The Chancellor’s Budget got off to worst possible start – it was accidentally leaked by the Office of Budget Responsibility (OBR) around 45 minutes before the Chancellor stood up. Did she manage to recover the moment? Probably yes, but if you were hoping for a growth-oriented plan to get the economy moving you would have come away disappointed.
What we did get was a raft of tax raising measures – most significantly the freezing of tax thresholds and the cap on tax relief on salary sacrifice pension contributions – and some eye-catching spending pledges on removing the two-child benefit cap and help with energy bills.
Employers will not welcome the announcement of another increase to the National Minimum Wage and National Living Wage. The headwind created by the rise to employers’ NI at the last Budget is still very much being felt by hirers. Adding to that headwind is unlikely to improve the prospects of reducing unemployment.
There was no mention of umbrella companies despite the recent policy focus on the sector. Nor was there any explicit follow-up on the raft of labour-market reforms implied by the Employment Rights Bill. Consultations on guaranteed hours and bringing umbrellas into the Agency Conduct Regulations are, we are told, soon to be expected but they didn’t materialise today. This Budget was not designed to rework the structure of flexible employment – its primary goal was to raise revenues.
Main revenue-raising measures: fiscal drag and pension clampdown
The two headline fiscal levers — freezing tax thresholds and capping pension-contribution relief — are textbook “stealth tax” moves.
- First, personal income-tax thresholds have been frozen. The thresholds at which people start paying tax — and at which they reach higher rates — remain static, despite inflation and wage growth. This means more individuals will slowly drift into taxation, and more of their earnings will be taxed as salaries increase. The freeze is expected to raise roughly £8 billion in the 2029–30 fiscal year.
- Second, the government is capping the value of pension contributions made via “salary sacrifice” that are exempt from National Insurance (NI) contributions. Contributions above a new £2,000 annual cap will attract NI charges from 2029 — both for employer and employee. This reform is projected to raise around £4.7 billion in 2029–30. Umbrella employers will need to ensure they can cover any increase in their NI bill through the employment costs they charge.
Complementing these are a few more straight forward ‘tax-grabs’ but they are worth less in overall gains for the Treasury: a “mansion tax” surcharge on homes worth over £2 million; higher taxes on dividends, property, and savings income; and a new mileage-based charge for electric vehicles stand out.
What business got — and what it didn’t
From the business community’s viewpoint, there were some modest concessions in the Budget, but no large-scale attempt to reshape the business environment or boost long-term investment. For example:
- There are continued modest incentives around business rates and reliefs for certain sectors (retail, hospitality, leisure) — though these are not headline-grabbing and are limited by cash caps.
- The investment via mayors (in infrastructure, skills, business support) will benefit some, but is unlikely to generate national growth.
Yet what is missing is more important. There is no major package to enhance business competitiveness: no bold corporate tax reform, no sweeping regulatory simplifications, no bold push to improve productivity via innovation incentives, industrial strategy, or reform of employment-supply-chain rules (for example, nothing aimed specifically at umbrella companies).
In other words: the Budget feels like an exercise in just about keeping the lights on -making do with higher taxes to plug fiscal holes, rather than a forward-looking plan to make British businesses more competitive or dynamic.
Growth: promised, but not clearly delivered
The forecast underlying the Budget is gloomy. Growth projections have been downgraded from previous expectations: the OBR warns of weaker GDP performance in the coming years despite short-term rates for this year being revised slightly up.
For business leaders deciding whether to invest, hire, or expand, this creates uncertainty. With higher taxes on consumption, pensions, property income and dividends, and no clear-cut reforms to improve business environment, the incentives to invest may well be muted. Entrepreneurs may pause until clarity on long-term growth incentives emerges.
In short: from a business perspective, the 2025 Budget delivers more challenges than opportunities, and does little to reassure that the UK is embarking on a competitive, high-growth trajectory.
