Rachel Reeves, the UK’s first female Chancellor of the Exchequer, delivered her first budget, addressing a £22bn fiscal gap and setting out Labour’s financial plans for the next fiscal year. The budget includes a £40bn increase in taxation and spending to support public services, with a focus on capital investments like schools and infrastructure. However, several key measures will have significant implications for businesses and public services in Scotland.
Key Measures Affecting Scotland
- National Insurance Increase: Employers across the UK, including Scotland, will face a rise in National Insurance contributions from 13.8% to 15%. This will impact all businesses, particularly those in labour-intensive sectors like hospitality and small enterprises. Scottish businesses are likely to feel the pinch as they already face higher operational costs compared to other parts of the UK. The increase could lead to reduced hiring or wage stagnation as businesses try to absorb these additional costs.
- Public Sector Strain: Scotland has a higher proportion of public sector employees (22.1%) compared to the UK average (17.3%), meaning the rise in payroll taxes will disproportionately affect public services north of the border. Without adequate compensation from Westminster, Scottish public service budgets may struggle to cover these increased costs, potentially leading to cuts or reduced service quality.
- Oil and Gas Sector: The windfall tax on oil and gas firms will rise from 35% to 38%, extending until 2030. This is expected to hit Scotland’s oil and gas industry hard, particularly in the North Sea. The Office for Budget Responsibility forecasts that investment in this sector could drop by 26%, leading to faster declines in production than previously anticipated. This could result in job losses and reduced economic activity in regions heavily dependent on oil and gas.
- Other Tax Changes: Capital gains tax increases and VAT on private school fees will apply across Scotland, as these are not devolved matters. However, income tax changes announced by Reeves do not affect Scottish workers directly, as income tax rates are set by Holyrood. Scottish Finance Secretary Shona Robison will present her own budget in December, where she may adjust income tax rates further.
- Spending Increases: While Reeves announced more funding for capital projects like schools and infrastructure across the UK, day-to-day spending remains tightly controlled by borrowing rules. The Chancellor confirmed that Scotland would receive an additional £3.4bn through the Barnett formula, which Holyrood must allocate effectively to ensure public services are maintained.
More Industry Reactions in Scotland:
David Whitehouse, CEO Offshore Energies UK comments:
“Today we heard the Chancellor recognise the role of the oil and gas sector to support high quality jobs and strengthen the UK’s energy security. We welcome that and the meetings and dialogue which have taken place between industry and the new government.
“While the government will increase and extend the Energy profits levy on oil and gas production to a headline rate of 78% and remove the associated investment allowance, the 100% first-year allowance and the decarbonisation allowance will be retained. The Chancellor also confirmed that the EPL will fall away in March 2030.
“However, with an increase in tax despite commodity prices at recent lows, there is no hiding that this is a difficult day for the sector.
“Oil and gas companies, our world class supply chain and our highly skilled people will support the energy transition. We will not be successful without them.
“It’s why there is a different path for this industry which can deliver the energy future we all agree on. With industry and government working in partnership we can protect the North Sea as a national economic asset. It can and should serve as an engine to realise UK economic growth and climate goals.
“We welcome that the government will consult in early 2025 on how the oil and gas tax regime can encourage investment and respond to changes in the oil price. We also note the consultation on end use emissions for oil and gas projects.
“That’s why we are calling for a homegrown energy transition – making the most of our whole homegrown sector – from oil, gas, wind, hydrogen to carbon capture projects with fair and competitive stable policies that keep jobs, skills and capital in the UK.”
Following today’s Autumn Budget, Nicholas Hyett, Investment Manager at Wealth Club, shares his comments:
“The threat of removing inheritance tax relief from AIM shares has dragged on the market for months. Today at least provides some certainty about what the future looks like, even if the IHT relief on offer has been cut in half. That certainty has driven a 3.9% spike in the AIM all-share index.
While the cut to tax relief will probably weigh on valuations long term, making it more expensive for small UK companies to raise funding, not abolishing it altogether has avoided the worst-case scenario of significant disruption as capital fled the market.”
“The capital gains tax straight jacket has been pulled steadily tighter for years. Between 2022 and 2024 the tax-free allowance for CGT was cut from £12,300 to £3,000, and the decision to raise CGT rates across the board today will only make matters worse.
Capital gains tax is only paid by a minority of, generally wealthier, taxpayers, which probably explains its appeal to the government. However, it also represents a tax on risk taking – since it’s only charged on gains from investments or setting up your own business.
It’s a far cry from the growth focused, business friendly budget that was originally billed.
For investors facing higher CGT bills it may be worth considering investments in Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) qualifying companies. These government backed venture capital schemes, one of the few to avoid reform in today’s budget, allow you to defer or reduce capital gains taxes as well as offering income tax relief of 30-50% up front.
These schemes will become even more important going forwards, not just for investors but for small companies that may find AIM less welcoming in future.”
“Business relief is crucial to the long-term future of many small family-owned businesses up and down the country. The good news is that the reforms in this budget are less draconian than feared, with full relief capped at a still fairly generous £1 million and IHT falling to 20% thereafter.
The decision not to add a hard cap to Business Relief avoids the worst-case scenario for those invested in specialist products that aim to qualify for business relief by investing in things like solar farms, property development lending and care homes. These are illiquid assets, and complete tax relief withdrawal risked investors being locked in for a long time and/or painful markdowns in value.
Nonetheless for larger businesses up and down the country, this reform will be a source of considerable concern.”
Rosalind Gill, Head of Policy and Engagement of NCUB, said: “In their first Budget, the Government delivered for UK innovation and research and development (R&D). We warmly welcome the Government’s acknowledgement that research and innovation is a vital and critical driver of growth, and its headline announcement of further investment into R&D is a positive step forward. We applaud the Government for recognising that UK R&D is crucial for future competitiveness, growth, clean energy goals, healthcare advancements, and national security.”
Gill continued: “However, it is clear that the UK needs to truly shift the dial on private investment, including private investment into R&D. This requires a competitive and supportive environment. The cumulative impact of tax rises will have an impact on investment and could make it harder for businesses to start, scale and grow here.”
Gill concluded: “Businesses tell us that the strength of the UK’s university system is a significant reason why they choose to invest here. In many parts of the UK, universities are major employers and economic engines. This Budget may well have significant unintended consequences for the sustainability of the UK’s world-leading university system. The prospect of increased employer National Insurance contributions will significantly raise staffing costs. Just the change in rate to 15% will cost universities well in excess of £150 million a year, and the changing threshold is likely to have an even greater impact. Only through more sustainable funding can universities focus on their public mission rather than financial survival. We implore the Government to recognise this, before it’s too late.”
Theo Bertram, Director, Social Market Foundation said:
“For a first Budget, it is hard to think of a tougher test. Economically, it’s an almost impossible balancing act: how do you get growth, demonstrate prudence, repair public services and raise tax fairly?
Reeves’ answer to that today was in some ways typically Labour: higher taxes, higher borrowing, and higher public spending, with the taxes largely coming from employers and the wealthy. She appears to have managed to pull this off without scaring the markets – and after the recent disaster of Trussonomics, that is no small feat.
The SMF is pleased to see changes in alcohol duty for which we have long argued but the choice to freeze fuel duty was disappointingly short-termist and the absence of a targeted tax on remote gambling was a missed opportunity.
The changes to the fiscal rules to allow more investment in infrastructure will make a positive difference in the long-term. However in the shorter-term more than £25bn of tax rises falling on employers is a significant burden on business at a time when the government is betting on growth.
Reeves’ priority is clearly to balance the books and to fill the holes in public finances and while the scale of the tax rises are historically high, the increase in spending is still relatively slight. Departments outside of health and defence are going to need to find cuts and the government has notably chosen not to make spending commitments to tackle child poverty at this stage.”
Peter McGettrick, Chairman of British Safety Council said:
“This was a bold and significant Budget which aims to boost growth and investment and support people in work. The challenges to increase investment in infrastructure, housing and public services are real and will require some tough choices, but it will be important to do this in a fair and balanced way.
“The Chancellor clearly honoured her promise not to increase taxes in people’s payslips, but while the smallest employers will be protected from an increase to employer NICs, many others will see their bills go up which could put new jobs at risk. For working people, increases to National Minimum Wage rates will be welcome given the rising cost of living, as will the planned increase to income tax thresholds for many thousands more in work, as well as changes to the Carers’ Allowance.
“A key challenge is how to support people who are economically inactive due to long-term health conditions to return to work, and make sure that our welfare provision is fair and sustainable. We look forward to the forthcoming ‘Get Britain Working’ White Paper alongside practical measures to shift healthcare to a more preventative approach.
“We welcome the targeted responses in the Budget to societal challenges faced by people in work, such as threats to safety from shoplifting and violence, as well as continued funding to address the legacy of Grenfell. A lack of investment in mental health and wellbeing was perhaps a more surprising omission, when we know the cost that poor mental health and wellbeing has on our productivity and growth.
“Investment announced in future technology, specific industries and R&D should give a real boost to many areas of the UK, by helping to create new jobs and shore up confidence.”
Richard Beresford, Chief Executive of the National Federation of Builders (NFB), said:
“The 2024 Budget was always going to be challenging due to the ongoing £22 billion black hole narrative. Nevertheless, it is positive to see the suspected fuel duty rise did not happen, especially as the construction industry is already paying considerably higher fuel costs after the last government cut their access to red diesel.
We also welcome the £5 billion funding boost for affordable housing, commitment allowing councils to retain 100% of Right to Buy receipts and, the £3.4 billion for retrofitting.
However, the Government’s target to deliver 1.5 million homes is now at a considerable risk due to the increase in Employer National Insurance contributions. This announcement will hinder the industry’s ability to take on and train new staff and support the next generation of skilled workers. While some may point to planning reforms as the solution, those reforms have not yet been implemented, and it will take years before new projects avail of them.”
Included among the other announcements is the Chancellor’s move to not extend the freeze on income tax and National Insurance thresholds beyond 2028, an increase on Capital Gains Tax, a rise in National Minimum Wage, and commitments to increase funding for transport and energy infrastructure. “
Jim McMahon, Tax Manager, Private Client team, Balfour+Manson commented:
“So, after weeks of speculation, rumour, leaked “hints”, and countless articles on what may or may not be in the Chancellor’s, Rachel Reeves first Budget, we now know the detail.
“Whilst we already knew some of what the Budget would contain including a revision to the borrowing rules and an increase in the minimum wage, there was, in truth, very few surprises.
“Employers National Insurance increased, as expected, Capital Gains Tax rates on share disposals increased, as expected, but possibly not by as much as some feared, and Inheritance Tax thresholds were frozen until 2030, possibly unexpected.
“To keep faith with the manifesto, a promise not to raise taxes on working people, the freeze on income tax thresholds was removed, but only from 2028 onwards.
Stability and growth were mentioned more than once. Only time will tell if that is the case.”
Chief Economist Paul Diggle, abrdn, gives his four key takeaways from the Budget:
“First, we got new fiscal rules.
The “stability rule” requires the current budget to be in balance (ie taxes fund day-to-day spending) within a three-year horizon, starting in 2029/30. That’s a stricter rule than the previous government used.
The “investment rule” requires public debt as a share of GDP to be falling within three years, starting in 2029/30. Importantly, the definition of public debt is now “public sector net financial liabilities”, which takes account of some of the benefits of public investment as well as the costs. So it’s a more permissive rule than the previous government used.
Second, we got higher than expected tax increases.
There were more than £40bn of tax rises in this Budget, making it the biggest tax rising Budget in 30 years. UK tax take as a share of GDP is going to rise from 36.4% now to a historic high of 38.2% in 2029-30.
The biggest tax measure (raising £25bn) was a 1.2% increase in employer national insurance contributions, to 15%, alongside the threshold for paying this tax falling from £9,000 to £5,000 of earnings. Alongside a higher minimum wage, this means business is carry the burden in this Budget – although the ultimate tax incidence is likely to be workers.
There were also changes to capital gains tax and inheritance tax, among others.
But fuel duty has been frozen again, while the “fiscal drag” that comes from freezing income tax thresholds is apparently ending in 2028/29. These are the closest things this Budget had to a “rabbit out of the hat” announcement.
Third, day-to-day spending is increasing, by 1.5% in real terms.
While that was enough for the Chancellor to declare “no return to austerity”, it’s a pretty small spending increase once protected departments like the NHS and defence are taken into account. Many UK public services will still feel squeezed.
There were also some big one-off costs in this Budget to compensate the victims of the infected blood and Post Office-Horizon scandals.
Fourth, investment spending is increasing significantly – by a cumulative £100bn over five years.
This is being spent on things like capitalising the National Wealth Fund, R&D spending, homebuilding programmes, rail electrification upgrades, and aerospace, automative, and life science funding.
The Chancellor hopes this will improve the UK’s trend growth rate – although the Office for Budget Responsibility rather scathingly says that “taken together, Budget policies leave the level of output broadly unchanged at the forecast horizon” even if it holds out the possibility that “in the longer term, the net effect of Budget policies would be positive for the economy-wide capital stock and potential output if the increase in public investment were to be sustained”.
All told, this is a higher tax and higher spending Budget. The market reaction has been somewhat volatile, with gilts initially rally but now selling off as investors digest the borrowing increase to come. While the investment spending increases introduce upside risks around long-term UK growth, the burden is still on the government to deliver on its growth agenda while keeping markets onside.”
Dave Capper, CEO of health and wellbeing provider Westfield Health, shares his judgement on the Chancellor’s decisions with changes that will impact small businesses:
“The Chancellor previously ruled out taxing workers, and it’s a welcome move that this decision has been upheld in the Autumn Budget. This reflects the government’s commitment to keeping people’s wellbeing at the heart of its health policy.
We’re aware that adjustments to Capital Gains Tax (CGT) and increased employer national insurance contributions raise significant concerns for many businesses, particularly SMEs who may be operating with tighter budgets. These changes could hinder businesses’ ability to hire talent or may result in lower pay increases for employees. Ultimately, this situation affects working individuals through either reduced wages or rising inflation.
When costs rise, there’s a real risk that employers will cut back on workplace wellbeing initiatives and even drop pay rises. Businesses must avoid viewing wellbeing programs as discretionary. These initiatives are not just a cost but a vital investment in your people’s long-term resilience, health and productivity. Cutting back on them could lead to higher absenteeism, burnout and reduced morale, ultimately impacting companies financially.
While we acknowledge the government’s decision to maintain the Insurance Premium Tax (IPT), we believe this moment represents a missed opportunity to incentivise health insurance ownership during a critical health crisis. Our recent research indicates that 40% of employees prioritise access to private healthcare over other benefits, underscoring the importance of affordable health insurance.
Instead of merely maintaining the status quo, we urge the government to consider more innovative approaches. By eliminating IPTfor health insurance, the government could have promoted greater access to private healthcare and given SMEs an opportunity to invest in their employees’ health. With rising living costs, a more proactive stance would ensure that both physical and mental health support remain accessible, fostering a healthier population.
Affordable health insurance not only protects individual wellbeing but also alleviates long-term pressure on public health services by encouraging early intervention through private healthcare options. We hope to see the Treasury and the Health Department collaborate in driving meaningful change, demonstrating courage and creativity in addressing the complexities of our health system.
Jeff Watkins, CTO at digital consultancy CreateFuture, said:
“The Autumn Budget potentially brings huge opportunities for organisations operating in the UK tech sector – particularly given the Chancellor’s targets for a 2% productivity, efficiency and savings target next year for all government departments. Reeves indicated that this could well be achieved using technology more effectively in a bid to join up vital services.
“The tech sector could well play a vital role in supporting the Chancellor’s ‘seven growth pillars’ which were outlined today as part of what was called a ‘modern industrial strategy’. Those organisations specialising in AI, cloud computing and broader digital transformation could well find reasons to be more quietly confident given today’s announcement.
“The move to maintain record R&D funding to harness the UK’s science and tech base is certainly welcome news. It was also encouraging to hear about the “Skills England” initiative – hopefully this translates into a much needed ‘shot in the arm’ for digital skills – addressing the increasing skills gap we’re experiencing in the sector.
“With this budget, the Chancellor has opened up a significant opportunity for tech organisations to play a bigger role in transforming public services for the better – one built around the needs of service users.”
