Despite being the first Labour chancellor to deliver a budget in 14 years, Rachel Reeves opened her statement by borrowing a move straight from the playbook of the Conservative government elected all those years ago – to blame the previous incumbents for the mess. The background to this statement had been marked by a startling amount of negativity for a new government with a colossal majority. Opinion polling published by IPSOS earlier this week even showed over 50% of people were fearful about how the announcements would impact both public services and their own financial situation. And yet, in many ways, this was a classic Labour budget – a clear sign that this government intends to shift the burden from the most vulnerable to corporations and the highest earners.
Highlighting the ‘difficult choices’ she had to make as a consequence of the past 14 years, Reeves’ statement sought to position Labour both as a party of fiscal responsibility, capable of catalysing growth, while protecting the most vulnerable. She sought to draw an ideological line between this government and the previous administration, highlighting the decision to raise taxes by £40bn and invest in public services, aiming to turn the page on austerity. Real term rises in NHS and education spending, local government, and tax hikes such as a 50% increase to air passenger duty on private flights, will delight the rank-and-file of the Labour membership.
In addition to these measures, the budget included an increase in the ‘windfall’ tax rate on oil and gas producer profits while removing investment allowances companies can claim, which serve as incentives for ongoing investment. David Whitehouse, Chief Executive of Offshore Energies UK, lamented that it was a “difficult day” for the industry, but welcomed the retention of the 100% first year capital and decarbonisation allowances and commitment to consult in early 2025 on the oil and gas tax regime.
The business community’s response was broadly negative. Mark Kent, Chief Executive of the Scotch Whisky Association, described the increase in spirits duty as a “hammer blow.” The levy had already been raised by 10% by the previous UK government, and industry leaders had hoped for a reprieve.
Labour has spent the last few years cultivating a close relationship with industry leaders, hammering home the message that unlocking growth is essential to its mission, generating wealth and improving public services. While the Chancellor’s promise of economic stability as a foundation for investment seeks to reassure, measures such as the increase to employers’ contributions to National Insurance and rises to capital gains and other taxes are already making entrepreneurs and SMEs wince. We’ve already seen a strong reaction from the energy sector too, particularly, in the northeast of Scotland, to the impact of the budget on North Sea jobs. Recognising this, the Chancellor tried to reassure the business community after the statement that she is not blind to their concerns – telling the BBC this is a budget ‘she hopes not to repeat.’
In Scotland, Reeves said John Swinney’s government would receive ‘the largest real-terms funding settlement for Scotland since devolution’ worth an additional £3.4billion, with Labour sources also noting an extra £1.5 billion earmarked for the current financial year.
Scottish Finance Secretary Shona Robison acknowledged the budget as a “step in the right direction” but expressed disappointment over certain tax and spending measures. She pointed out that any financial gains for the Scottish government are likely to be offset by approximately £500 million in increased public sector costs, stemming from new National Insurance contributions on workers’ wages.
Robison also urged the UK government to reconsider its cuts to winter fuel payments and to abolish the two-child benefit cap. “One budget doesn’t change 14 years of austerity,” she stated, emphasising that meaningful change requires time and sustained investment in public services.
With the SNP already having made £500 million in budget cuts this year, ministers are warning of tough choices ahead when they outline their tax and spending plans for next year in December. The battle lines are most definitely being drawn ahead of the 2026 Holyrood elections.
The UK government will hope its announced programme of capital spending worth £100bn, the expansion of HS2 to Euston, measures to unleash housebuilding, and investment in carbon capture and hydrogen, will reassure the markets and give the stagnant UK economy the boost it needs. In the end, the success of this budget will rest partly on its ability to convey to markets and the private sector a clear, credible, path that builds confidence in the UK’s economic direction. But Labour still lacks a compelling political narrative around what the ‘decade of renewal’ promised by Sir Keir Starmer during the election campaign will look like. Reeves emphasised that ordinary people must “feel” better off – and she will hope that measures such as a rise to the minimum wage and a freeze on fuel duty will do just that. Time will tell whether this budget delivers tangible improvements for the public, or if it simply sets the stage for more difficulty after a stumbling start to Labour’s return to government.
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