The Autumn budget, delivered today by chancellor Rachel Reeves, brought mixed news for businesses. Although historic in that it was the first ever budget to be delivered by a woman and the first Labour budget in 14 years, many of the highlights have already grabbed headlines in recent weeks, including £40bn in tax rises and an increase to employers’ national insurance contributions (NICs).
Frequently referring back to the promises laid out in the party’s manifesto – and with several references to the “£22bn black hole” left by the previous government – Reeves’ budget focused on the twin pillars of restoring economic stability and increasing investment.
To do this, Reeves announced the government will be raising taxes significantly. Although working people get away relatively unscathed, with no changes to national insurance, VAT or income tax, it is bad news for businesses. Organisations across the country will have their rate of employer NICs increased to 15%.
Although the one-penny saving on draught beer may be the main promise exciting some people, Reeves also announced a raft of other commitments designed to drive innovation and make the UK a more attractive target for investment. Here is what these commitments might mean for business leaders.
As widely expected, NICs for employers will rise 1.2 percentage points to 15% when the new tax year begins in April 2025. In addition, the threshold at which businesses start paying NI on a workers’ earnings will be lowered from £9,100 to £5,000.
Employers currently pay NI at 13.8% on a worker’s earnings above £175 a week.
“We are asking business to contribute more,” the chancellor said, a move she described as a “difficult choice” to make.
While the increase falls on employers, think-tanks and business leaders have warned it could have a knock-on effect for staff as employers seek to recoup extra costs by reducing salaries. Businesses could also cut back on hiring due to the added costs.
Higher taxes will impede companies’ ability to offer competitive packages, driving away top talent
The rise is more than predicted, but the chancellor said there would be measures to protect small businesses from the change. Indeed, the government is increasing employment allowance from £5,000 to £10,500 in a bid to support smaller businesses. This will mean 865,000 employers won’t pay any NI at all next year. It is understood that over 1 million organisations can expect to pay the same or less as they did previously.
Still, this additional NI burden is an unwelcome cost for many businesses. “It threatens to stifle growth, hiring and productivity,” says Greg Cox, CEO of financial services firm Quint Group. “If the government is serious about fixing the foundations of our economy, it should back businesses, not burden them. For a government that wants to encourage national renewal, today’s announcement will set many small firms back.”
Capital Gains Tax (CGT) on carried interest is set to be increased to 32% starting in April 2025, with further reforms planned for April 2026. CGT on general assets will rise from 10% to 18% for the lower rate and from 20% to 24% for the higher rate
Alongside these changes to the headline rates of CGT, the chancellor has maintained the lifetime limit for Business Asset Disposal Relief (BADR) at £1m, so as to encourage entrepreneurship and investment in businesses.
BADR will remain at 10% this year, before rising to 14% in April 2025 and 18% from 2026-27.
A more restrictive budget was always on the cards, but businesses will now need to pivot their strategies to navigate this tax landscape.
Discussing how these changes may impact financial strategies and operational efficiency for UK businesses, Martin Edstrom, CFO at Paragon said: “Every tax increase can deter investment, reduce cash flow and potentially halt expansion plans.”
He continues: “We are in Q4 now and planning for 2025 with this budget in mind will require a dual focus. Firstly, understanding the implications of these tax changes while using existing and readily available resources to drive innovation and productivity. Secondly, putting pride to one side and seeking out collaboration with your tax advisors to identify opportunities for tax relief and incentives, and re-evaluate project funding to prioritise those with the highest return on investment.”
Going forward, the pressure will be on finance teams to help their business navigate these tax changes smoothly, ensuring compliance without disrupting operation.
In addition to the hike in employers’ national insurance contributions, businesses will also have to contend with an increase to the minimum wage.
From April, the national living wage for those over 21 will increase by 6.7% to £12.21 an hour. This represents a £1,400 pay rise for a full-time worker on the minimum wage.
For workers aged 18 to 20, the minimum wage will rise from £8.60 to £10, representing a 16.3% increase – the largest such rise on record. This increase is intended to close the gap between the age bands as the government gradually moves towards a single minimum wage rate for all adults.
It threatens to stifle growth, hiring and productivity
The chancellor describes the pay boost as a “significant step” towards Labour’s commitment to deliver a “genuine living wage” for working people. However, the new minimum wage remains lower than the £12.60 per hour that’s recommended by the Living Wage Foundation, which bases its calculations on the cost of living and is voluntarily paid by 15,000 employers.
Apprentices will also receive a pay rise as the apprenticeship rate increases from £6.40 to £7.55 an hour.
While the Confederation of British Businesses (CBI) welcomes the government’s commitment to ensure work is “well paid and fulfilling”, it warns that employers will struggle to accommodate this increase amid the current challenging economic climate.
John Foster, chief policy and campaigns officer for the CBI, says: “That pressure will make it increasingly difficult for firms to find the headroom to invest in the tech and innovation needed to boost productivity and deliver sustainable increases in wages.”
Gareth Morgan, CEO of marketing agency Balance, claims the increase in the minimum wage will make it more expensive for businesses to run. “I know people who’ll be less likely to employ based on this and it will certainly be factored into our growth plans,” he adds.
The changes come alongside Labour’s employment rights reforms, announced earlier this month, which government analysis estimates could cost UK businesses £5bn a year. Rena Magdani, head of employment, pensions and immigration at law firm Freeths, is already noticing the impact this is having on her clients’ recruitment plans and claims it could lead to more companies automating roles and cutting employee costs.
Reeves listed the creation of Skills England as one of seven key pillars to help grow the economy. This new public body, which had previously been announced by the government, aims to bring together businesses, training providers and unions to improve training and apprenticeship opportunities across the country.
The chancellor also announced £240m of investment in skills and support for the disabled and long-term sick to help them return to the workplace. The initiative, called Get Britain Working, is aimed at addressing the high prevalence of economic inactivity that has been present in the UK labour market since the pandemic, with 2.8 million people currently out of work due to long-term sickness.
This package of reforms will involve the installation of “trailblazers” in local areas to improve access to skills, education, employment and health support, while also testing new interventions to address barriers to entering the workforce.
Ben Willmott, head of public policy at the Chartered Institute of Personnel and Development, says: “More joined-up support for people’s wellbeing and skills development can play a positive role in helping more people with health problems return to work. This development signals a welcome intent to bring together national and regional approaches to improving the health of the workforce and boosting labour market participation.”
The Recruitment and Employment Confederation (REC) welcomes the additional funding and support to improve labour market inclusion. However, its CEO Neil Carberry, adds: “Government programmes are always more effective when they work hand-in-hand with the private sector.”
During the budget announcement, Reeves also promised to “clamp down” on umbrella companies that exploit workers.
While Carberry believes the chancellor is right to tackle this issue, he believes the government has chosen the wrong tool to do so. “Employment businesses are already some of the more heavily regulated businesses in the country and responsibility for supply chain compliance will stretch them,” he says. “Yet umbrella companies themselves are not regulated. This is long overdue and would deliver a much more level playing field.”
A hefty R&D funding package (to the tune of £20bn) may have been Reeves’ flagship science and technology announcement in her first budget this year, but it’s changes to Capital Gains Tax and in particular Business Asset Disposal Relief (BADR) – formerly called entrepreneurs’ relief – that have shaken the business community.
BADR currently sets tax at 10% on exit takings for startups when founders sell their businesses, up to a threshold of £1m. The revised rate will jump to 14% in 2025/2026 and 18% in 2026/2027. Startups are concerned that the revisions to BADR will make Britain a less profitable location to set up and ultimately sell their businesses. In a panic, some startups have already threatened to leave the UK or attempted to rush through early sales ahead of the budget.
Every tax increase can deter investment, reduce cash flow and potentially halt expansion plans
“The tax increases from this year’s autumn budget will spark an exodus of talent from the tech industry, as rising costs prompt tech professionals and entrepreneurs to explore more favourable environments,” warned Matthew Hodgson, cofounder and CEO of encrypted messaging startup, Element. “The tech sector is acutely responsive to economic shifts. Higher taxes will impede companies’ ability to offer competitive packages, driving away top talent.”
Reeves also laid out plans to capitalise the UK’s recently created National Wealth Fund by investing £70bn in it.
This would, she said, focus on the “industries of the future” such as gigafactories, upgrading ports and creating 11 new green hydrogen projects across England, Scotland and Wales – “among the first commercial scale projects” of this kind anywhere in the world.
Labour confirmed £20bn in R&D funding would be protected, with at least £6.1bn in core research flagged for engineering, biotechnology and medical science.
Reeves also confirmed multi-year funding of £1bn for the aerospace sector, £2bn in automotive, specifically for electric vehicles and £520m for new life sciences or innovative manufacturing.
Elsewhere, Reeves set a 2% productivity and savings target for the public sector. She claimed tech would be used to drive these efficiency gains. This is a tale as old as time in the public sector and, while probably easier said than done, may be good news for tech companies selling to government. There would also be renewed efforts to join up government services and data. A “new approach” to public service reform would see tech used to improve delivery, so “taxpayer money is spent as effectively as possible”.
