The UK Budget; ripple effects

Last week, the new Labour Government presented its first budget in over 14 years, and its ambitions for the UK are clear: more public sector investment and a determination to reshape the economy. While the pledge of “no tax increases for workers” and an increased minimum wage to ￡12.21 may be popular with the public, the budget’s reliance on taxing businesses and the wealthy could create ripple effects that indirectly impact households.

The highlights

Public sector investment is at the heart of this budget, with billions allocated to healthcare, education, and green infrastructure. The NHS alone is set to receive over ￡22 billion. These timely funding boosts come after years of stretched resources in these sectors. Labour’s investment capabilities have been made possible by adjustments to fiscal rules on government borrowing, providing flexibility to increase public spending without directly increasing individual tax rates.

Additionally, a 1.2% increase in National Insurance contributions for businesses and higher Capital Gains tax on investments are projected to raise significant revenue, offering Labour a way to expand its budgetary commitments without breaching its promise to shield individual workers from tax hikes.

Though the commitment to investment was warmly welcomed, concerns about the long-term impact on the broader economy have already been raised. National Insurance hikes on employers may see businesses struggle, with workers and consumers indirectly impacted. From limiting wage increases, cutting back on hiring, or passing increased costs onto consumers, ultimately, this budget will affect household budgets in some way.

Labour has attempted to future-proof the economy, focusing on green jobs and technologies. The budget allocates substantial funds to the development of green hydrogen production, carbon capture and storage, and other renewable energy systems. These moves are essential for the UK’s path toward net zero emissions, but they raise questions of feasibility and scale. Will these measures be enough to achieve the Government’s ambitious environmental targets?

So, what about Scotland?

The budget has increased the Barnett consequentials for Scotland, resulting in additional funds for the Scottish Government to invest in local public services and projects. This development is likely to bolster Scottish Labour leader Anas Sarwar’s position, especially as the 2026 Scottish Parliament elections approach. However, the ultimate responsibility for how this funding is used rests with the SNP-led Scottish Government, which decides to direct these funds either toward immediate relief for public services or channelling them into longer-term economic investments. Clarity on this decision will emerge in December when the Scottish Government releases its budget.

Labour’s first budget clearly states its investment priorities to address key issues such as healthcare, education, and climate change while upholding its manifesto promise to shield workers from direct tax increases. However, by placing the fiscal burden mainly on businesses and upper earners, Labour hopes the corporate sector can bear these costs without curbing economic growth or causing indirect repercussions for workers. Time will tell if this approach proves sustainable or if the pressures on businesses undermine the stability Labour hopes to bring to the UK’s economy.?

If you are looking for strategic counsel and bespoke political analysis, translating what UK political news and policy developments mean for your business, say [email protected].

You can also read more about how we can support you and your projects through public affairs, PR, digital and design work on our website.