Autumn Budget Hikes Business Taxes, Seeks Growth
First Labour Budget in 15 years includes increased payouts from businesses and capital gains, as government looks to promote growth
Getting your Trinity Audio player ready...
|
The Labour government has announced £40 billion in tax rises, including increases to contributions paid by businesses and changes to capital gains and the incentive structure for start-ups, in a move to boost the UK’s economy while maintaining stability, in a Budget that businesses and investors said would mean more burdensome conditions for employers and start-ups.
The Office for Budget Responsibility (OBR) said the changes announced by chancellor Rachel Reeves would see spending increase by £70bn a year, with taxes as a share of gross domestic product rising to an all-time high.
The OBR reduced its growth predictions, saying it now believes the economy will grow by less than it previously forecast in the last three years of its projection period after slightly outperforming in 2024 and 2025, with an annual increase of 1.6 percent in 2029, far short of Labour’s target.
Reeves said the OBR had concluded it had not had the full picture of government finances when it made its spring forecast under the previous chancellor, something the former government has denied.
Stability and growth
Reeves said slow growth was due to conditions including former prime minister Liz Truss’ disastrous “mini-budget” in 2022 and the UK’s departure from the European Union.
She announced the government’s first-ever budgets for compensations to the victims of two scandals, £11.8bn for the infected blood scandal and £1.8bn for the Post Office Horizon scandal.
Former prime minister Rishi Sunak told the House of Commons in January that those previously convicted in England and Wales for discrepancies introduced by Fujitsu’s Horizon accounting software would be cleared of wrongdoing and compensated under a new law.
The first female chancellor confirmed she would relax the Treasury’s self-imposed fiscal rules to allow additional borrowing for investment for infrastructure.
“The only way to drive economic growth is to invest, invest, invest,” Reeves said.
“We must restore economic stability and turn the page on the last 15 years.”
Infrastructure investment
The measure welcomed by the Confederation of British Industry (CBI), which said it would help unlock private sector investment in the country’s infrastructure and net-zero transition over the long term.
But the CBI said increases in National Insurance contributions and other increases to the employer cost base would mean a larger burden for employers, making it more difficult to invest and ultimately to hire people or give pay rises.
“It’s vital that the government doubles down on its partnership with business to unlock the investment that is needed to drive opportunity around the UK,” the CBI said in a statement.
Billions of pounds are also to be raised by changes to capital gains tax, inheritance tax, VAT on private schools and the non-dom tax regime, but there were no tax rises planned for income, national insurance or VAT, Reeves said.
Entrepreneurs involved in start-ups said they were concerned that changes to CGT and Business Asset Disposal Relief (BADR) would make the UK less attractive for risk-taking businesses.
Business growth
Diane Gilpin, founder and chief executive of green logistics technology start-up Smart Green Shipping, said she did not believe the changes would be a death-blow to UK start-ups.
“This increase isn’t going to stop the entrepreneurs building for the future of our planet,” she said. “If today’s increase in CGT de-incentivises VCs that invest in environmentally damaging products then I am OK with that.”
David Baverstock, partner at business law firm Marriott Harrison, said an uptick in mid-market merger and acquisition activity over the summer was spurred by concerns of a substantial rise to CGT in the autumn budget, but that those concerns had been largely unfounded.
“Now that a 4 percent increase in CGT has been confirmed, we anticipate this to mean business as usual across the M&A, venture capital and private equity spaces,” he said.
“My view is that many of these deals would not have been rushed through, had they known the percentage increase was to be this small.”
He said signs generally continued to point to a revival of the merger and acquisition market.