TLDR:
- Labour’s first budget aims to raise £40bn in taxes, with businesses bearing over half the burden
- Major change: Employers’ national insurance to increase by 1.2% to 15% from April 2025
- NHS receives £22.6bn increase in day-to-day budget plus £3.1bn capital budget boost
- New fiscal rules introduced targeting debt reduction and balanced current budget within 3 years
- Growth forecasts modest: 1.1% in 2024, rising to 2% in 2025, then declining to 1.5-1.6% range
Rachel Reeves, Britain’s first female Chancellor, unveiled Labour’s inaugural budget today, announcing a sweeping £40 billion tax increase, with businesses shouldering more than half the burden.
The budget marks a clear shift in fiscal policy, prioritizing public service investment while introducing substantial changes to the tax system.
At a Glance
Category | Increases | Decreases/Freezes |
---|---|---|
Tax Changes | • Employers’ National Insurance (+1.2% to 15%) | • Fuel duty freeze extended |
• Capital Gains Tax (lower rate: 10% → 18%, higher rate: 20% → 24%) | • Draught beer duty (-1.7p per pint) | |
• Air passenger duty (+£2 on economy flights) | ||
• Private jet duty (+50%, up to £450 per passenger) | ||
• Oil profits levy (to 38%) | ||
• VAT on private school fees (from Jan 2025) | ||
• Carried interest tax (28% → 32%) | ||
Public Spending | • NHS (+£22.6bn day-to-day, +£3.1bn capital) | |
• Education (+£6.7bn capital investment) | ||
• Housing (+£5bn investment) | ||
• Roads (+£500m for potholes) | ||
• Local government (+£1.3bn) | ||
Other Key Measures | • Minimum wage (+6.7% to £12.21/hour) | |
• Research & Development (+£20.4bn by 2025-26) | ||
• Warm homes plan (+£3.4bn) |
National Insurance Changes
The centerpiece of the budget is a 1.2 percentage point increase in employers’ national insurance contributions, rising to 15% from April 2025. This measure, combined with reducing the secondary threshold for contributions from £9,100 to £5,000, will generate £25 billion annually by the end of the forecast period, making it the largest single tax-raising measure in the budget.
NHS and Healthcare Investment
Healthcare emerges as a major beneficiary, with the NHS receiving a £22.6 billion increase in its day-to-day budget. An additional £3.1 billion capital budget boost includes £1 billion for repairs and upgrades, plus £1.5 billion for new hospital beds and testing capacity. The Chancellor announced plans for a 10-year NHS strategy, targeting 2% productivity growth next year.
Education Funding
Education receives substantial attention, with the Department for Education allocated £6.7 billion in capital investment – a 19% real-terms increase. This includes £1.4 billion to rebuild over 500 schools in greatest need, £2.3 billion for teacher recruitment, and £2.1 billion for school maintenance. Special educational needs funding increases by £1 billion, with higher education receiving an extra £300 million.
Housing Initiatives
Housing initiatives include a £5 billion investment package for 2025-26, focusing on affordable housing supply. The government plans to reduce right-to-buy discounts and allow local governments to retain earnings from council housing sales for reinvestment. New planning officers will be hired to speed up housebuilding processes.
Tax Reforms
On taxation, capital gains tax rates will increase, with the lower rate rising from 10% to 18% and the higher rate from 20% to 24%. However, rates on second homes remain unchanged. The inheritance tax threshold freeze extends to 2030, with inherited pension pots becoming taxable from 2027. Business and agricultural asset reliefs face reform, with a 20% tax rate applying after £1 million.
Transport and Infrastructure
Transportation receives mixed attention. The government commits to the Transpennine Route Upgrade and confirms HS2 tunneling to London Euston. A £500 million increase in the roads budget targets pothole repairs. The budget also introduces higher air passenger duty on private jets and increases charges for economy short-haul flights.
Local Government Support
Local government support includes £1.3 billion in additional grant funding, with £600 million earmarked for social care. Greater Manchester and the West Midlands gain integrated settlements, allowing greater spending control.
Business Measures
Business measures include permanent lower business rates for retail, hospitality, and leisure sectors from 2026-27, with 40% relief until then, capped at £110,000. The employment allowance doubles to £10,500, offsetting national insurance increases for smaller businesses.
Energy and Environment
Energy initiatives feature a £3.4 billion warm homes plan for building upgrades and the establishment of Great British Energy, based in Aberdeen. The oil profits levy increases to 38% and receives an extension.
Minimum Wage and Employment
The minimum wage will rise by 6.7% to £12.21, representing a £1,400 annual increase for full-time workers. Plans include phasing in a single-adult rate to equalize pay for under-21s.
Public Investment
Public investment receives a boost through new fiscal rules targeting debt reduction. The government pledges £1 billion for aerospace, £2 billion for automotive electric vehicles, and £500 million for life sciences. Research and development spending will reach £20.4 billion by 2025-26.
Compensation and Tax Avoidance
Compensation schemes allocate £11.8 billion for infected blood scandal victims and £1.8 billion for Post Office Horizon IT scandal victims. The budget also targets tax avoidance, aiming to raise £6.5 billion through measures targeting umbrella companies.
Economic Forecasts
Economic forecasts remain modest, with GDP growth projected at 1.1% in 2024, rising to 2% in 2025, before settling at 1.5-1.6% through 2030. Inflation is expected to average 2.5% in 2024, reaching 2.6% in 2025, before gradually declining to 2% by 2029.
Fiscal Projections
The government projects a deficit of £26.2 billion in 2026, turning to surpluses of £10.9 billion, £9.3 billion, and £9.9 billion in subsequent years. Public sector net debt is forecast to decrease from £127 billion in 2024-25 to £70.6 billion by 2029-30.
Conclusion
Labour’s inaugural budget presents both bold ambitions and considerable risks…
At its core, the £40 billion tax rise represents the largest peacetime tax increase in recent history, with businesses bearing the brunt through increased National Insurance contributions. This approach could either strengthen public services or potentially dampen economic growth at a crucial time.
On the positive side, the budget addresses long-standing issues in public services. The substantial NHS investment of £22.6 billion, combined with significant education and housing funding, shows clear intent to rebuild public infrastructure.
The warm homes plan and environmental initiatives demonstrate long-term thinking about sustainability and energy costs. The retention of the fuel duty freeze and minimum wage increase offer immediate relief to working families.
However, there are notable concerns. The 1.2% increase in employers’ National Insurance could discourage job creation and business investment when the economy needs stimulus.
Growth forecasts remain modest, raising questions about whether the economy can generate sufficient revenue to support these spending commitments. The delayed implementation of some measures until after the next election also suggests political calculation rather than immediate economic necessity.
The budget’s success hinges on several critical factors.
- First, whether businesses can absorb higher taxes without reducing investment or employment.
- Second, if the public service investments can deliver improved outcomes and productivity gains, particularly in the NHS.
- Finally, whether the new fiscal rules can maintain market confidence while allowing for necessary investment.
This budget represents a calculated gamble: that higher business taxation can fund public service renewal without stifling economic growth. While it offers clear solutions to public service challenges, the economic impact of increased business costs during a period of modest growth projections remains uncertain.
FAQs
How will the budget affect average working families?
Working families avoid direct tax increases, with personal tax thresholds rising with inflation from 2028-29. Key benefits include a £12.21 hourly minimum wage, improved public services, and continued fuel duty freeze. While the increased employers’ National Insurance could affect private sector wages and jobs, business support measures may offset this impact.
What are the main changes for businesses?
Major business changes center on the 1.2% employers’ National Insurance increase to 15% and reduced NI threshold to £5,000. Small businesses receive a £10,500 employment allowance, while retail, hospitality, and leisure sectors get permanent business rate reductions from 2026-27. Implementation spans from January 2025 to April 2025, with some immediate tax changes.
How will the NHS funding be spent?
The NHS receives a £22.6 billion boost, including £1 billion for repairs and £1.5 billion for new beds and testing. A 10-year plan targeting 2% productivity growth will be announced in spring, supported by a £3.1 billion capital budget increase for structural improvements.
What are the new fiscal rules?
New fiscal rules ban day-to-day spending borrowing and require budget balance within three years. Growth forecasts show 1.1% in 2024, peaking at 2% in 2025, before settling at 1.5-1.6% through 2030. Regular OBR reports will monitor government investments and debt reduction progress.
How will housing be affected?
A £5 billion housing package targets affordable housing through reformed right-to-buy rules and faster planning. Environmental measures include £3.4 billion for warm homes, Great British Energy establishment, and £2 billion for electric vehicles, plus increased private jet duties.
How will the tax avoidance crackdown work?
The government targets £6.5 billion through reformed tax avoidance measures, focusing on umbrella companies and business asset reliefs. Changes to non-domicile status and enhanced enforcement aim to create a fairer tax system while protecting compliant taxpayers.
What measures address the cost of living?
Cost of living measures combine higher minimum wage, warm homes plan, fuel duty freeze, and business rate relief. This package aims to provide immediate relief while supporting longer-term affordability through public service investment and economic stability.
Stay Ahead of the Market with Benzinga Pro!
Want to trade like a pro? Benzinga Pro gives you the edge you need in today's fast-paced markets. Get real-time news, exclusive insights, and powerful tools trusted by professional traders:
- Breaking market-moving stories before they hit mainstream media
- Live audio squawk for hands-free market updates
- Advanced stock scanner to spot promising trades
- Expert trade ideas and on-demand support