Delivering the first Labour Budget for fourteen years, the Chancellor of the Exchequer, Rachel Reeves, sought to present a government in a position of authority taking difficult – but necessary – measures to transform the UK’s economy over the long-term.
Repeatedly highlighting the importance ‘restoring economic stability’, Reeves used this government’s first fiscal event as an opportunity to pin the blame (fairly or otherwise) on the previous Conservative administration.
This was a Budget containing some startling figures, including £40bn in tax rises, the largest increase in a generation, sat alongside eye-catching increases in day-to-day spending on the NHS of £22.6bn, and a £6.7bn capital expenditure increase for the Department for Education.
In an effort to protect the ‘working people’ the Chancellor referred to throughout her speech, Reeves’ gamble is to lay the vast bulk of the tax increases at the foot of employers, investors and businesses – including through increases in employer NI contributions and Capital Gains Tax.
Arguably the strongest section of Reeves’ speech came when highlighting the government’s investment plans. Revisiting General Election themes of ‘rebuilding Britain’, the Chancellor used the Budget as a call to ‘invest, invest, invest’ before setting out significant plans for public sector investment in housing, education, health and energy.
However, with the Office for Budget Responsibility (OBR) dampening long-term growth forecasts and projecting annual forecasts to the end of the decade of around 1.5% per annum, the challenge now for Labour’s Treasury team will be to balance growth and investment with the impact of placing greater tax burdens on business.
Whether this balance has been achieved, will go a long way to determining whether Keir Starmer and his government get the ‘decade of national renewal’ they have spoken about so often.
Providing instant analysis, PLMR’s expert team of sector specialists take you through everything you need to know about:
- The Opposition response
- Health
- Energy
- Sustainability
- Food and drink
- Education
- Devolved Nations
- Midlands
- East of England
- Technology
- National infrastructure
🌳 The Opposition Response 🌳
This Saturday, either Kemi Badenoch or Robert Jenrick will become the new Conservative Party leader and today’s Budget provides them with a clear understanding of the type of Labour government they will be opposing in the coming years.
Labour’s opaque General Election strategy delivered them a whopping majority, but it left Conservatives (and others) wondering how they’d govern. Is Starmer really a Blairite? Does the left of the party still have influence? Today we edged a little closer to the answers.
This Budget was pragmatic and well-thought out, but it presents multiple windows of political opportunity for the new-look Conservatives.
The cuts to the Winter Fuel Allowance are the obvious starting point. CCHQ has been sending multiple emails per week to members with blistering attacks on Starmer and Reeves’ decision to cut this benefit – and it’s resonating. But a cynic could say that Conservatives are merely solidifying support amongst pensioners, an audience group with whom they already do well.
As the ink dries on today’s Budget, the new Conservative leader will ponder which other voter groups they can appeal to over the next Parliament.
While Labour spins the raft of tax rises as essential to shoring up economic stability and modernising Britain’s infrastructure, Conservatives will be quick to paint it as anti-business and an assault on the entrepreneurial spirit that drives our economy.
Small and medium-sized enterprises, long hailed as the engine of British growth, may now feel the pinch with rises in staff wages and National Insurance contributions. This will provide fertile ground for Conservatives to return to their Thatcherite routes and position themselves squarely on the side of small business owners wanting to grow and build their enterprises.
Elsewhere, billions of pounds invested in the transition to a greener economy may be seized upon as necessary – but not now. Both Badenoch and Jenrick have been vocal on ensuring that the green transition does not come at the expense of the working taxpayer at a time when household budgets are already tight.
This Budget has given the new Leader of the Opposition an opportunity to paint Labour as the party of doom and gloom. There is little in what Reeves set out today that will excite voters. If the new Tory leader is bold, they will set out an economic agenda that will reward hard work and sufficiently fund our crumbling public services. Being in Opposition, the Conservatives will have the new-found freedom to put forward brave and ambitious proposals that has been missing in the previous 14 years as the party of government.
In the coming days, if they haven’t already realised it, Labour will begin to appreciate just how hard it is to be in government. Difficult decisions have been taken. But whether they are fair, will hamper growth, will damage business or will hit working people will be scrutinised. The political backlash will be extensive, and the true test will be how they manage that.
After a rocky start to life in power, Labour will hope this Budget is a nerve-steadier. For the Tories under new management, it’s an opportunity to put forward a clear and credible economic alternative for the country.
🧑⚕️ The Health Sector 🧑⚕️
The Chancellor held back her funding commitments on the NHS until the final part of her 90- minute budget announcement. In the media reporting leading up to today’s announcement, so many of the Government’s tax rises were justified as vital in preventing an NHS collapse.
The Chancellor was quick to outline that the average 4% increase in day-to-day NHS spending (an increase of £21bn to £192bn) was the largest increase since 2010. However, if you break down the accompanying Red Book, the NHS is due to receive a bumper 4.7% increase next year, before funding dips below the historic average since 1948 (3.3% versus 3.7% average).
Much of the Government’s capital funding allocation was justified by the state of “capital starvation” identified by Lord Darzi in his Independent Review. The Government has budgeted a 12% increase in capital funding allocations for the NHS estate, surgical hubs and NHS technology and digital. However, it conveniently fails to include the £600m cost (estimated by the Nuffield Trust) of the Governments pay settlement with Junior Doctors which will result in an average 22.3% pay increase over the next two years. Meanwhile, the Royal College of Nursing was quick to highlight their pay dispute remains ongoing, stating, “we are a safety-critical profession, worthy of infrastructure-style investment.”
Earlier this month, during an appearance on Sunday with Laura Kuenssberg, Health and Social Care Secretary Wes Streeting acknowledged that the NHS simply cannot be fixed without also solving the challenges facing social care. However, today’s budget does little to reflect this sentiment.
Social care spend already accounts for a large proportion of local government budgets, an average of 61% according to the Local Government Association, with net local authority expenditure on Adult Social Care alone set to total £24.5 billion for 2024-25.
Today, Reeves announced a £1.3bn increase in grant funding for local authorities for 2025/26, with at least £600m of this to be allocated to social care.
Yet, at the same time, the Government has announced an increase in National Minimum Wage for 18 to 20-year-olds by 16.3% to £10 an hour, and National Living Wage by 6.7% to £12.21. As such, with Council budgets already stretched to capacity, additional real-terms increases to social care spend as a result of today’s Budget appear unlikely.
Wages are one of the biggest drivers behind the increasing cost of providing social care services, despite poor pay in the sector persisting as one of its most significant challenges. While raising wages for essential and often underpaid care workers is a welcome and necessary decision, it will undoubtedly create further financial challenges for both local authorities and providers.
The party of power may have changed, but the tendency towards sticking plaster solutions has not, and this latest plaster looks to be too small to be fit for purpose.
⚡ Energy & Industry ⚡
While energy saw no surprising announcements, Reeves confirmed significant commitments to clean industries, infrastructure, and decarbonisation.
On heating, it set an initial £3.4bn towards heat decarbonisation and energy efficiency over the next three years – this includes £1.8bn in support specifically for fuel poverty schemes. The Government has also committed to increasing the funding for the Boiler Upgrade Scheme and providing funding to grow the heat pump manufacturing supply chains. From Labour’s manifesto, there remains a further £10bn to be committed, with additional announcements expected next Spring.
On decarbonisation, Reeves confirmed existing spending commitments, including £3.9bn of funding in 2025-26 for CCUS track 1 projects to decarbonise industry but also for 11 green hydrogen projects, to support flexible power generation, “and capitalise on the UK’s geographic and technical strengths”. She also committed £1bn of funding to the Public Sector Decarbonisation Scheme.
The industrial strategy featured heavily; with the creation of the National Wealth Fund to catalyse over £70bn of private investment in the UK’s clean energy and growth industries and an additional £2bn to the zero emissions vehicle manufacturing sectors, as well as confirmation of new investment zones to support green industries.
Several important funds were also expanded or confirmed, including £163m to continue the Industrial Energy Transformation Fund and an extension to the Advanced Fuel Fund.
On energy specifically, the Government confirmed funding for GB Energy (GBE), with a £100m investment in 2025-26 for clean energy investment and £25m to establish GBE as a company in Aberdeen.
A major, though expected, update came through the Labour manifesto commitment to a “proper windfall tax” where, from 1 November 2024, the Energy Profits Levy (EPL) rate will rise by 3% to 38%, the investment allowance will be abolished, and the rate of the decarbonisation allowance will be set at 66%.
Several previous announcement were confirmed – including that the 2024-25 Finance Bill will include relief payments for oil and gas companies decommissioning, and that it will publish a consultation on the end use of projects, to “provide stability” to the oil and gas industry.
Finally, on nuclear, the Government committed £2.7bn to continue Sizewell C’s development through 2025-26, but the project will have to wait till Phase 2 of the Spending Review for a Final Investment Decision. It also confirmed “significant support” for UK fusion energy research.
🌎 Sustainability 🌎
Sustainability featured in the budget, but major or ambitious spending commitments were absent.
The Government confirmed it will respond to the Climate Change Committee’s Progress Report, publish an updated Carbon Budget Delivery Plan, and capitalise on UK clean energy strengths through the new Industrial Strategy.
It also outlined its commitment to the natural environment and climate mitigation, confirming £5bn to the environmentally sustainable agricultural sector in England and over £400m of support for tree planting and peatland restoration. It will also invest £2.4bn over two years in flood resilience to support the building of new flood defences alongside the maintenance of existing assets to protect communities.
Despite the fuel duty tax freeze, the Budget contained support for sustainable transport, with a major focus on the EV transition. This includes confirming the commitment to phase out fuel petrol cars by 2030, £200m to accelerate EV changepoint roll-outs, £120m in 2025-26 to support electric vans, and additional company car tax support to accelerate EV uptake.
There was also an unexpected rise on Air Passenger Duty for private jets, by 50% in 2026-27, and a general rise of £1, £2 and £3 for domestic flights, short-haul destinations, and long-haul retrospectively.
Plastic packaging featured, with the Government outlining it will incentivise businesses to use recycled instead of new plastic in packaging, by increasing the Plastic Packaging Tax (PPT) rate for 2025-26 in line with inflation, as well as confirming that future Landfill Tax rates will be announced at Budget 2025.
Finally, the Government confirmed existing commitments around the introduction of a UK carbon border adjustment mechanism (CBAM). 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 & steel sectors.
🍽️ The Food & Drink Sector 🍽️
It was a fairly uninspiring Budget for the food and drink sector, with food manufacturers seeing confirmation of policies largely already announced, but with glimmers of positivity for retailers with new measures to protect the British high street and insulate small businesses against the worst of the tax increases.
Reeves confirmed expected increases to the Soft Drinks Industry Levy in line with inflation, which will continue to uprate in line with Consumer Price Index (CPI) inflation from April 2025, alongside the junk food advertising ban. It was also bad news for alcohol manufacturers, with the not unexpected increase in alcohol duty on non-draught products in line with Retail Price Index (RPI) from February 2025.
In better news for pub landlords and pub-goers alike, and to many cheers in the Chamber, Reeves announced that duty on draught alcohol will be cut by 1.7% taking, in her own words, “a penny off your pint”.
Elsewhere, Reeves acknowledged the potential impact of increasing employer National Insurance contributions on small businesses, introducing measures to support SMEs and protect high streets including increasing Employment Allowance from £5,000 to £10,500; replacing the expiring Small Business Rates Relief for retail, hospitality, and leisure properties with a 40% discount to a maximum of £110,000; and reforms to agricultural property relief past £1m to protect small family farms.
Finally, the Chancellor recognised calls from across the sector to tackle retail shoplifting, confirming funding to prevent organised low-value shoplifting and provide training for police officers to protect retail businesses and workers.
🎓 The Education Sector 🎓
Rachel Reeves announced that spending on education in England will increase by £11.2bn by 2025-26 from 2023-24, a 3.5% increase in real terms. This includes increasing funding for the core schools budget by £2.3bn and investing £1bn of this into the special educational needs and disabilities (SEND) system. Families and schools wait to hear how a reformed SEND system will be fit-for-purpose.
The Chancellor also announced £6.7bn of capital funding in 2025-26 for education in England, a real-terms increase of 19%, which includes £1.4bn of funding for the Schools Rebuilding Programme. The settlement includes over £2bn of investment into maintenance for schools and £950m for skills capital.
An additional £1.8bn has been allocated to support the expansion of Government-funded childcare and £30m for the roll-out of free breakfast clubs across England. Whilst the expansion of childcare will be particularly welcomed by parents, there will be concerns from an over-stretched early years sector as to how they will deliver these plans.
The Chancellor also handed an additional £300m to FE, while the Lifelong Learning Entitlement is confirmed to be implemented from January 2027. There will also be £40m for shorter and foundation apprenticeships. The Chancellor barely mentioned higher education but did commit to protecting £6.1bn of core research funding and will invest over £20bn in research and development. But there has been no mention of increases to tuition fees and exemptions from National Insurance which modelling suggests will cost universities over £130m.
For schools, the capital funding is short of the £11.4bn that the DfE concluded was needed to meet the repair needs across schools back in 2021; with further crumbling since. There are also questions over how they will find the 6,500 teachers they have promised to recruit – and whether that will be too little too late to make a difference to the recruitment and retention crisis. Even if all are recruited, it amounts to one additional teacher in every third school. And with the national insurance increase, there’s still a big question as to whether schools will be exempt – or will face a potentially crippling £175m minimum-sized hole in their budgets.
🗳️ The Devolved Nations 🗳️
The Budget was a disappointing one for the devolved nations, with little focus on their respective challenges, or long-term financial stability and sustainability.
Of the overall measures outlined in the budget, Scotland, Wales and Northern Ireland received little attention, with Reeves announcing a funding package of £3.4bn for Scotland, £1.7bn for Wales and £1.5bn for Northern Ireland to improve public services.
While the additional funding will be welcomed, and indeed bucks the trend of previous budgets to provide a real-terms increase, the devolved governments will be worried that it remains too small an increase to fill the funding gaps faced by each administration.
Of the other measures impacting the devolved nations, the Chancellor cancelled a planned cut to funding for City Deals in Northern Ireland, reversing a Treasury decision from last month; confirmed that a City and Growth deal for Argyle and Bute will go ahead in Scotland, while delivering what the Scotch Whisky Association has called a ‘hammer blow’ to the whisky sector with the rise in alcohol duty; and delivered £25m for the Welsh government for the maintenance of coal tips.
There is always the concern that the devolved nations are an AOB to the thinking within Westminster; and although much of the policymaking powers are devolved, the funding which comes from Westminster makes up the bulk of the spending power for Scotland, Wales and Northern Ireland.
Without some long-term thinking on how to support each country to move to a more sustainable financial position, the challenging situations facing each will only grow more acute, particularly as the wider tax measures announced in the budget will impact on the citizens and businesses across the whole of the UK.
🚀 The Midlands 🚀
This Budget was a first test for Richard Parker, Mayor of the West Midlands, and his ability to draw down money from Government. However, there was little to be excited about.
Previous commitments to consolidated multi-year budgets for the Combined Authority were confirmed, alongside HS2 delivery between Birmingham and Old Oak Common and onward tunnelling to Euston. Funding for a Metro extension to Brierley Hill offered further additional money for the region.
National commitment to housebuilding and infrastructure investment, will provide long-term opportunities for the region – particularly affordable housing delivery, which is a core plank of Parker’s agenda
⭐ The East of England ⭐
Infrastructure is a buzzword in the East of England and the region stands to potentially significantly benefit from the increased infrastructure investment announced in the Budget, particularly for roads, rail and other essential services.
This could empower the East’s key sectors such as renewable energy, agri-tech, life sciences, and professional services, enabling them to plan sustainably and drive regional growth.
However, ongoing concerns persist, highlighted at the recent Suffolk Convention where PLMR’s Head of Public Affairs Simon Darby joined a panel discussing historic under-investment in the region. The timing was apt, as the A12 was recently ranked the country’s worst A-road, underscoring the need for improved maintenance and infrastructure support.
The East already hosts the UK’s largest offshore wind cluster while new projects like Sizewell C and Freeport East will further cement the region’s role in world-leading clean energy. Meanwhile, planned upgrades to key roads and rail such as the Ely-Haughley railway will address connectivity and carbon reduction goals.
Contributing over £150bn GVA to the UK, the East is at the forefront of social, economic, and environmental advancements, from clean growth to AI deployment. Addressing regional funding disparities will be essential to fully leverage this potential and secure long-term prosperity.
🦾 The Technology Sector 🦾
The Budget sought to balance impressive ambitions for growth and the Government’s own digital reform.
£13.9bn will be invested in R&D by 2025-26, including funding for digital infrastructure projects such as Project Gigabit and the Shared Rural Network. These initiatives aim to enhance connectivity across the UK, particularly in underserved regions. Additionally, the Government is extending the Made Smarter programme, with up to £37m to support digital adoption in manufacturing, ensuring small businesses can integrate advanced digital technologies.
The Chancellor repeatedly emphasised that technology would be harnessed to drive digital-led improved public service outcomes, create a more efficient and effective civil service, and £2bn was committed for NHS technology to run essential services. All positive signs that the Government is taking seriously the untapped potential of the industry to support positive change.
To drive innovation, a National Data Library will be established to unlock public data assets, facilitating research and AI development. The Government also intends to stimulate private sector growth through new initiatives, including £40m for university research commercialisation and spin-outs, which will be welcomed to maintain Britain’s global-leading reputation for research. These investments align with the Government’s broader strategy to support the UK’s technology sector, build long-term economic growth and productivity gains across important industries.
🛣️ National Infrastructure 🛣️
The infrastructure sector had high hopes for the Budget today. And from the moment the Chancellor declared that “the only way to drive economic growth is to invest, invest, invest” it was clear that those hopes were not going to be disappointed.
The proposed change to the fiscal rules to encourage investment had been so widely trailed that when it came it was hardly a surprise. But recognising that investment in infrastructure adds to our national pool of assets is potentially revolutionary and should remove some of the shackles when it comes to spending on our national fabric.
After that, what the Chancellor then said about new schemes was a bit of a damp squib. Pledges around the Transpennine upgrade and East-West Rail were rehashed. Other commitments to road maintenance, gigabit broadband coverage, housing and other schemes were welcome but very familiar. And extending HS2 to Euston was hugely welcome but again we suspected it was coming.
There was, though, more excitement about chunky spending pots for schools and hospitals, as well as the 11 new green hydrogen projects.
Around £5bn of additional funding has been made available for housing delivery, targeted at affordable housing delivery. This targeted approach would boost the Affordable Homes Programme by £3.1bn, with further support for small housebuilders as well as major regeneration from Liverpool Central Docks and Cambridge.
It’s a significant divorce from the last 14 years of policy, where funding was positioned to support the private sector deliver through Help to Buy. Instead, it seems clear that Registered Providers and local authorities will benefit from funding boosts. The private sector, it seems, will be expected to make the most of reform to the National Planning Policymaker Framework by leveraging additional capital.
However, the sector will be far from reassured by what was said about skills and the labour market. An ambitious programme of investment in new infrastructure can only be delivered if we have the right people, and it’s not at all clear that this will be the case.
What’s more, we desperately need planning reform to move faster on renewing our transport links, water networks, energy systems and our public and private buildings. We’ve yet to see what this will look like, and the 300 new planning officers re-announced by the Chancellor today are a drop in the bucket when it comes to the capacity needed.
Even so, today was a good day for infrastructure. We just need the Government to do more.
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