Autumn Budget 2024 – industry comment

In a landmark moment for British politics, Rachel Reeves delivered Labour’s first budget in 14 years and the first by a female chancellor. Prime Minister Keir Starmer and his administration have framed this Autumn Budget as a turning point after what they describe as a period of economic instability under Conservative leadership. Starmer posted on social media, calling this a “huge day for Britain” and pledged that Labour would invest in rebuilding critical sectors, “schools, hospitals, and roads,” with a focus on bolstering the economy and easing the financial strain on working households.

Restoring economic stability

Central to Reeves’ budget is an emphasis on restoring economic stability through targeted investments. Reeves has made it clear that stabilising the economy, fixing the foundations, and ushering in lasting change are top priorities. She explained that Labour inherited a “£22 billion black hole in public finances,” which she attributes to fiscal mismanagement, inadequate growth, and stagnant living standards over the past decade.

According to the Office for Budget Responsibility (OBR), the updated forecast reflects a more positive outlook for the UK economy than earlier in the year. Inflation is projected to drop from 2.5% in 2024 to a stable 2% by 2029, offering hope for price stability.

GDP growth is expected to reach 2% in 2025 but may moderate to around 1.5% per year until 2029, lower than spring predictions. Despite these moderations, Reeves assured the public that Labour’s budget would “boost long-term growth” and “permanently increase the supply capacity of the economy.”

Key Budget initiatives

The 2024 Autumn Budget introduces several pivotal reforms, focusing on investment, taxation, and sectoral support:

• Investment in infrastructure and public services: The government has pledged £100 billion for capital investment over the next five years. Targeting infrastructure and the healthcare sector, this spending is expected to increase GDP by 1.4% over time and improve essential services nationwide.
• Addressing economic inactivity and supporting SMEs: Labour intends to tackle economic inactivity and expand opportunities for small and medium-sized enterprises (SMEs) with increased funding, science investment, and an expanded Employment Allowance for smaller businesses. This allowance will rise from £5,000 to £10,500, with nearly 865,000 small employers exempt from National Insurance contributions next year.
• National Insurance and tax adjustments: Reeves introduced a controversial increase in employers’ National Insurance contributions from 13.8% to 15%, effective from April 2025, with the threshold lowered to £5,000. Acknowledging the challenge for businesses, especially larger employers, Reeves countered the impact by increasing the Employment Allowance to cushion smaller companies. Capital Gains Tax will also see significant changes, with rates rising to 18% for the lower band and 24% for the higher, targeting wealthier taxpayers.
• Corporation tax and business rates: The corporate tax rate will be capped at 25%, maintaining “full expensing” to foster investment. However, a scheduled discount reduction in business rates (from 75% to 40%) in April 2025 is expected to impact numerous businesses, though mitigated by a cap on the maximum discount.

Auto industry support and the EV transition

A critical focus in this budget is the auto industry and the push towards electric vehicles (EVs). Despite the continued freeze on fuel duty to relieve cost pressures for conventional vehicle owners, Reeves announced the government’s commitment to EV adoption, with £2 billion in funding directed toward the automotive sector to support the EV supply chain and infrastructure. Vehicle Excise Duty (VED) will see a higher rate for non-electric vehicles beginning in April 2025, while incentives for EVs in company car tax will remain through 2028, an effort to shift demand toward greener options.

Balancing taxes and spending

Labour’s strategy includes an ambitious £40 billion in tax increases while committing to restrained spending growth. Reeves confirmed that there will be no rise in income tax, National Insurance, or VAT for individual workers, focusing instead on corporate and capital gains taxes. She dismissed the Conservative plan to freeze income tax thresholds until 2028, allowing thresholds to rise with inflation from 2028–29.

Ending her statement with a call to action, Reeves addressed opposition parties, challenging them to present alternatives that match Labour’s “responsible” and “difficult” choices to restore economic resilience. “These choices,” she said, “will protect working people, fix the NHS, and rebuild Britain.”

Industry reaction and outlook

While the budget has been hailed for its emphasis on growth and long-term stability, there are mixed reactions, particularly around the tax hikes for businesses. Some industry leaders worry that the increase in National Insurance and Capital Gains Tax might curb competitiveness and burden businesses already strained by inflation.

“Growth, however, relies on confidence, and confidence relies on certainty. These are in short supply in some sectors, especially motor finance, and an expedited path to the Supreme Court would be a first step to restoring certainty.”

“Framed as the budget to ‘get Britain growing again’, questions remain whether it will have provided the right support for the UK’s wealth generators to have done the job. New government commitments to significant infrastructure spending will clearly be a boon to businesses across the regions, but changes to National Insurance mean that they will also feel a greater burden – particularly if they employ lower paid workers.  
 
“Despite the underwhelming economic forecast, there are real opportunities and significant appetite for growth among UK SMEs. But this relies on access to investment and finance. Government, the business community, and finance providers, need to work closely together to help ensure the growth is transformed from potential to reality.

“In a Budget that set out to fix the foundations of the UK, a lack of direction on achieving Net-Zero was noticeable. For businesses in particular, there’s still a big question mark around how they achieve this, without negatively impacting their day-to-day operations.

“Research from Rimm Sustainability has shown that up to 80% of SMEs are committed to sustainability, but the high cost of green technologies is holding them back. Tax breaks for green investments could not only incentivise SMEs to embrace clean energy technologies, but also foster innovation and long-term sustainability. By implementing these measures, the government should consider how it can both unlock green investment and strengthen the UK economy.”

“Business owners however will be reassured by the Government’s commitment to growth, and with numerous infrastructure projects announced, businesses within these sectors and regions could see benefits in the future.  

“For businesses thinking about their own budgets, and growth plans for the years ahead, understanding the right finance options will be key. Whether they need to prioritise managing their cash-flow or are gearing up to a big event in the coming years, speaking to a professional early will ensure they are making the most of the options available.”

“But this budget fails to provide them with the support they need to succeed – and will even harm their growth.  

“Although the Employment Allowance did show recognition of the needs of the smallest businesses, an increase in employer national insurance payments still presents a real risk to SMEs. Many are already struggling with high costs and thin margins, so making employment more expensive could result in an immediate cashflow crisis. As a knock-on effect, we could see investment levels, growth ambitions and job creation all damaged as a result. 

“A rise in capital gains tax also discourages the entrepreneurial spirit the UK economy desperately needs. We’ve already seen the consequences of this. According to official figures, more than 1,600 company directors have closed their businesses’ doors since the start of October – by far the highest number of closures this year and more than double the amount for the whole of last October.  

“With today’s budget, the government has not made good on its promises to SMEs. Looking ahead, it must recognise not just their importance to the economy, but also their fragility. For many SMEs, just a few unexpected or high costs disrupt a precious balance and throw their future into doubt.” 

“The pain of this budget will be felt by business owners – for those families and individuals who own medium-sized firms, they will not only be hit by a larger employer National Insurance bill, but also the longer-term prospect of having their business value taxed under the Inheritance Tax regime at 20% on any value over £1m, when they die and pass it on to future generations. While there are some exceptions for smaller business owners, those with larger businesses will certainly have a lot to think about.”

 “With employers shouldering more of the national insurance burden, the worry is they could simply pass these costs on to their employees. With a higher cost per head, we could also see some employers choosing to reduce other benefits such as wage increases or even pension contribution matching. 

“Steps will need to be taken by the government to ensure the delivery of this measure does not end up being counter-intuitive to Labour’s commitment to building wealth for the future. There is a considerable retirement challenge in the UK, with the vast majority of people not saving adequately for later life. With the Pension Review ongoing, we must focus on the challenge of getting people to the pension pot amounts they need for a comfortable retirement.”

“This might turn out to be a short-sighted move which could have serious implications for employee benefits and public health.

“Many employers currently use the savings they receive from National Insurance relief to boost pension contributions or fund additional benefits like healthcare and life assurance. If these savings disappear, many employers could make the difficult decision to reduce or cut these benefits altogether.

“This is particularly concerning for healthcare benefits, such as private medical insurance. If fewer people have access to private medical insurance, this could place an additional burden on an already overstretched NHS. The Government must take more positive steps toward addressing the health crisis in collaboration with employers and insurers.”

“While the Chancellor has aimed to soften the CGT blow by also announcing that the Business Asset Disposal Relief is set to rise gradually, there is no hiding from the fact that this announcement will be disappointing to current and aspiring business owners and entrepreneurs, and risks dissuading talent and investment from coming to the UK.

“If we want the UK to continue to be a place of innovation, then we must ensure our taxation, regulation and funding options are aligned with this goal. Only with this support, will businesses be able to grow, innovate and help solve our society’s most pertinent challenges.”