Key Takeaways
- Under the measures laid out in the Budget, UK GDP is forecast to expand consistently by 2029-30; however, higher spending and taxes mean inflation is forecast to remain elevated against the 2% target.
- The government seeks to raise £40 billion in revenue from increased taxes, creating potential burdens for businesses and individuals.
- The government commits to boosting public investment, particularly for the NHS, with a £22.6 billion expansion, alongside funding for defence, education and renewable energy projects.
On 30 October 2024, UK Chancellor of the Exchequer Rachel Reeves delivered the . It lays out the government鈥檚 approach to support the NHS and public services, protect working people, rebuild Britain and repair public finances.
The Office for Budget Responsibility (OBR) also released the latest for the five years to 2029-30. The independent spending watchdog forecasts that the Budget measures will provide a boost to GDP, at least in the short term, before growth slows down. GDP growth is forecast to rise to 1.1% in 2024, from a flat rate in 2023. This will be followed by a 2% hike in 2025 before the growth rate starts to ease in the following years.
In terms of inflation, the annual rate dropped to 1.7% in September 2024, below the Bank of England鈥檚 2% target. Inflation has been falling since it peaked at 11.1% in October 2022. The OBR forecasts inflation to average 2.5% in 2024, followed by a hike to 2.6% next year, before gradually falling towards the 2% target in the years after, which it will reach in 2029.
While the unemployment rate is forecast to hover around the 4% mark from 2025, public sector net borrowing as a share of GDP is set to more than halve by 2029-30 to 2.1%.
Wider macroeconomic conditions have varying impacts at the industry level. The announcements made in the Budget will reshape the business landscape in the UK 鈥 while some industries may thrive under certain economic trends, others might struggle.
Taxes
A key focus of the Budget relates to taxes. It sets out measures to raise 拢40 billion in revenue through various tax changes, including increases in employer National Insurance (NI) contributions, Capital Gains Tax and Inheritance Tax.
While the income tax rate and employee鈥檚 National Insurance remain unchanged until 2028-29, the government has raised employers鈥 NI contributions from 13.8% on salaries above 拢9,100 to 15% on salaries above 拢5,000 from April 2025. This move alone is forecast to raise 拢25 billion a year by the end of 2029-30.
Investors will take a hit from the hike in the Capital Gains Tax on profits from selling shares, with the lower rate increased from 10% to 18% and the higher rate from 20% to 24%. This move could deter individuals by making investments less attractive.
The Inheritance Tax threshold freeze remains in place until 2030, with inherited pension pots to be subject to the tax from 2027. However, the government has moved to reform reliefs for business and agricultural assets from 2026, with a 拢1 million limit on the inheritance tax relief for farms, after which those assets will face a 20% inheritance tax.
As expected, the minimum wage for those over 21 continues to increase annually and will reach 拢12.21 in April 2025, from the current rate of 拢11.44. Meanwhile, tobacco taxes will rise by 2% above inflation and by 10% for hand-rolling tobacco. Vaping will face a new flat-rate tax of 拢2.20 per 10ml of vaping liquid from October 2026. Alcohol taxes will rise in line with the retail price index, though the tax on draught drinks will be cut by 1.7%, saving consumers just a penny off a pint in the pub.
Hospitality
Hospitality businesses, including hotels, , bars and pubs, have endured significant cost pressures in recent years. They face yet another challenge, with the 6.7% hike in the minimum wage and rise in NI contributions sustaining the pressure these businesses have faced from elevated labour costs. UK Hospitality analysis states these increases will mean that it will cost them an extra 拢2,500 to employ a full-time staff member.
Agriculture
Agriculture industries, like cereals, leguminous crops and oilseed growing, poultry raising and vegetable growing, are also facing a turbulent future. The National Farmers鈥 Union of England and Wales has labelled the Budget as Having been decimated by severe cost inflation and poor weather conditions, the agriculture sector now faces higher wages and less favourable inheritance tax exemptions. Farmers warn these measures could result in farmers selling up and taking part in protests.
Strategies for success for tax professionals
- Proactively engage clients in tax planning discussions to address increased tax liabilities, focusing on strategies like succession planning and asset restructuring to reduce taxable values, especially for those impacted by inheritance tax changes.
- Help investors adopt tax-efficient strategies in response to Capital Gains Tax rises by reviewing portfolios, recommending diversification and timing asset sales to minimise tax liability.
- Offer targeted advice on adjusting financial structures, implementing tax-efficient positions and maximising reliefs to optimise clients' tax outcomes under new Budget measures.
Public spending
The government has pledged 鈥渕ore pounds in people鈥檚 pockets鈥 and has moved to add funds to public investment with a 1.5% increase in real spending on government departments off the back of an estimated 拢40 billion tax increase. The government has altered how debt will be measured to public sector net financial liabilities, recognising benefits from investments. To support defence, there will be a 拢2.9 billion increase in military spending next year and funding for Second World War commemorations.
The biggest jump in spending is towards the NHS, with a 拢22.6 billion expansion in the day-to-day health budget and a 拢3.1 billion climb in the capital budget. That includes 拢1 billion for repairs and upgrades and 拢1.5 billion for new beds in hospitals and testing capacity. They aim to deliver 40,000 extra elective appointments a week.
Local government received a pickup with 拢1.3 billion for additional grant funding for local government, including 拢600 million for social care. Further funding is sent towards tech industries as government research and development spending will reach 拢20.4 billion in 2025-26, including 拢6.1 billion in sectors like engineering, biotechnology and medical science. Additionally, there will be 拢1 billion in funding for aerospace, 拢2 billion for the automotive sector to support electric vehicles and 拢500 billion for life sciences.
Healthcare
The healthcare sector has received a much-needed boost of 拢22.6 billion from the government, considering the expanding demand for healthcare services. The 25% increase in the NHS staff over five years to July 2024 shows a step up in manpower resources. However, an unresolved infrastructure issue is evident from the growing number of patients waiting over 12 hours for admission. Therefore, the earmarked 拢1.5 billion for new beds and testing capacities and 拢1 billion for infrastructure repairs and upgrades from the health budget would be highly instrumental in managing patient backlogs and improving service delivery.
Aerospace
In the aerospace industry, an uptick in global passenger numbers has helped fuel growth with successful domestic and foreign orders. The industry's struggles with part shortages in semiconductors and engines led to commercial aircraft deliveries falling 7.5% in the first nine months of 2024 compared with the same period in 2023. The government's 拢1 billion investment in this industry is aimed at advanced green tech initiatives, promoting R&D funding and military spending, which provides capital to help overcome these challenges.
Alternative fuelled vehicle manufacturing
With a 10.8% surge in new EV registrations by August 2024, the UK Budget 2024 extends tax incentives for EVs till 2030, pushing greener mobility. The zero-emission company car tax is set to increase 2% annually from 2028, hitting 7% by 2029-30, while plug-in hybrids will see a tax band increase to 18% from 2028. These shifts are designed to keep EVs cost-effective and manage hybrid demands. They are supported by a 拢2 billion government investment in EV production.
Strategies for success for manufacturing professionals:
- Transition company fleets to electric vehicles to leverage extended tax incentives and reduce long-term tax costs.
- Streamline fleet management by replacing high-emission vehicles with more tax-efficient options to offset rising VED and company car taxes.
- Encourage employees to use salary sacrifice schemes for electric vehicles to lower NIC costs and support a sustainable fleet transition.
Infrastructure
Housing and transport have been under the microscope in this Budget. The government is aiming to continue its promise of 1.5 million homes by the end of its first parliament. The government will spend 拢5 billion on housing investment in 2025-26, including increasing the supply of affordable housing. Local governments will secure funds by reducing the right-to-buy discounts and local governments will retain the earnings from council housing sales.
Customers have faced harsh energy prices in the three years through 2023-24. The government has announced 拢3.4 billion for the Warm Homes plan to upgrade buildings, lowering energy bills. They look to form Great British Energy with 拢125 million in 2025-26, a new body based in Aberdeen that will support renewable energy funding. It has planned support for four electrolytic hydrogen projects. Chancellor Reeves has decided to extend the freeze on fuel duty for another year and maintain the previous government's 5p cut, arguing that increasing the tax would negatively impact working people.
The government has confirmed it will fund the tunnelling of HS2 to London Euston and electrify the Wigan to Bolton route. It will also provide more rail transport, including the first East West Rail services, running between Oxford, Bletchley and Milton Keynes, which will begin operations in 2025-26. Additionally, next year, there will be a 拢500 million hike in the road budget to target potholes.
Residential Construction
The residential construction segment has struggled due to high interest rates of 5% and labour shortages. However, the government's 拢5 billion investment in affordable housing introduces potential opportunities to reverse the slump. It encourages construction professionals to pivot towards affordable housing projects with higher demand. The government will hire 鈥渉undreds of new planning officers鈥 to accelerate housebuilding and address labour shortages.
Renewable Energy Supply
Despite overall energy demand dipping by 0.9%, electricity demand surged by 13% in the second quarter of 2024. Moreover, renewables accounted for 51.6% of electricity generation, an all-time high. This suggests a growing reliance on renewable energy and an ongoing shift from conventional energy sources. The 拢125 million Budget for renewable energy projects and the establishment of the Great British Energy advocate further for renewable businesses.
Railway & Underground Railway Construction
With just 68.3% of trains on time in the first quarter of 2024, there is a clear need for improvements and expansions in the rail network. The Budget's provision for railway construction, including investments in HS2 and East-West Rail services, comes in timely. This provides opportunities for construction professionals to engage in transformative projects but could also improve service reliability and travel times, benefitting the commuter population.
Strategies for success for construction professionals:
- Focus on securing government-funded projects by emphasising stability and long-term value to capitalise on the 拢100 billion capital project allocation.
- Prepare for higher National Insurance costs by streamlining workforce management and optimising operational efficiency.
- Strengthen partnerships with public institutions to position your firm as a leader in delivering essential infrastructure and public sector projects.
Final Word
The Budget has undoubtedly created mixed feelings among businesses and consumers. Strong criticism has come from the hospitality and the agriculture sectors, which face a less favourable tax environment. The hike in taxes creates a burden for businesses and may dampen confidence and investment activity. The announced extra government spending on public services and infrastructure will have benefits, but this rise in spending (拢70 billion a year), alongside the hike in labour costs from higher taxes, will keep inflation elevated. This may mean interest rates fall at a slower rate. Nevertheless, if the government delivers on these promises, the OBR forecasts that the UK will achieve economic growth in the coming years.