In the aftermath of Labour Conference, our focus was on the Government’s doom-mongering as a successful pitch roll for controversial tax hikes on businesses and employers as well as changes to the fiscal rules.

Today’s Budget confirmed this was correct. The Labour project to rebuild Britain started with a bang as the various tax rises hit a record £40bn, including a 1.2% rise in Employers' NICs. The real gamble is the huge rises in investment and borrowing, with a modification to the fiscal rules freeing up £100bn of additional investment over the next five years.

When you juxtapose the interventionist tax, spend and investment at play today with the promises to support enterprise and growth given at the General Election, it is easy to see why so many are getting mixed signals.

As far as the OBR is concerned, the overall picture is not positive. Their five-year projections put the state up at 44% of the economy, tax at the highest level on record, 1% of GDP a year extra borrowing and growth largely unchanged (lower than the forecast under the previous Government).

The question now is whether these changes will be politically worth it, and what will the real impact of tax and investment changes be on businesses and their employees? If the OBR is right (which it very often is not) the trajectory for the economy feels out of step with the promises made to business and on growth. But politically it will pay to remember that much of the British population supported higher taxes for better public services.

For businesses the major takeaways are:

1. Fixing the foundations is a huge challenge but an inescapable political imperative – The reality is that previous Governments have failed to invest in public services, and productivity has flatlined. Labour are addressing these challenges head on. This Budget is an ambitious attempt to transform the fundamentals of the UK economy. The aspiration, seldom met in practice, to create a low tax, small state economy has been emphatically rejected in favour of a high tax, high public investment model. They know that the majority of the public support higher taxes for better service delivery. This is the new political reality businesses are operating in.

2. The investment gamble – One of the highest profile changes was a significant shift in the fiscal rules that has unlocked over £100bn of ‘headroom’ over the next five years. The groundwork has long been laid for changes that open up the prospect of more borrowing to invest and ensuring day to day spending is covered by taxes. Risks abound for the Government as to whether it works at all, whether it works too late for political benefit or whether it works alongside the private sector. A new, more interventionist and direct approach to investment from Government will require business to work more closely with the public sector.

3. Enterprise tax rises come in lower than expected – Much of the noise around the Budget was the potential rise in taxes on enterprise, whether CGT, inheritance, carried interest or others. Whilst taxes rose across the board on enterprise and inheritance, including the abolition of non-dom status and removal of a number inheritance reliefs, CGT only rose to 24% and carried interest was spared wider alignment with income tax and will continue to benefit from separate tax classification. It demonstrates again the Government’s slightly soft underbelly and nervousness around impacting investment in the UK and something businesses can push back harder on as the impact of some these changes bite.

4. The real impact of Employer NICs rises – The Government has had issues in the run up to the Budget about its definition of “working people”, contending that none of the tax rises in this Budget will impact “working people”. One of the largest changes in the Budget has been the 1.2% rise in Employers' NICs and the lowering of the threshold to £5,000. The Government had been at pains to stress this was not a tax on working people, despite describing it as a jobs tax whilst in opposition. The OBR have explicitly stated they expect this measure to impact real terms wage growth and household income. This measure and its long-term impact are the new litmus test and political football for business and politicians alike.

5. Rachel’s reckoning on growth – The OBR projection for growth is pretty anaemic, at 1.5% at the end of the five-year forecast. This is no different to the forecasts under the previous Government. This sits in sharp contrast to the election promises from the Labour Party and will undoubtedly be the measure of success as this Government makes it way through the next few years.

The key developments can be found in more detail below.

Key Developments

Fiscal Rules

The key decision in today’s Budget will be reforming the fiscal rules governing spending so that the benefits of investment as well as the cost are included in net debt calculations.

This is underpinned by two new fiscal rules. They are:

• The stability rule, which requires day-to-day spending to be met by revenues.

• The investment rule, which requires public sector net financial liabilities to fall as a proportion of GDP.

Thanks to the new fiscal framework, public investment can rise by more than £100bn over the next five years.

Spending Review

The Government will be increasing day-to-day public spending by 2% a year until 2029-30.

Capital investment will rise by £100bn in the next five years, with the bulk of this spending targeting housing, infrastructure and R&D.

The Spending Review setting out department spending limits in full will conclude in late spring 2025.

Employers' National Insurance

Employers’ national insurance will rise to 15% with the threshold reduced from £9,100 to £5,000.

This is predicted to raise £20bn, making it the single largest tax raising measure in the Budget.

However, it is likely to put small businesses in further difficulty putting the Government’s contention that this is a growth Budget in further doubt

To balance the impact on small businesses, the Employment Allowance will rise from £5,000 to £10,500 with the £100,000 threshold also removed.

Capital Gains Tax

The lower rate of Capital Gains Tax will rise from 10% to 18% and the higher rate from 20% to 24%.

Tax rates on Business Asset Disposal Relief and Investors Relief will rise to 14% in April 2025 and 18% in April 2026.

Income Tax Thresholds

The Government will extend the existing freeze on income tax thresholds which has been in place for six years.

This acts essentially as a stealth tax hike with rising wages and inflation pulling more earners into the higher brackets.

VAT On Private School Fees

The Government will continue with its plan to introduce VAT on private school fees despite scepticism that the money raised will match the Government’s expectations of £1.5bn.

The Government will also be removing business rates charitable relief from private schools in England.

Inheritance tax

The Government’s plans are designed to address a number of loopholes in inheritance tax law with the aim of bringing in approximately £3bn.

These measures will specifically target unspent pension pots and agricultural land.

AIM shares will no longer be exempt from inheritance tax and will instead be taxed at 20% if held for two years.

Carried Interest

The rate of tax for carried interest will increase to 32% from April 2025, with further reforms in 2026.

The proposals for the new regime from April 2026 will see all carried interest taxed within the income tax framework.

However, there will be scope for 'qualifying carried interest' (definitions being consulted on until January 2025) to continue to be taxed at an effective rate of 32.65%.

Carried interest that falls outside of those new definitions and conditions, such as specific levels of co-investment, will essentially be taxed as income at 45%.

The watering down of this package from the original Labour Manifesto suggests that the private equity industry was partially successful in its efforts to moderate the increase.

Living Wage

The national living wage is set to rise by 6.7% from £11.44 to £12.21 an hour for workers 21 and older from April 2025.

Over a full year this is an increase of £1,400.

For 18–20 year olds, the national minimum wage will rise to £10.00 an hour as part of the gradual transition to a single living wage covering all adults.

NHS

The NHS will receive a funding increase of £22.6bn in 2025-26.

This includes £1.5bn for an estimated 30,000 procedures and a further £2.25bn for diagnostic tests, repairs and new beds.

Defence

The Budget included an additional £3bn for defence spending, well below the figures that former senior officers and defence secretaries have been calling for.

The pressure on the Government to spend more is likely to continue to grow, especially once it concludes the strategic defence review currently being conducted.

Housing

Housing is a key element of the party’s plans for economic growth with the Government promising an extra £500mn for the Affordable Homes Programme to increase social and affordable housing.

Infrastructure & Investment

Transport improvements are a significant element of the £100bn, with the Government planning to invest in:

• The Transpennine route upgrade between York and Manchester via Leeds and Huddersfield as part of Northern Powerhouse Rail

• Introducing East West Rail connecting Oxford, Milton Keynes and Cambridge

• Ensuring HS2 runs all the way to Euston as originally planned

• A near 50% increase in local road maintenance

On infrastructure more broadly the Government plans to invest £500mn in Project Gigabit and the Shared Rural Network.

Notably, this will include record levels of Government R&D investment with £20.4bn allocated in 2025-26.

Business Rates

The Government’s long-term aspiration for business rates is to reform the system in favour of smaller high-street businesses and make them more competitive versus large online businesses.

To that end, the business rates multipliers for retail, hospitality and leisure will be lower from 2026.

On top of that, a further £1.9bn in support for small business will be provided via freezing the rates multiplier for small businesses and providing relief on RHL properties.

Stamp Duty

Stamp Duty for second homes, build-to-rent properties and purchases of residential property to rise from 3% to 5% from 31 October 2024.

Benefits

The Government has committed to maintaining the state pension triple lock, meaning that the state pension will increase by 4.1% in 2025-26.

Working age benefits will be uprated in full for 2025-26 in line with the CPI inflation rate of 1.7%.

The Fair Repayment Rate will cap debt repayments made in Universal Credit with the aim of helping households keep more of their award.

The Government will also introduce measures designed to save an estimated £4.3bn in 2029-30, mainly through a clampdown on fraud and waste.

The Carer’s Allowance Weekly Earnings Limit will rise to the equivalent of 16 hours at the National Living Wage.

Energy

On energy, the Government plans to invest £8bn in carbon capture usage and storage, with additional funding for Sizewell C alongside the money already allocated for GB Energy.

The Energy Profits Levy will rise to 38%, removing the 29% investment allowance and running until 2030.

The 100% first-year allowances in the EPL will remain.

Miscellaneous

The Government will be raising the core schools Budget by £2.3bn to enable the recruitment of 6,500 teachers.

The Fuel Duty freeze has been extended and the temporary 5p cut to Fuel Duty has been extended for a further year costing £3bn with an estimated saving for the average car driver of £59.

Rates of Alcohol Duty on draught products will be cut by 1p per pint from February. The Duty on non-draught products will rise by RPI.

The Government will add £2 to Air Passenger Duty from 2026-27 for short-haul economy flights. Rates for private jet passengers will rise by 50%.