Autumn Economic Update for the West Midlands from Worcester Business School

Dr Scott Andrews and Boyd Hargreaves from the University's Business School reflect on the recent Autumn Budget.

At 12:30 on Wednesday, October 30, Rachel Reeves, stepped into the House of Commons to deliver her first Budget: the first budget speech of the new Labour Government from the first female Chancellor of the Exchequer. The speech coincided with the publication of the 170 page Budget Report, entitled ‘Fixing the Foundations to Deliver Change.’

Much had already changed since Worcester Business School presented its Spring budget review earlier this year. By 12:31 the public, the business community and politicians across all parties were poised to hear what had already promised to be a difficult budget, which would seek to balance election manifesto promises with a need to salvage more than £40bn in tax rises for the treasury, making it the biggest tax raising budget of modern times.

This Worcester Business School Autumn Economic Update provides a quick glance at some of the major announcements and how they might impact both employers and households across the West Midlands:

1. Personal taxes

• Rates of income tax and National Insurance paid by employees are to remain unchanged as per the Labour Party’s manifesto promise.
• Income tax band thresholds are to rise in line with inflation after 2028 - an attempt to slow the pace of fiscal drag after this date.
• The basic rate of capital gains tax on profits from selling shares is to increase from 10% to 18%, with the higher rate rising from 20% to 24%.
• The rates on profits from selling additional property remain unchanged.
• The inheritance tax threshold freeze is extended by a further two years until 2030, with unspent pension pots also subject to the tax from 2027.
• Exemptions when inheriting farmland are to be made less generous from 2026.

 

2. Business taxes

• The most significant fiscal change is that from April 2025, employers will pay National Insurance at 15%, a rise of 1.2 percentage points. Additionally, the threshold will fall from £9,100 to £5,000 with estimates suggesting that this will raise an additional £25bn per year, controversial given the manifesto promise!
• Small business employment allowance is set to increase from £5,000 to £10,500 which allows smaller companies to reduce their National Insurance liability.
• The tax paid by private equity managers on profit share from successful deals to rise from up to 28% to up to 32% from April 2025.
• The main rate of corporation tax, paid by businesses on taxable profits over £250,000, will remain at 25% until the next election

 

3. Wages, benefits and pensions

• The legal minimum wage for the over 21’s is set to rise from £11.44 to £12.21 per hour from April 2025
• The rate for 18- to 20-year-old’s to increase from £8.60 to £10 which is part of a long-term plan to move towards a "single adult rate."
• The basic and new state pension payments are set to increase by 4.1% next year as a result of the "triple lock," which is a higher rate than those in receipt of working age benefits
• The Eligibility allowance paid to full-time carers has been widened by increasing the maximum earnings threshold from £151 to £195 a week

 

4. Transport

• The 5p cut in fuel duty on petrol and diesel brought in by the previous Conservative Government, which was due to end in April 2025, will remain in place for another year
• Air Passenger Duty is set to increase in 2026, by £2 for short-haul economy flights and £12 for long-haul ones, with rates for private jets to increase by 50%
• Vehicle Excise Duty paid by all but the most efficient new petrol cars is set to double in the following 12 months in an attempt to further encourage the shift to electric vehicles

 

5. Government Expenditure and Public Services

• Day to day spending on the NHS and education in England is set to rise by 4.7% in real terms this year, before a smaller rise in the following year.
• Defence spending is set to rise by £2.9bn
• The Home Office budget is set to shrink by 3.1% this year and 3.3% next year in real terms, due to assumed savings from the asylum system
• An additional £1.3bn of extra funding was announced for local councils, which will also keep all cash from Right to Buy sales from next month
• Overall, Budget policies will increase UK borrowing by £19.6bn this year and by an average of £32.3bn over the next five years, according to the OBR

 

The day following Rachel Reeves’ Budget speech, the Government published plans to increase the sale of government bonds, which set off a measured but temporary rise in the interest rate or ‘yield,’ the rate which the government must pay lenders when it borrows money. This would mark the launch of their implementation plan to put in place the measures needed for £76bn of planned expenditure, to be half funded by tax and half by government borrowing.

Within 24 hours of her speech, the Chancellor conceded that this budget was likely to impact workers. Speaking to the BBC, Rachel Reeves commented: “It will mean that businesses will have to absorb some of this through profits and it is likely to mean that wage increases might be slightly less than they otherwise would have been.”

Economic forecasts published by The Office for Budgetary Responsibility (OBR) revised down its GDP growth forecasts, which are predicted to remain below 2.0% for the next five years.

NHS bosses were quick to respond to budget announcements, suggesting the budget was not going to fix a broken NHS, with Professor Philip Banfield, BMA council chair, commenting: “Despite what seem like huge headline numbers, given the current precarious state of the NHS, this is not going to put the NHS back on its feet immediately - but it is a promising start. What is glaringly absent from today’s Budget is a concrete plan to rebuild general practice.”

Responding to the budget the King’s Fund, the UK’s leading health policy charity, commented that increased spending on the NHS, “is unlikely to be enough for patients to see a real improvement in the care they receive…the extra funding…will only be a modest down payment on what is needed to tackle unsafe and outdated NHS facilities…this budget has been a starting point for the investment and reform that is needed to begin to stabilise the trajectory of NHS performance”.

On a brighter note, Sir John Armitt, the Chairman of the National Infrastructure Commission published his response welcoming the announcement of major investments in capital funding, including on HS2 and on road improvements.

In summary, with potential challenges to worker’s future wages, greater NI tax demands on all but the smallest business employers, farmers worried about the implications of changes to inheritance tax and the impact this might have on future food security, and the OBS predicting a low growth forecast for the next five years, it would seem that this new government’s bid to fix the foundations to deliver change will have ramifications for many months, if not years, to come. As is so often the case with big budget announcements, the devil is in the detail and many of the details related to this budget’s big announcements have yet to be published. Worcester Business School values its strong partnership with its business community and so we will be committed to keeping a close watch on these plans and proposals as further details begin to emerge.

 

Dr Scott Andrews (s.andrews@worc.ac.uk) is Head of Worcester Business School and Boyd Hargreaves (b.hargreaves@worc.ac.uk) is a Senior Teaching Fellow in Economics.