impactful changes to businesses and farmers who are planning to pass on valuable businesses and farmland without paying IHT.  From April 2027 (although there are transitional rules effective from today) only the first £1million of qualifying assets will be free of IHT, with any value above this qualifying for a 50% reduction.  Therefore the IHT rate for businesses and farms will effectively be 20% (above the £1million threshold).  This will undoubtedly mean people will need to review their estate planning.  Combined with a change to bring unspent pensions into the IHT net, it is easy to conclude that there has been a targeting of wealth by the Chancellor.

"The Chancellor confirmed a rate increase on employers NIC contributions to 15% but also a reduction in the starting level upon which employer’s NIC will be paid.  Her speech said that this will raise around £25billion per year from 2025-2026. "

Mark Lucas, Partner at law firm Moore Barlow, which has six offices across the South East, says:  “The UK’s decision to cap corporation tax at 25 per cent through the current Parliament is a strong signal to international businesses looking for stability in a competitive tax environment. Coupled with the business rates relief for high-street and hospitality businesses, this Budget could provide much-needed certainty and encourage significant investment, especially for small to mid-sized enterprises."