UK: UK Chancellor Rachel Reeves MP has delivered a Labour Budget for the first time in 14 years as the government warned of “difficult” decisions to “restore economic stability” and plug a £22 billion black hole in public finances that was estimated by the Office for Budget Responsibility [OBR].
Reeves, the first-ever female Chancellor in UK political history who was voted in in July, pledged to “deliver change and fix foundations in the national interest”, as well as to “create wealth and opportunity for all”. Meanwhile, Prime Minister Sir Keir Starmer, had warned that those with “the broadest shoulders should bear the heaviest burden” and that the decisions were being made to prevent “devastating austerity”.
In an unprecedented Budget, Reeves announced that the rules and recommendations would raise taxes by £40 billion in total – the largest tax-raising Budget in UK history in cash terms.
The key announcements from the Autumn Budget include:
• Business taxes – including a rise in employers’ National Insurance [NI] contributions
Reeves announced that employer’s NI contributions would rise by 1.2 per cent to 15 per cent from April 2025, and that the threshold at which companies will have to start making contributions will drop from £9,100 to £5,000. It is claimed that the significant tax rise, which is larger than was originally predicted, will raise up to £25 billion a year.
Employment allowance, which enables companies to reduce their NI liability, will more than double from £5,000 to £10,500.
• Minimum wage increase
The legal minimum wage for workers over the age of 21 will increase from £11.44 to £12.21 an hour [a 6.7 per cent rise] from April 2025, as the Labour Government promised to support people amid the cost of living crisis.
Additionally, the national minimum wage for 18-20-year-olds will rise 16.3 per cent from £8.60 to £10 as the government strategises a long-term plan to move towards a “single adult rate”.
• Business rates for retail, hospitality and leisure properties
There will be a permanently lower business rates multiplier f0r retail, hospitality and leisure [RHL] properties from 2026/2027. A 40 per cent relief on business rates will be provided with a cap of up to £110,000 per business for 2025 and 2026.
• Air fare stealth levy
Labour has announced that Air Passenger Duty [APD] will go up by no more than £2 for an economy class short-haul flight, whereas it will surge by 50 per cent for flights on private jets. Reeves justified this by saying that APD had “not kept up with inflation in recent years”.
Prior to the announcement, package holiday specialist On the Beach published research which revealed that more than a third of Brits [39 per cent] were planning to book their holidays on Monday 28 or Tuesday 29 October to avoid any potential increases in tax put on outgoing flights from the UK.
• Stamp duty and housing
Under the government’s plans, the stamp duty tax on second home purchases in England and Northern Ireland will rise from three per cent to five per cent from Thursday 31 October [the day after the Budget]. As a result, buy-to-let landlords and those buying holiday homes will have to pay an extra surcharge, with the Chancellor saying that the move would benefit other homeowners.
Labour is also boosting its affordable homes budget [running until 2026] by £500 million to increase supply across the UK, including in Liverpool Central Docks, driving more stability for social housing providers. £1 billion is being allocated to remove dangerous cladding from buildings next year, in the wake of the Grenfell Tower fire and other incidents.
• Draught duty and the future of pubs
The draught duty is being cut by 1.7 per cent, so a pint in a pub will now cost 1p less than before.
Previously, more than half of pubs and hospitality businesses had said that they would have to cut jobs [54 per cent] and cancel investment [51 per cent] if the rates relief were to end and bills were to quadruple as feared.
The opposition Conservative Party accused Sir Keir of running a government of “broken promises” in the lead up to the Budget as more tax shake-up announcements were being leaked to the media.
Industry responses:
Kate Nicholls, chief executive of UKHospitality, said: “This Budget is the latest blow for hospitality businesses. Rising taxes, increasing costs and fragile consumer confidence risk bringing growth to a grinding halt.
“In the short term, the tsunami of employment costs coming in April will ultimately do more to hamper growth than incentivise it. Increases to employer NICs and wages will make it harder for businesses to support employment and invest in their businesses.
“Avoiding the business rates cliff-edge next April was critical and it was important that some relief has been extended. However, the reduced level of 40 per cent is another cost that businesses have to deal with. For those small- and medium-sized operators, their rates bills will still go up in April.
“All of this means that 2025 will be painful for hospitality, with an increased annual tax bill of £3 billion for the sector.
“However, there are reasons for longer-term positivity. I am pleased that the Chancellor is implementing UKHospitality’s recommendation for a permanently lower level of business rates for hospitality. Levelling the playing field in this way recognises the importance of the high street and the role it plays in our communities and economy.
“We need to see the detail and the Government must work with the sector in the design and delivery of this significant change to get it right,” she added.
A press statement from the STAA – UK Short Term Accommodation Association read: “As a leading voice of the short-term rental industry, we welcome measures in today’s UK budget aimed at supporting small businesses and the tourism sector. However, we urge the government to ensure that policies account for the unique needs of short-term rental providers, from individual cottage owners to larger platforms. The sector plays a vital role in driving local economies, creating jobs, and offering travellers more choice. We look forward to working together with policymakers to ensure that any new regulations or tax adjustments strike a balance between encouraging growth and maintaining community interests.”
Brendan Geraghty, CEO of the Association for Rental Living [ARL], said: “The acknowledgement of build-to-rent [BTR] in the Autumn Budget is recognition by Government of the role that BTR in all its guises can make to housing investment and growth.
“The Autumn Budget provided the government with the perfect opportunity to demonstrate its commitment to ‘fixing the foundations’ by putting housing front and centre of their plans – yet they did not go far enough today. Housing is the stable foundation to all investments and growth that have been identified in the Budget and industrial strategy, and whilst the reference to support of Build to Rent is welcomed, real certainty for investors is essential.
“Whilst the ARL welcomes that the Government has acknowledged, through its previous announcements, the massive demand for new homes, outlined its commitment to transforming the experience of private renting through its proposed Renters’ Rights Bill and recognised the role of BTR in the NPPF Review, we continue our call to view housing as foundational to the future economic growth of the country.
“Housing should be right at home in the UK’s new modern industrial strategy as being critical to facilitating the growth which the Government desires. The £3 billion of additional support for SMEs and the Build to Rent sector, in the form of housing guarantee schemes, is welcomed, although greater detail is needed.
“The increased funding in social homes in the affordable homes programme is also welcomed as part of a mixed-tenure approach to housing development but this, and future Budgets, should bolster and facilitate investment into housing of all tenures, for the long-term.
“The government’s desires to attract private investment, both domestic and international, to the UK is welcomed by the ARL. The BTR sector has already attracted £35 billion of institutional investment in the last decade and £800 million in the last quarter alone; it has the ability to attract £300 billion of domestic and international inward investment. Investors require certainty and incentive however and we hope that this Budget moves attitudes in that direction.
“Rachel Reeves promised to “turbocharge the delivery of 1.5 million homes” in her maiden Budget. This will be very challenging with current low levels of construction starts and the contraction of PRS. To achieve this objective, the government needs to smooth the road to institutional investment in BTR and implement the recommendations of the recently published Radix Big Tent Housing Commission Report. The ARL urges the Government to work with the sector to enable the investment required to deliver over 2 million good quality, professionally managed homes to rent across the UK,” he added.
Joss Croft OBE, CEO of UKinbound, said: “We welcome the increase in employment allowance, the freeze on fuel duty and the investment in the regional rail networks, however we are incredibly disappointed to see Air Passenger Duty increase and that businesses across the industry will see operating and staff costs rise.
“As the UK’s second largest service export industry, inbound tourism is an incredibly powerful driver of economic growth across the UK and has the potential to grow 20 per cent by 2027, but businesses in this sector are now facing a new tide of challenges.
“We are however committed to developing a strong working relationship with this Government and will continue to make the case for specific policy changes, such as expanding passport-free travel schemes for under 18-year-olds, enhancing our five-year visitor visa and introducing tax-free shopping, which can deliver immediate growth across the whole of the UK,” added Croft.
Rebecca Wilkinson, business tax partner and property and construction sector specialist at Menzies LLP, said: “Private landlords holding rental portfolios can breathe easier, as CGT rates on residential property sales remain at 24 per cent. With no-fault evictions ending and new rent control rules on the horizon, many landlords are considering exiting the buy-to-let market. Fortunately, they can now do so without facing raises to CGT.
“However, a SDLT surcharge hike from three per cent to five per cent for companies and second-property buyers may dampen demand. Landlords hoping to sell with tenants in place may struggle to find fewer buyers, as higher SDLT makes buy-to-let properties a less attractive prospect.
“Property developers will also be subject to higher rates of SDLT. This, coupled with rising labour and national insurance costs, could cause delays to the government’s target to build more affordable homes. Financing new projects may also tighten with the CGT rate on share sales rising from 20 per cent to 24 per cent, deterring high-net worth individuals and overseas investors who often fund UK projects due to favourable tax rates, and may well look elsewhere,” she added.
John Webber, head of business rates at Colliers, said that the 140 per cent increase for 250,000 retail, hospitality and leisure ratepayers represented a “dismal day for the high street”.
IHG urged the government to boost the “vital” £32 billion visitor economy and warned that the possible inroduction of visitor levies and tourist taxes [which had been rumoured] would risk being “an economic disincentive for the tourism industry”.
Allison Whittington, head of housing and health at Zurich Municipal, said: “Increasing the supply of housing for those that need it most is welcome, in addition it is important to improve the security of housing in our society.
“We also have to ensure that the sort of homes we build will be ones we are proud of in generations to come. Housing associations already make a significant contribution to the delivery of new housing supply and have seen their finances stretched over recent years. Support for this vital sector is needed to enable them to continue to play their part in creating homes for all,” she added.
