Rachel Reeves’s Autumn Budget was overshadowed at the outset when the Office for Budget Responsibility accidentally published it two hours early.
The OBR apologised for the ‘technical error’, promised an inquiry and said it wouldn’t happen again.
When the Chancellor took to the despatch box, it was amid calls of “shambles” from the opposition benches – and she was quick to distance herself from the gaffe.
Reeves had vowed to take “fair and necessary choices” on the economy in today’s statement to the House of Commons, having acknowledged public anger and frustration at “unfairness in our economy” in an earlier video.
Conservative leader Kemi Badenoch accused her of introducing a “smorgasbord of misery” – focused on tax rises – as Labour U-turned on a reported plan to increase income tax following a public backlash.
A steely-eyed Reeves was clear on the need to fill a black hole in the public finances, accusing the previous Tory governments of plunging the country into £2.6 trillion of debt – 83% of GDP – and insisting this must be paid down.
The OBR said that the Budget will raise taxes by £26 billion by 2029-30, with income tax thresholds to be frozen for three years from 2028. The proportion of tax to GDP will hit an all-time high of 38% in 2030-31.
It said that around three-quarters of the planned reduction in borrowing over the next five years now comes from tax increases. It cut its medium-term productivity growth forecast to 1% from 1.3%.
“A significant rebound from recent negative shocks has not materialised,” the OBR said.
Reeves also scrapped the two-child benefit cap introduced by the Tories, a move which she said would take hundreds of thousands of children out of poverty in one fell swoop.
Badenoch’s view was that the Budget could be summed up in one sentence: “Labour are hiking taxes to pay for welfare.”
She added: “This is a Budget for Benefits Street paid for by working people.”
What did the UK business and tech sectors make of the Chancellor’s statement?
Frozen income tax thresholds
The freeze on income tax threshold means that as wages go up, people will be dragged into paying tax for the first time or shifted into a higher rate.
Minimum wage increases
Minimum wage rates will increase next year to £12.71 for adults aged 21 and over, and to £10.85 for 18-20-year-olds.
Mansion tax
A levy on homes worth more than £2 million could raise between £400m and £450m for the Treasury. From 2028, properties worth millions of pounds will face a council tax surcharge of £2,000-7,500.
Cash ISA limits cut
The UK has some of the lowest levels of retail investment in the UK so from April 2027 Reeves will reform the ISA system, keeping the full £20,000 allowance while designating £8,000 of it exclusively for investment. Over-65s will keep the full allowance.
The aim is to encourage more households to invest their savings into the UK stock market.
R&D and AI investment
Investment for artificial intelligence was promised – “building that great industry here in Britain”, as Reeves put it – with AI Growth Zones in Wales cited by the Chancellor.
UK Research and Innovation (UKRI) will receive £38.6bn, including £9bn for government priority sectors such as AI, quantum computing and engineering biology.
Tax relief
£7bn will be allocated to innovative companies to scale and remain in the UK, with Reeves stating: “Growth begins with the spark of an entrepreneur. Half of new jobs in Britain are created by scale-up businesses. And we want those jobs created here, not somewhere else.
“Our job is to make Britain the best place in the world to start up, to scale up, and to stay.”
Reeves said the Government is widening eligibility for its enterprise incentives to attract talent and capital investment. This includes tax relief for investors and measures for UK listings relief. She is also launching a call for evidence on how the tax system can better back entrepreneurs.
She said that under Labour, the economy will be grown patiently and stubbornly “by founders who bet their savings on an idea. By firms breaking into new markets. Developing new technologies, and creating new opportunities… our job is to partner with them.”
Ritam Gandhi, founder and director, Studio Graphene, said: “The Budget will do little to shake off the prevailing cloud of negativity hanging over the private sector, even with the Chancellor’s promise that ‘If you build here, Britain will back you’.
“Consultations will not help in the here and now; from startups to corporates, the challenges that businesses are facing – from access to finance and talent through to stagnant economic growth and higher taxes – are not going away.
“Such challenges place greater pressure on organisations of all sizes and sectors to improve productivity and find ways to do more with what they’ve got. Invariably, the answer will be technology and, in particular, AI. And that’s where, from a business and technology perspective, the government had already actually played its trump card late last week in announcing a raft of new reforms and investments under its AI strategy.
“This was a welcome move and, amidst all the negativity that has surrounded this Budget, the fact that the government is pursuing different options to improve AI startups’ access to funding and routes to market is really positive.
“They will likely be lost amidst all the noise today, but the AI Growth Zones, Sovereign AI Unit and ‘first customer’ policy were all good steps forward.”
Salary sacrifices capped
New limits on how much employees can stash in salary sacrifice schemes before it becomes subject to National Insurance will reduce how much people put away in things like pension pots.
“This cap throws a spanner into the works of private sector pensions, where salary sacrifice is a crucial and valued feature of workplace schemes. At £4.7 billion, the tax take is greater than expected and means the impact of this policy on pensions, pay or businesses – or all three – could be severe,” said Gary Smith, senior partner and retirement specialist, Evelyn Partners.
“Restricting salary sacrifice is a tax penalty on people trying to the right thing by saving efficiently for their own retirement and it’s yet another National Insurance cost increase imposed on firms, which may result in reduced pay and pension benefits for private sector employees. Some employers who currently pay more than the auto-enrolment minimum on behalf of their employees will be inclined to reduce their contribution rates or other employee benefits to adjust for these changes.
“Under the current minimum auto-enrolment scheme percentage contribution rates, someone earning less than £40,000 a year will not be affected by these changes. For those who earn more, it will depend on how firms react and how they manage their pension systems. It could be that many white-collar workers will just see their monthly NI bill go up and take-home pay go down if they study their payslip.
“But one thing this salary sacrifice crackdown won’t do is earn the Chancellor a backlash from the public sector, as a raid on tax-free cash would have done. It is politically convenient that public sector schemes do not generally operate on a salary sacrifice basis but rather operate as ‘net pay arrangements’.
“A cap on employee salary sacrifice for pension contributions should therefore have little impact on the public sector, including all of the civil service and government-backed schemes, which will save this Government another run-in with the unions and vested public sector interests.
“However, the upshot is that it will put a further wedge in the growing divide between private and public sector pensions. Restricting this sensible tax benefit that makes private sector saving more attractive adds insult to injury in a two-tier pension system where public sector pensions, underwritten by taxpayers, are hugely more generous and reliable than those available in the private sector.”
Electric vehicles
A 3p per mile tax for electric vehicles will seek to protect government revenues as people shift from petrol and diesel to EVs.
Rising pensions
Reaffirming its commitment to the triple lock on state pensions, Labour is increasing the basic state pension by 4.8% – £440 per year. Increases to the new state pension will be above £500 per year.