Labour’s first Budget: key announcements and what they could mean for people and businesses

October 31, 2024

Overview

Labour’s first Budget in over 14 years would always be a momentous moment. It was the time for Sir Keir Starmer and Rachel Reeves’ Labour Party to set out their direction for the country, the economy and for businesses, and with it what the coming years under a Labour Government may look like.

Following the long-trailed messaging from the Labour Government, Reeves reiterated the hard choices that face this government and the need for tax rises to plug a significant fiscal blackhole. Reeves tried to strike a balance, promising a pay rise for low-income workers and investment in infrastructure, but the news of higher taxes across Employer National Insurance contributions, Capital Gains Tax and Inheritance Tax is likely to be the issue that cuts through.

Reeves has not hidden that the government must balance the books. However, her Budget sought to modulate this message by committing to invest now to build for tomorrow. This meant that government has committed to £100 billion in capital spending across the economy, with a focus now on housing, transport and research and development, with more details set to emerge in the 10-year infrastructure plan and the other long term planning documents that government is working on. It means this is a government that wants to be ambitious and build, despite the considerable strain it faces.

It leaves Labour in an uncomfortable place. Whilst honouring its manifesto commitments to the letter, media and opponents will challenge that the party failed to be open and transparent with the electorate or the businesses that it spent years courting. A combination of this and clever financial traps laid by the outgoing Conservative government has meant that this first Budget was a significant test of the Labour Party’s ability to balance fiscal and policy necessities with economic and political realities.

After a rocky first few months, Labour will hope this Budget will address the policy and fiscal challenges that it claims to have inherited and project a vision of what it wants to do in future. The question that remains is if business and the electorate –who took a punt on Labour after growing tired of the last government –have the stomach to accept the Labour Party’s plans to rebuild and rebalance with the promise of future gain. At the moment, this is in the balance.

"The UK has a stable government and stable public finances for the first time in nearly a decade. Labour's Chancellor Rachel Reeves has played a tough hand well. Contrary to expectations, she has frontloaded the gain - £64bn in increased revenue for public services - and shifted the pain from workers to businesses. Taken together with the package on workers' rights unveiled by Angela Rayner, this is a government that is rebalancing burdens from labour to capital, and power from capital to labour.

The presiding political guideline of Starmer and Reeves' government is Ernie Bevin - the former Transport & General Workers’ Union General Secretary and wartime Minister of Labour who helped found NATO and gave the UK its first atom bomb. He was tough on enemies abroad and exploitation of workers at home. If living standards have risen by the end of this parliament, Labour will might be on course to deliver the second half of a decade of renewal."

John McTernan
Senior Adviser and Head of Labour Unit, Burson Global

Announcements at a glance

The Budget will raise taxes by £40bn – one of the largest ever tax raises outside of a recession
Employers National Insurance (NI) contributions will rise by 1.2% to 15%, making up the largest portion of taxation revenue in Labour’s first Budget at a total of £25bn. The threshold for businesses to start paying National Insurance will be lowered from £9,100 to £5,000 per worker
Employment Allowance will be increased to help smaller businesses, from £5,000 to £10,500 and the £100,000 threshold removed
The government intends to introduce permanently lower business rates multipliers for high street retail, hospitality and leisure properties (RHL) from 2026-27 and the small business tax multiplier will be frozen in the interim
The government will raise several ‘sin taxes’ in line with inflation; renewing the tobacco duty escalator, further escalating tobacco and vaping taxation. Alcohol off-draft duty traditionally rises each year with RPI unless frozen, but draft duty will be cut by 1.7%, saving a ‘penny per pint’
Fuel duty tax will be frozen next year. The temporary 5p cut will also remain. A range of incentives for electric vehicle transition will be maintained and differentials in Vehicle Excise Duty First Year Rates will be widened
Windfall tax on oil and gas profits will increase from 35% to 38% from November 2024, until March 2030 when it is now due to end, having been pushed back from 2029
Catalysing £70bn worth of investment through the National Wealth Fund and transforming planning rules to get Britain building, the government pledged to invest £100bn in capital spending over the next five years
The government has recommitted to more than £20bn in funding for “growth industries” including £1bn for the aerospace sector, over £2bn for the automotive sector and up to £520m for a Life Sciences Innovative Manufacturing fund
Public services investment lay at the centre of the Budget. The NHS will see a £22.6bn increase to the day-to-day health Budget to kickstart delivery of two million extra NHS appointments. Education will also see further investment. Plans to extend HS2 to London Euston saw a commitment to resuming tunnelling work past Old Oak Common which was originally cancelled under the previous Government due to rising costs
Minimum wages will rise in April by 6.7% for over-21s to £12.21, and to £10 an hour for 18 to 20-year-olds— up more than 16%
Carbon Capture and Storage were also recommitted in line with the government’s commitment to “making Britain a clean energy superpower”
A commitment to hold one major fiscal event per year and a Spending Review every two years
Publishing a 10-year infrastructure strategy alongside Phase 2 of the Spending Review, alongside setting five-year capital Budgets and extending them every two years at regular spending reviews

Sectors in the spotlight

Business and taxation

As had been trailed before, the Chancellor took to the dispatch box, Rachel Reeves confirmed in her first Budget that she would be raising the Government’s tax income by approximately £40 billion. These increases make this the second biggest tax-raising Budget on record.

The most headline-grabbing announcements included the rise in national insurance contributions made by employers, an increase in both the lower and the higher rates of Capital Gains Tax, and an increase in Inheritance Tax receipts for the Government.

It was not, however, only a tax-raising Budget. The rises to employer NI contributions will be offset for many SMEs with increases to the Employment Allowance. Corporation tax has been confirmed as remaining at 25% throughout the Parliament and R&D reliefs are being maintained at their current levels. The Chancellor additionally committed to continuing with full expensing relief and the £1 million Annual Investment Allowance.

Reeves also used her debut Budget to begin the process of reforming business rates and claimed that her package of reforms will protect a third of business properties from paying business rates.

Key announcements

Employer National Insurance contributions will increase by 1.2% for April 2025 and a reduction in Secondary Thresholds (the salary threshold at which your employer begins to pay the standard rate of NI on your earnings)
Capital Gains Tax (CGT) will rise to 18% and 24% for the lower and higher rate, respectively
A new and permanent lower rate for retail, hospitality, and leisure properties from 2026-27
A new 40% rate relief for retail, hospitality and leisure
The small business multiplier will be frozen

Housing and infrastructure

The Chancellor reconfirmed at the Budget that the Government has set a target to deliver 1.5 million new homes over the coming years.

As part of this housing strategy, several key initiatives have been launched. These include consultations on the National Planning Policy Framework, the establishment of the New Homes Accelerator to expedite planning processes, and the creation of the New Towns Taskforce, aimed at facilitating the development of new communities. The Chancellor stated that a major focus of the Government is on ensuring that housing projects are delivered alongside the necessary infrastructure to support residents, including transportation, education, and healthcare services.

In the Budget, the Chancellor announced that the stamp duty surcharge for second homes and buy-to-let (BTL) properties will rise from 3% to 5%, effective immediately. Moreover, changes to stamp duty will also affect first-time buyers starting next year. A return to previous stamp duty thresholds from April 2025 will result in an additional 20% of first-time buyers being liable for stamp duty, while a further 14% will have to pay a partial amount.

In addition to these changes, the Chancellor confirmed £56 million of investment to unlock over 2,000 new homes at Liverpool Central Docks.

Key announcements

£500m for construction of up to 5,000 additional affordable homes
A consultation on a proposed long-term social housing rent settlement
Proposed adjustments to the Right to Buy scheme, including reducing discounts and allowing councils in England to retain all receipts from sales
£46m investment to recruit and train 300 graduates and apprentices in local planning authorities to enhance local planning capacity

Energy and decarbonisation

The Chancellor acknowledged Labour's mission to establish Britain as a Clean Energy Superpower and announced significant support for clean energy initiatives, including funding for four electrolytic hydrogen projects with two each in Scotland and Wales. This is part of a broader allocation for eleven green hydrogen contracts within a £3.9 billion settlement, including already announced CCUS (Carbon capture, utilisation and storage) projects. Additionally, £134 million was provided for floating offshore wind port infrastructure.

The Energy Profits Levy on oil and gas firms (Windfall Tax) will increase from 35% to 38% and extend to 2030 with the investment allowance removed. However, incentives through first-year and decarbonisation allowances will remain. Nuclear power received £2.7 billion for Sizewell C's development through 2025-26, with a final decision due next year.

Energy efficiency measures included £1 billion for public sector decarbonisation and £3.4 billion for the Warm Homes Plan. The National Energy System Operator and Ofgem are working on proposals for improved grid connection processes to support a Clean Power 2030 Action Plan.

DESNZ (Department for Energy Security and Net Zero) emerged as a clear Budget winner, with an increase in departmental funding of 22%, including £125 million to establish Great British Energy in Aberdeen.

Key announcements

£3.9bn direct investment for CCUS and green hydrogen projects
£2.7bn to continue the development of Sizewell C in 2025/26
£3.4bn Warm Homes Plan towards heat decarbonisation and household energy efficiency, including £1.8bn on tackling fuel poverty
The Energy Profits Levy on oil and gas increased to 38% and extended by a year, with the Investment Allowance removed

Health

This was a back-to-basics Budget for health policy: get cash to the NHS frontlines (quickly) to plug the gaps, fix urgent issues, and ensure a cleaner path for likely substantial reforms in the years to come.

“Fixing the NHS” was therefore a key theme. The NHS emerged as a major beneficiary in terms of day-to-day spending gains (a two-year average 4% real terms growth) and extra capital expenditure committed (a two-year average 10.9% real terms growth) to the tune of over £25 billion altogether.

Although substantial, this uplift – framed around ‘reducing waiting lists’ – was unsurprising, given the priority with which voters treat this issue. It was a key Labour election pledge, and Lord Darzi’s stark review into the NHS, which predates a new 10 Year Plan due next Spring, only made it more urgent.

The move to protect R&D Budgets (£2 billion for health R&D), with real-terms increases for the National Institute for Health and Care Research to strengthen the UK’s clinical trial network will be welcomed by life sciences and med tech companies. So will a new Life Sciences Innovative Manufacturing Fund to build health resilience, backed by £520 million. Improvements are also being made to ‘golden triangle’ transport links.

Key announcements

Extra £22.6bn day-to-day health spending, this year and next
Additional £3.1bn capital expenditure spending, this year and next
Over £2bn for health R&D to drive innovation and support UK life sciences
Up to £520m for new Life Sciences Innovative Manufacturing Fund
£600m new grant funding for local authorities to support social care

Financial services

Labour’s Budget has come at an awkward time for the Financial Services sector.
Coming after an Investment Summit and Industrial Strategy Green Paper - which kick-started consultation on what can be done to grow the sector - and before Rachel Reeves’ first Mansion House Speech, the Budget was lacking big announcements for the sector.

Instead, the sector will be looking to the wider changes made by the government, such as pension pots becoming subject to Inheritance Tax and reforms to Carried Interest taxation, as some of the big news that impacts parts of the industry.

Reeves is expected to give more detail on 14th November to build on the new remits she has set for regulators to support growth and competitiveness in the sector and lay out a vision for an industry that the government has identified as crucial for economic success.

Key announcements

Pension pots will become subject to inheritance tax
Reform to Carried Interest taxation
Digitalisation of tax services and ISA reporting
A corporation tax roadmap for business planning
Engage with industry to make the Mortgage Guarantee Scheme permanent
Plans for the British ISA have been dropped

Technology

Technology remains central to Labour's economic strategy, with the Chancellor emphasising its role in driving efficiency alongside 2% departmental Budget cuts.

The Budget presents a mixed outlook for the tech sector. While startups and investors are somewhat relieved that Capital Gains Tax increases weren't as steep as the feared 40%, the revised rates—combined with higher employer national insurance contributions and proposed non-dom tax changes—may still dampen UK investment appeal.

Encouragingly, R&D spending reaches record levels, with dedicated funding for healthcare technology and NHS modernisation. The creative industries benefit from tax relief, while digital infrastructure receives targeted funding. Additionally, the Digital Market Unit has secured funding to tackle competition issues from 2025.

However, several crucial tech initiatives remain in planning stages. Digital skills development is currently limited to a forthcoming SME Digital Adoption Task Force report in 2025, with pilot programs awaiting announcement. Similarly, the highly anticipated AI Opportunities Action Plan receives only passing mention, with publication promised "shortly".

Key announcements

Capital Gains Tax: lower rate increase from 10% to 18%; higher rate increase from 20% to 24%
£20.4bn for R&D investment for 2025-26
£1bn for technology to boost NHS productivity, and over £2billion for health R&D
£15bn of tax relief (over 5 years) for creative industries
Over £500m for rollout of broadband in rural areas
£139.4m for CMA (Competition and Markets Authority) and the future Digital Market Unit to deliver DMCC Act (Digital Markets, Competition and Consumers Act 2024)

Transport

Rachel Reeves’ first Budget was not a radical departure from the precedents set by the Conservative government.

Money for potholes, a short-term announcement on bus fares, tweaks and freezes to vehicle taxation and name-dropping of specific rail projects have all become mainstays for the sector.

These measures are welcome as they provide some clarity which all parts of the industry have been calling for. However, the lack of wholly new or long-term changes beyond the taxation regime reflects how the Department for Transport is in the middle of a large body of work. Industry is more focused on how Labour sees the future of the sector which ranges from how it supports the transition to Zero Emission vehicles to the future governance of public transport, and which it will have to wait for more detail on.

This vacuum means that reforms to taxation stand out as the most important issues, with new Air Passenger Fuel Duty rates and Vehicle Excise Duty rates likely to be the announcements that cut through.

Key announcements

Extend the Bus Fare cap until December 2025 at a new higher rate of £3
Increase Air Passenger Duty from 2026/7, with the higher rate for private jets increasing by 50%
Freeze Fuel Duty rates for 2025/26.
New VED rates (vehicle tax rates) from April 2025, with lower rates for Zero Emission Vehicles
Confirmation of funding for rail projects, including HS2 to Euston, and TransPennine electrification
£2bn funding for automotive sector across R&D and support for supply chain

What the Budget means for businesses

With the Chancellor looking to find £40 billion to stabilise UK public finances and fix public services, Labour in this Budget has chosen to compel capital, rather than labour, to bear the brunt of the costs.
That political choice marks a distinctive shift in approach from previous Budgets under the Conservatives, and although unsurprising given Labour’s pledge not to burden “working people”, it will still come as a bitter pill to swallow for many – including those now facing up to higher NI contributions, uncertain workers’ rights regulations and minimum wage rises.

But businesses shouldn’t take the wrong lessons from this Budget and disengage. On the contrary, Labour’s plan – tough decisions today, for the prize of future growth – will not be delivered without business, and it remains critical to have a voice and shape these agendas, which will have an impact on the next decade and more.

Looking ahead, all sectors of the economy have long-term, industry-defining issues that the government has committed to reviewing. Whether it is the Industrial Strategy, a long-term plan for the NHS, a future Infrastructure Strategy or plans to reformulate governance of transport sectors and energy, this is a government that has big plans which require business engagement.

Today’s Budget was the moment Labour looked to address the tricky inheritance it received and made difficult trade-offs that added costs to businesses. However, this is not a government closed to business, and its overarching plans are predicated on a new long-term partnership. For businesses looking to engage, it is about how you develop that long-term partnership, with a credible and compelling offer to government.

This summary of Labour’s first Budget was compiled and supplied by our public relations partners at Burson Global