Autumn budget: Now what?
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The dust has settled from the Budget this week and one thing is clear – the tax rises are going to hurt businesses, as the video below demonstrates…
The Office for Budget Responsibility, the UK spending watchdog, has actually tried to quantify the impact on businesses. In its review of the Budget, the OBR has estimated that the rise in national insurance contributions will mean there are 50,000 fewer jobs in the UK than there otherwise would have been. It has also forecast a drop in profits for businesses…
The OBR added: “The rise in employer NICs in this Budget will further erode profits and we assume firms are only able to pass on around 60 per cent of the cost to employees in the short term. We then expect the profit share to rise gradually from 2026 as firms rebuild margins and pass on more of the cost of the rise in employer NICs to higher consumer prices and lower nominal wages.”
This is pretty brutal stuff for businesses. As a reminder, national insurance contributions will rise by 1.2 percentage points from 13.8 per cent to 15 per cent from next April (that’s a 9 per cent increase in the cost of the tax for those wondering).
The national insurance rise was part of the £40bn of tax increases announced by Rachel Reeves, the chancellor. Other measures included changes to capital gains tax, inheritance tax, and carried interest. Farmers have expressed their alarm about what the changes in inheritance tax mean for passing family farms down to the next generation. “This is big. It’s massive,” one farmer told The Guardian here.
The tax increases are designed to bolster the public finances and also fund investment and spending in public services. As we noted in our Budget round-up on Wednesday, the chancellor has unashamedly asked businesses and entrepreneurs to pay for new spending on public services, such as the NHS, schools and transport (you can read our Wednesday round-up here).
Reeves justified this by saying in her speech: “I know that this is a difficult choice. I do not take this decision lightly. We are asking business to contribute more and I know that there will be impacts of this measure felt beyond businesses, as the OBR have set out today. But in the circumstances that I have inherited, it is the right choice to make. Successful businesses depend on successful schools. Healthy businesses depend on a healthy NHS. And a strong economy depends on strong public finances.”
Some business leaders have made it clear they are okay with this. CS Venkatakrishnan, the chief executive of Barclays, told the Financial Times: “We all have to share the burden and quite naturally in certain sections there’s the feeling that another section should’ve borne more of it. Getting that balance perfect is impossible.”
Venkatakrishnan may be relieved there were no new taxes on banks. Other chief executives are not happy. Nick Mackenzie, the chief executive of pub group Greene King, told Bloomberg: “While a reduction in draught duty is welcome, in reality, it is a drop in the ocean compared with the cost impact of lowering the threshold for national insurance contributions and increasing the rate paid by employers.”
The reaction from financial markets has been wobbly. Gilt yields, which effectively measure the cost of government borrowing, have risen after the Budget because of concerns about the extra borrowing the UK will take on to support investment and spending in public services. This extra borrowing amounts to £28bn more next year, according to the Institute of Fiscal Studies.
Reeves has done a collection of media interviews since the Budget to try to calm any jitters. She has pledged “economic and fiscal stability”. However, Moody’s, the credit rating agency, said on Friday that the Budget has posed an “additional challenge” to improving the public finances. The yield on UK gilts is now at the highest level so far this year.
The graph below shows the pound against the dollar over the last five years. As you can see, while markets have been wobbly this week, we are a long way from the tumultuous days of late 2022 after Liz Truss and Kwasi Kwarteng’s mini-Budget.
For further reading on this, you can find the full Budget document and all the measures announced by the government here.
What you need to know this week
1. Homebuyers are scrambling to cover unexpected costs after chancellor Rachel Reeves announced a stamp duty surcharge hike in her recent Budget, increasing rates from 3 per cent to 5 per cent for second properties. Many in the final stages of buying have been blindsided, facing thousands in unplanned expenses. Critics argue the abrupt change, intended to curb buy-to-let and holiday home investments, may backfire, derailing property chains and creating turmoil for buyers relying on let-to-buy arrangements. You can read more here.
2. Fast fashion retailer Boohoo Group has snubbed Mike Ashley and appointed Debenhams CEO Dan Finley as its new chief executive. Ashley, the founder of Frasers Group, which is Boohoo’s largest shareholder, has been criticising the retailer’s recent performance and debt refinancing deal. Boohoo shares jumped by 6.7 per cent following the announcement, signalling investor optimism for the leadership change amidst a challenging year for the brand. You can read more here.
3. Elon Musk’s AI start-up xAI is reportedly seeking to raise $5bn at a $45bn valuation, marking a substantial increase in its valuation just months after its previous funding round. Backed by investors including Sequoia, Andreessen Horowitz, and potentially Qatar Investment Authority, the funding would support xAI’s rapid expansion of its Memphis-based AI infrastructure. With its Grok chatbot and significant computing capacity, xAI is positioning itself to compete in the generative AI landscape. You can read more here.
4. With social media stardom seen as a Gen Z dream job, influencer marketing has exploded. It has become a vital part of brand strategy but as companies increasingly favour niche creators over mega-influencers, hopefuls face a crowded field and a volatile career path. While the influencer economy now boasts 50 million creators, only a small percentage earn a living wage, and the industry’s rapid growth is testing the limits of consumer tolerance for sponsored content. You can read more here.
5. EssilorLuxottica, the world’s largest eyewear maker, has hit a historic €100bn valuation. The Franco-Italian group is doubling down on smart eyewear, partnering with Meta to develop AI-enhanced Ray-Ban glasses that can live stream to social media and respond to voice commands. With plans to deepen this collaboration, CEO Francesco Milleri sees smart glasses eventually replacing smartphones as essential devices. You can read more here.
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And finally
“Young people are high-minded because they have not yet been humbled by life, nor have they experienced the force of circumstances… They think they know everything and are always quite sure about it…”
Most people have had a winge about the newest generation in their day. Gen Z, millennials, gen x, boomers – we’ve all had older generations talking about how bad future prospects look when the current generation gets older. X account @timecaptales has posted a great reminder that this is far from a new phenomenon.
Oh and that quote in the first paragraph? That’s by Aristotle from the fourth century BC…
