The Budget Unpacked: What it Means for Businesses

The 2024 Autumn Budget: Strategic Opportunities, New Hurdles, and an Uneven Impact on Businesses

Asma Bashir | 30 October 2024

Chancellor Rachel Reeves’s 2024 Autumn budget represents one of the largest fiscal shifts in modern British history. 

Drawing a line under the austerity of the preceding Conservative administration, the budget is characterised by large-scale spending, increased borrowing, and some of the most significant tax changes in recent years. 

The budget raises taxes by £40 billion in order to strengthen infrastructure, support clean energy initiatives and boost public services. The Chancellor presented these increases to the House of Commons as responsible action to right the ship of state and build a sustainable groundwork for growth. 

While these reforms aim to make the UK more resilient, innovation-friendly, and socially equitable, the budget presents a mixed bag of major opportunities for some and financial pressures for others. Those in strategic sectors will have much to celebrate, while companies in less favoured areas will contend with raised costs. 

Below is a structured breakdown of the key budget announcements, with a broader analysis of their practical impacts on UK businesses.

Infrastructure and Connectivity – Expanding Access Across the UK

The budget included some big announcements on infrastructure, including the revived HS2 link to London Euston and major upgrades across the Trans-Pennine and East-West Rail corridors. This aligns with the government’s objective to bolster regional connectivity. 

Reeves’ commitment to £100 billion in capital spending over the next five years underpins this objective. This presents a massive chance to boost UK productivity and total output if executed effectively.

Business Impact: Enhanced connectivity will be a game-changer for sectors like logistics, retail, and manufacturing, where inefficient transit routes currently hamper access to new customers and suppliers. Companies along the rail supply chain could see a windfall in new contracts. 

However, the history of delayed projects in the UK raises questions about feasibility and timelines. For businesses to fully benefit, timely delivery of these projects will be crucial. If these previous shortcomings are solved,  this commitment to infrastructure could indeed boost regional market reach and operational efficiency. Nonetheless, companies should consider contingency plans for potential project delays.

Education and Workforce Development – A Path to Reducing the Skills Gap

Investment in education is designed to address immediate needs and strengthen the future talent pipeline. The core schools budget will rise by £2.3 billion next year, alongside funding increases for special educational needs, further education, and school infrastructure. In the medium to long run, this may help to bridge the skills gap that has constrained high-growth sectors in recent years.

Business Impact: For industries such as tech, green energy, and advanced manufacturing, these investments promise a more robust and diverse talent pool. Reduced reliance on imported talent should support longer-term self-sufficiency in high-skill sectors, making the UK more competitive. 

However, the speed and quality of implementation will determine the extent to which businesses experience actual skills alleviation. Companies will still face recruitment challenges in the short term,  but readier access to skilled labour may be over the horizon.

Clean Energy Initiatives – An Opportunity to Lead in Green Innovation

With dedicated funding for green hydrogen, carbon capture, and GB Energy in Aberdeen, the government has set ambitious targets to position the UK as a clean energy leader. These initiatives align with broader environmental goals and represent a commitment to energy sustainability that businesses can leverage.

Business Impact: Renewable energy and related sectors will likely see immediate growth potential, as this funding supports collaboration between the public and private sectors. 

If these investments produce green, scalable sources of cheap and abundant energy, all businesses will benefit. 

Realising this green potential, however, will depend on efficient resource allocation and streamlined project timelines, as delays could dilute anticipated economic benefits.

Rising Business Costs – Budget for New Financial Pressures

Reeves has ushered in the biggest real rise in taxes since Norman Lamont’s budget in 1993. Most of the £40 billion comes from an increase in employers’ National Insurance contributions from 13.8% to 15% and a reduction in the threshold to £5,000. 

Although employment allowance will rise from £5,000 to £10,500, these adjustments will still increase the cost burden on businesses. Further, the reduction of business rates relief from 75% to 40% will impact costs for many companies, especially those in the retail and hospitality sectors.

Business Impact: SMEs may experience the immediate impact of these additional costs, potentially leading to tighter cash flow and restricted growth opportunities. Prudent financial management will be necessary to offset these increased expenses. 

Companies in fixed-location industries should prioritise essential costs, potentially adjusting workforce models to mitigate financial strain.

Property Market and Housing Investments – Mixed Outcomes

A £5 billion allocation for affordable housing and cladding removal represents a significant investment in housing stability and safety. However, the increase in stamp duty surcharge on second homes from 2% to 5% introduces new costs for property investors, likely dampening property investment appeal.

Business Impact: For companies with large real estate holdings or property-related services, this stamp duty increase could limit expansion plans in the investment property market. Nevertheless, addressing affordable housing shortages indirectly benefits businesses by enhancing employee welfare and stability. 

Tax Policy Changes – Fiscal Drag and Broader Trade-Offs

This budget confirms the abolition of the non-dom tax regime starting in April 2025 and raises capital gains tax for higher-rate taxpayers. Although personal income tax thresholds will eventually rise with inflation starting in 2028, the current freeze remains in place, contributing to what is known as “fiscal drag.” This occurs as inflation gradually pushes people into higher tax brackets, increasing their overall tax burden.

Reeves also hiked capital gains tax rates, though to a lower level than some pre-budget briefings indicated. Higher rate tax payers will see CGT rising on assets such as shares from 20% to 24%. The lower rate will rise from 10% to 18%. On residential property, the rates will remain at 24% and 18%.

The private equity industry will see the tax on carried interest raised by four points to 32%. 

Business Impact: Companies in private education and energy sectors will likely feel the immediate impact of higher VAT and windfall taxes, respectively, as operational costs rise. 

Additionally, businesses with substantial investment portfolios may need to reassess their capital strategies to account for the increased capital gains tax. 

For consumer-facing industries, the decision to unfreeze income tax thresholds in 2028 could alleviate future spending pressures, although the immediate impact of fiscal drag will continue to affect disposable incomes. 

Private equity investors will continue to benefit from a lower tax rate on their gains than on regular income. 

The Broader Picture – Balancing Big Taxes with Big Spending

This Budget is a tax-raising exercise with few parallels in the whole post-war era. The revenue raised is earmarked for immediate boosts to frontline public services, as well as longer-term investment in key areas. 

At the same time, Reeves’ decision not to extend the freeze on income tax thresholds beyond 2028 was unexpected, offering individuals relief from fiscal drag in the future. However, the deferral does not change the fact for businesses of increased tax burdens in the interim, which they will most likely pass on to employees through attenuated pay growth. 

Overarching Business Impact: The big-ticket investments signal a commitment to boosting longer-term output and breaking the UK out of its mire of low productivity.   

Yet the OBR are still projecting anaemic growth and above-target inflation for the next five years. This Budget could see uneven results across sectors. 

Big spending on education and healthcare aims to directly benefit public welfare and indirectly support business growth by addressing long-term challenges in workforce health and skills. 

The tech sector will welcome the protection of R&D spending, though the four-point increase to capital gains tax may hit founders looking to exit. 

Businesses at the coalface of the energy transition, plus those in key infrastructure like housebuilding and rail, will have some big opportunities on their hands. Oil and gas companies will also breathe sighs of relief at lower-than-expected tax changes. 

Conversely, smaller companies in consumer-facing sectors will need to adjust their financial strategies to accommodate the heavier tax burden.

Final Analysis – Opportunities for Some, Caution for Others

This budget is the first sign of a long-awaited industrial strategy for the UK. Labour will use significant tax rises on businesses across the board to restore Britain’s creaking public services while making big bets on sectors like green energy and infrastructure. 

This presents an unevenly distributed mix of opportunities and challenges for the economy as a whole. High-growth, capital and knowledge-intensive companies are well-placed to benefit from expanded funding and resources. But bread-and-butter firms in the consumer economy will pick up the bill through increased operational costs from National Insurance hikes and reduced rate relief. This will probably trigger widespread changes in short-term strategies to maintain profitability.

The government will pray that their plan lays a foundation for much higher all-round growth rates than those in the OBR’s new projections. Yet individual businesses must examine it closely to know its particular impact on them.

In short, this budget requires companies to traverse a road strewn with difficulties, but one that we should all hope leads to sunnier economic climes.