A Budget to Balance Growth and Fairness
Today marked a pivotal moment for Labour as it unveiled its first budget in 14 years, presented by Chancellor of the Exchequer Rachel Reeves, the first woman to hold the office in its over 800-year history.
At a glance, Labour’s budget is built on promises of fair taxation, strategic public investment, and support for small businesses. Designed to boost key sectors like education, healthcare, and infrastructure, the budget seeks to recalibrate the economy by shifting the tax burden towards wealthier individuals and large corporations. However, reactions across markets have been mixed, with some investors cautious about potential growth constraints.
Within this budget, three prominent themes emerged: tax, business, and investment.

Tax: Fair Share or Burdening Growth?
Labour’s tax strategy hinges on creating a more equitable system, where wealthier individuals and larger businesses carry a heavier share of the fiscal load. This is designed to raise revenues for social infrastructure without directly increasing the tax burden on “working people’’ through income tax, National Insurance, or VAT.
From this afternoon’s budget, we’ve seen the following key changes:
National Insurance Increases: Employers’ contributions will rise from 13.8% to 15%, with a lower threshold starting at £5,000, down from £9,100. This move is projected to generate an additional £25 billion but has raised concerns among business owners who argue that it might deter hiring and investment.
Private School VAT: In line with Labour’s manifesto promise to fund public education more sustainably, a 20% VAT will be applied to private school fees starting January 2025. This is expected to increase private school costs by 10-20%. Labour argues this will generate additional funds for public education, though critics warn it may strain state schools as some students move from private to public education due to rising fees.
Corporate Tax Roadmap: While Labour caps the corporate tax rate at 25%, one of the lowest in the G7, the budget preserves R&D tax reliefs and capital allowances to incentivise growth, as promised in their manifesto. This balanced approach, according to Labour, will make taxes fairer without undermining the UK’s competitiveness.
Labour’s tax policy emphasises “fair share” contributions but faces criticisms for potentially raising the overall tax burden on businesses, which could limit their capacity to hire, expand, and innovate, particularly smaller companies.
Business: Reliefs, Reforms, and Rising Costs
Turning once again to Labour’s manifesto, the new government placed a significant emphasis on supporting small and medium-sized enterprises (SMEs) while holding larger corporations accountable. The budget introduced several business relief measures, particularly for small businesses, while requiring larger corporations to absorb higher costs.
Business Rate Reforms: From 2026-27, Labour will lower rates for high-street properties in retail, hospitality, and leisure. The measure aims to protect local businesses against inflationary pressures and competition from e-commerce, with a higher tax on large distribution warehouses partially funding this initiative.
Employment Allowance Increase: To mitigate the impact of rising National Insurance costs, Labour will double the Employment Allowance to £10,500, allowing smaller firms to employ up to four full-time minimum wage workers without paying employer National Insurance.
Business Asset Disposal Relief (BADR): Labour’s plan to increase the BADR rate incrementally (from 10% this year to 18% by 2026) aims to motivate long-term reinvestment, especially for entrepreneurs looking to build sustainable businesses.
However, business groups like UK Hospitality warn that higher National Insurance contributions and workers’ rights reforms could act as a “brake on growth,” particularly for SMEs that operate on thin profit margins. Compounded by the increased national minimum wage, it begs the question of whether the budget’s pro-business measures will be enough to offset these new financial pressures.
Investment: Building Britain’s Future
Public investment is a major pillar of Labour’s budget, with a commitment to inject over £100 billion into infrastructure and innovation over the next five years, aimed at fostering long-term growth, economic stability and rebuilding the UK’s foundational assets.
Infrastructure and Housing: Reflecting the manifesto’s promise to rebuild Britain, over the next five years, £100 billion will fund improvements to roads, rail, schools, hospitals, and housing. This includes an extra £500 million for local road maintenance and an expanded Affordable Homes Programme, increasing its budget to £3.1 billion annually to support affordable housing projects.
Research and Development: A commitment of £20.4 billion for R&D investment in 2025-26 underscores Labour’s focus on innovation and high-tech growth, striving to make the UK a global hub for innovation. The Corporate Tax Roadmap further supports this by preserving capital allowances and R&D reliefs, aiming to boost competitiveness in emerging industries.
Investment Summit Highlights: The recent International Investment Summit underscored Labour’s commitment to a pro-investment environment. Reeves emphasised stability, transparency, and clear investment guidelines, especially in sectors like energy and technology. Investors, however, expressed concerns about the impact of rising taxes on business growth. The infrastructure boost is substantial, but the OBR warns that the growth effects may be limited to the immediate spending period. Labour’s pledge to implement the National Infrastructure Strategy and Transformation Agency (NISTA) is a strategic move to ensure efficient delivery and maximize return on investment. NISTA’s role in coordinating infrastructure projects across government and industry could drive stronger alignment between policy and practical outcomes.
Final Thoughts
Labour’s budget is a bold attempt to reconcile its manifesto commitments with the current economic climate: emphasising fairer taxation, economic renewal through public investment, and a stable regulatory environment. However, each of the budget’s pillars presents both opportunities and challenges.
1. Tax Increases on Businesses: While Labour’s plan shields “the working people”, businesses are expected to shoulder a larger tax burden. Higher National Insurance contributions, stricter business rates, and other corporate tax adjustments could impact hiring, wage growth, and overall economic expansion, particularly for SMEs.
2. Mixed Market Responses: While the FTSE 250 responded positively, especially in sectors like energy and construction, the bond market’s reaction suggests investor caution around Labour’s ambitious spending. The OBR’s projection that these policies may only deliver short-term growth further underscores the delicate balance Labour must achieve to maintain investor confidence while still prioritising public welfare.
3. Investment in Infrastructure and Innovation: The £100 billion infrastructure plan and substantial R&D funding are significant investments in line with Labour’s manifesto. However, the OBR and market reactions indicate caution, suggesting that without careful management, the short-term benefits of increased public investment may not translate into long-term economic gains. The recent Investment Summit underscored the need for clear, transparent, and pro-investment policies to reassure foreign and domestic investors alike.
It’s clear that Labour’s budget aims to reshape Britain’s economic landscape, offering a progressive fiscal approach while bolstering public services. Whether this will translate into sustained growth and economic resilience, however, remains to be seen. For Labour, this budget is not just about meeting electoral pledges but about proving that their approach can create a fairer, stronger economy—an endeavour that will be closely watched by markets, businesses, party opponents, and the public alike.
For more policy insight into the budget, stay tuned for Curia’s analysis.