On 30 October, Chancellor Rachel Reeves announced the Labour government’s first Statement, laying out its plans for the UK economy. Claiming a £22 billion “black hole” in the public finances together with a “failure to assess the scale of the challenges facing our public services” by consecutive past governments, she announced £40bn in tax rises. What will the impact be on businesses?

Key economic trends

Chancellor Budgets are the government’s opportunity to announce sweeping fiscal and tax reform. It is also the opportunity for the Office of Budget Responsibility (OBR) to forecast the UK economy, taking into account the government’s new fiscal policies.

Following a recession in 2020 due to the Covid-19 pandemic and resulting lockdown measures, GDP grew by 8.6% in 2021 and 4.8% in 2022, stalling at 0.3% in 2023. But the OBR is now saying the economy will grow this year by 1.1%, 2% next year and 1.8% in 2026.

Inflation is predicted to average 2.5%, 2.6% next year, and 2.3% in 2026. This is substantially closer to the Bank of England’s 2% target compared to recent years. However, a falling inflation rate doesn’t mean prices are falling – just that their prices are rising less quickly.

National Insurance changes

There are two changes employers need to be aware of when it comes to National Insurance: a rise to the contribution rate but also more generous Employment Allowance.

First, employers’ National Insurance contributions will rise from £13.8% to 15% from April 2025. The payment threshold, meanwhile, will decrease from £9,100 to £5,000, dragging more smaller businesses into the tax.

However, Employment Allowance will increase from £5,000 to £10,500. This scheme allows employees to reduce their national insurance liability, so an increase should remove some of the sting of the rate rise – especially for small businesses.

National minimum wage

The minimum wage paid to those aged 21 and over by 6.7%, from £11.44 to £12.21 from April 2025. Meanwhile, the minimum wage for those aged between 18 and 20 will increase by 16.3% to £10 an hour.

However, employers should know that Labour’s pre-election pledges included a promise to “remove discriminatory age bands to ensure every adult worker benefits”. Reeves herself, when announcing the pay rise for 18-20-year-olds, said “we will move towards a single adult rate phased in over time”.

Therefore, businesses should begin preparing to pay higher wages for younger adult workers over the term of this government. Yet, there is little evidence to suggest employees under the age of 18 will get such generous wages: the emphasis of language is on adults and under-18s didn’t get a pay rise from £6 an hour in the Budget.

Corporation tax freezes

On corporate tax – that owed by limited companies – Reeves pledged stability and “business certainty”. As such, the main rate of corporation tax will remain at 25% until the end of government for those making taxable profits over £250,000. Those making less than £50,000 a year will continue to pay 19%, and marginal relief will still be available for those making annual profits between £50,000 and £250,000.

Capital gains tax rise

Capital gains tax – the tax paid when you sell, gift or swap an asset that’s increased in value – will increase from 20% to 24% for higher-rate taxpayers. For lower-rate taxpayers, it will increase from 10% to 18%. The capital gains rates on residential property will remain at 24% and 28% respectively.

Alcohol tax

Pubs, restaurants and retailers selling alcoholic drinks need to be aware of a couple of changes to alcohol duty that will be introduced from February 2025:

• The duty rates on non-draught alcohol – including wine, spirits and bottled or canned cider and beer – will increase in line with retail price inflation (2.7% as of September).
• However, the duty on draught alcoholic drinks will be cut by 1.7%, which Reeves said will see “a penny off a pint in the pub”.

Get in touch with us

There were a lot more changes to the Budget that we can’t fit into this article, such as the changes to agricultural property relief and business property relief, which caused great concern among thousands of farmers hoping to pass on their farm to the next generation.

For tailored advice and guidance that takes into account Reeve’s Budget, please get in touch with us for a friendly chat. Let’s see how we can help you.