Chancellor Rachel Reeves’ Budget will take some time to digest. It contained a raft of measures aimed at shoring up economic stability and delivering growth and investment, paired with ‘difficult’ tax increases that largely fell on the shoulders of business. 

This was a Budget destined to feature some sort of drastic measures to address issues with public finances, whether you accept the Chancellor’s £22bn ‘black hole’ or not. In that sense, the Chancellor put forward some bold policies to improve the UK’s financial situation, including a ‘stability rule’ that day-to-day spending is met by revenues and the government will only borrow for investment.

The Chancellor also introduced an ‘investment rule’ to reduce net financial debt (public sector net financial liabilities) as a proportion of GDP. This captures both the debt that the government owes and the financial assets expected to generate future returns.

The Office for Budget Responsibility (OBR) confirmed that the government is meeting its stability and investment rules: the current budget is in surplus and net financial debt falls as a share of the economy by 2029-30. Public sector net debt also falls as a share of the economy by 2029-30.

“Chancellor Rachel Reeves used her first Budget to upgrade the medium-term outlook for the public finances from ‘weak’ to ‘fragile’, raising taxes over the next five years to avoid the austerity that was embedded into the spending plans she inherited from the previous government,” says Alison Ring OBE FCA, ICAEW’s Director for Public Sector and Taxation. “As expected, borrowing will be higher following the change in the Chancellor’s debt rule, which we were pleased to see given that it increases her ability to invest, as we had called for.” 

The Chancellor’s ‘stability rule’ will limit the amount she can put into raising public investment, Ring adds, so the government must get a grip on major capital expenditure programmes to get value for money.

“Budgets will remain tight, with some very difficult choices still to be made in next year’s Spending Review. The Chancellor will also be aware that there remains a lot more to do over the course of the Parliament to address the long-term fiscal challenges facing the UK.”

That push for stability has come at the expense of growth to some extent: the OBR forecast predicts very little change to productivity in the medium term and there are questions over whether some of the tax increases set out in the Budget might hold back investment, employment or wage increases.

Business tax

The increase in employer’s national insurance (NI) from 13.8% to 15% will get the most attention from the Budget. It is the lowering of the employer’s NI threshold from £9,000 to £5,000 that will have the biggest impact on smaller businesses, although the Chancellor’s decision to increase the employment allowance from £5,000 to £10,500 will soften the blow. 

The lower and higher main rates of capital gains tax (CGT) will increase to 18% and 24% respectively for disposals made on or after 30 October 2024. Business Asset Disposal Relief and Investors’ Relief will increase to 14% from 6 April 2025, and will increase again to match the lower main rate at 18% from 6 April 2026. The new rates will be legislated in Finance Bill 2024-25.

From April 2026, all carried interest will be taxed within the income tax framework, with a 72.5% multiplier applied to qualifying carried interest that is brought within charge. As an interim step, the two Capital Gains Tax rates for carried interest will both increase to 32% from 6 April 2025. The government will also consult on introducing further conditions of access into the regime.

The lifetime limit for Investors’ Relief will reduce to £1m for all qualifying disposals made on or after 30 October 2024, matching the lifetime limit for Business Asset Disposal Relief.

The burden of these increases are not as heavy as speculated ahead of the Budget, but are unlikely to be welcomed with open arms. The measures come into force in April 2025, which gives businesses some time to prepare.

“The additional cost for employers as a result of the rise of employers’ national insurance contribution increases the incentive for workers to be treated as not employed and therefore more workers may be hired off payroll,” says ICAEW Head of Tax Frank Haskew. “To discourage employment status arbitrage and reduce distorting behaviours, the taxation of labour needs to be more consistent across all forms of engagement.” 

The publishing of the corporate tax roadmap was welcome news, and something that ICAEW has been pushing for from the UK government. It includes the announcement of a cap on corporation tax at 25%; holding the small profits rate and marginal relief at current rates and thresholds; and preservation of full expensing, the annual investment allowance, R&D relief and the patent box. It also outlines areas for further exploration, including a new process for advanced assurance for major projects and simplifying and improving tax administration.

This gives businesses more certainty looking forward, which is welcome. ICAEW was hoping for a broader view of business taxes to be included in the roadmap, but it’s still a step in the right direction. Full coverage of all tax measures will be published by ICAEW’s Tax Faculty.

Investment and growth

Following the publication of the Industrial Strategy green paper earlier this month, the Budget confirms long-term support for growth-driving sectors ahead of the full modern Industrial Strategy, which will be published in Spring 2025. It commits £975m in R&D funding for the aerospace sector over five years. Further details will follow in Phase 2 of the Spending Review. 

More than £2bn in R&D and Capital funding will support the automotive sector over five years, including the zero emissions vehicle manufacturing sector and supply chain. Further details will follow in Phase 2 of the spending Review.

Up to £520m was made available for a new Life Sciences Innovative Manufacturing Fund to drive growth and build resilience for future health emergencies. Tax reliefs for the UK’s creative industries will provide £15bn of support over the next five years.

The Budget includes support of more than £500m in 2024-25 and 2025-26 for: 

• Supporting inward investment: the expanded Office for Investment will roll out a new, bespoke service to ensure that investors receive the strongest possible government support. 
• The promotion of UK trade and investment all over the world. 
• Trade policy capacity to support trade negotiations, deliver the Trade Strategy as part of the growth mission, and support wider international trade policy engagement.

A Small Business Strategy Command Paper will be brought forward in 2025 to set out the government’s vision for supporting small businesses. This includes boosting scale-ups, making it easier to access finance and opening up markets domestically and overseas, among other measures that complement the government’s Industrial and Trade strategies.

In a step in the right direction on prompt payments, from 1 October 2025, companies bidding for government contracts worth more than £5m per annum will be excluded from the procurement process if they do not pay their own suppliers within an average of 45 days. 

Carbon emissions assessments

The government published its response to the consultation on the introduction of a UK carbon border adjustment mechanism (CBAM), confirming that the UK CBAM will be introduced on 1 January 2027. This will place a carbon price on goods that are at risk of carbon leakage, imported to the UK from the aluminium, cement, fertiliser, hydrogen and iron and steel sectors. Products from the glass and ceramics sectors will not be in scope of the UK CBAM from 2027 as previously proposed. 

The registration threshold will be set at £50,000. More than 70% of those removed from the CBAM altogether by this threshold are micro, small or medium-sized businesses.

The government is publishing a consultation on new environmental guidance for assessing end use emissions for oil and gas projects, with the aim of implementing a fair, orderly transition in the North Sea.

More funds for HMRC, and digitalisation

The Chancellor announced a number of measures aimed at improving the work of HMRC, including further digitalisation. As announced in July, the government will invest £1.4bn over the next five years to recruit an additional 5,000 HMRC compliance staff, raising £2.7bn per year in additional revenue by 2029-30.

It will also invest £36m to modernise HMRC’s tax adviser registration services. The registration of tax advisers who interact with HMRC on behalf of clients will be mandated from April 2026. The government will legislate for this in a future Finance Bill and will publish a consultation in early 2025 to establish standards and increase the adoption of electronic invoicing.

ICAEW has called for more investment in HMRC services and digitalisation, so the news is cautiously welcomed, as long as the focus of these investments is not entirely on compliance.

Making Tax Digital for income tax will be extended to those with gross income above £20,000 by the end of the Parliament. However, says Haskew, this appears premature when there is still so much to be done to deliver it for those on higher incomes from 2026 and 2027.

“While we support digitalisation of the tax system and record keeping, we remain of the view that quarterly reporting will result in significant costs and administrative burdens for taxpayers in return for limited benefit to HMRC.”

Digital skills and cryptoasset reporting

The SME Digital Adoption Taskforce will be extended. It will produce an interim report early in 2025, including recommendations to enhance SME adoption of digital technology. The Department for Business and Trade will also announce details on a £4m pilot package to encourage tech adoption for SMEs.

Alongside this, the government is extending the COVID-19 Additional Relief Fund’s reporting requirements to UK users. The government will legislate for this in the Finance Bill 2024-25 and has published draft regulations to implement the revised rules.

Less pain than expected – but some way to go

“This budget is certainly big and bold, but it asks business to do most of the heavy lifting,” says Alan Vallance, ICAEW Chief Executive. “It is good, though, to see the Chancellor use the occasion to set out some important decisions for the long term.”

While certainly far from the speculated disaster for business, the Budget did deliver some of the promised pain. Much of the measures and plans laid out for the longer term are welcome news, but with the short-term burden falling on business, the focus now must be on delivering on the government’s goals to deliver growth.