Our legal and business experts have provided their reaction to the Autumn Budget delivered by Chancellor Rachel Reeves on 30 October across a wide range of topics.
Planning and infrastructure
Mark Iveson, planning legal director at Gateley Legal, said: “The Budget has a resounding clear message: the Government is intent on delivering growth and investment in infrastructure – including in homes, education and transport – fuelled by changes to the planning process. Proposals include “hundreds” of new planning officers promised across the country. That was accompanied by reference to investment in “technology” for public services – which presumably means where possible a much greater focus on the use of technology by planning departments. Great news in terms of the additional resource planning departments need and technology where suitable. Hopefully we will see new officers at the right level, especially the higher level where the lack of strategic input, accountability and decision-making ability often leads to delay.”
National Minimum Wage and National Insurance
Avril England, head of employment at Gateley Legal, said: “The Government has confirmed new increased rates to the National Minimum and Living Wage that will come into effect from 1 April 2025. While this is good news for workers, it does put increased financial pressure on businesses which will face the difficult task of finding sufficient funds to meet an overall increase of over 20% in the adult wage rate in the space of two years.
“In practical terms, employers, particularly those in sectors where there is greater dependence on lower paid workers, will need to take steps to prepare payroll for the changes in April and assess how the increases will impact staffing levels going forward.
“Employers have also been hit with the news that National Insurance contributions will rise from 13.8% to 15%, which is an additional financial burden for them to grapple with.”
Chris Fanner, partner in the banking team at Gateley Legal added: “For many businesses, the increase in National Insurance contributions and rise in the legal Minimum Wage in today’s budget will increase operating expenses, thereby reducing EBITDA and Cashflow, so borrowers and lenders should consider the impact of this on the Leverage, Cashflow Cover and Interest Cover covenants in their loan and other financing agreements, and may need to remodel their covenant projections to ensure they will be compliant for their forthcoming tests. This will primarily impact borrowers with large numbers of employees, for example service industry businesses such as hospitality and leisure as well as professional services business. The resulting increase in operating expenses will inevitably mean there will be less cash available to re-invest in those businesses, so business plans, capex and budgets may need to be revisited.”
Timothy Jarvis, Of Counsel at Gateley Legal, commented: “The primary concern for business is likely be managing this increase in payroll costs. However, there may be some mid-term consequences. First, this rise in payroll costs brings into even sharper focus the point that it is considerably cheaper in national insurance terms for individuals to be treated as self-employed rather than as employees and this could impact on hiring practices accordingly. In view of the sums of money which can be at stake it is unhelpful that employment law cannot always give a clear answer to the question of whether or not an individual is employed or self-employed. Second, certain employee share option schemes can deliver national insurance free compensation, such as CSOP and EMI plans. The hike in the employer’s national insurance rate is likely to increase the attractiveness of these arrangements for companies.”
Corporation tax
Timothy Jarvis, Of Counsel at Gateley Legal said: “In a budget which was ‘stuffed to the gunnels’ with tax change there was some welcome continuity for the UK corporate sector. The UK corporation tax rate stays at the 25% rate, with the small profits rate also staying at 19%. Further the Government is keeping the last government’s tax-based incentives for corporates, notably full expensing for capital allowances, the annual investment allowance, the patent box and R&D tax credits. And, in order to provide more certainty for the corporate sector, the Government has published a Corporate Tax Roadmap.”
Capital gains tax
Timothy Jarvis, Of Counsel at Gateley Legal said: “There has been considerable media speculation about what would happen to capital gains tax rates on Budget Day. The Chancellor did not exactly deliver a pre-Halloween ‘treat’ but the position is less bad than some have feared. There were developments on business asset disposal relief too. Business asset disposal relief currently gives a 10% capital gains tax rate on certain assets such as trading company shares, assets used for the purposes of a trade and for gains on EMI share options. There is a £1m lifetime allowance. The Chancellor announced that the £1m lifetime allowance would be kept. However, she also announced that the 10% tax rate would increase to 18% from April 2026. These changes begin to take effect from April 2025 when the rate goes up to 14%.”
Inheritance tax and quoted shares
On Reeves’ announcement of 50% relief in all circumstances on inheritance tax for shares on the Alternative Investment Market (AIM), and other similar markets, setting the effective rate of tax at 20%, Sam Meiklejohn, corporate partner at Gateley Legal said: “Whilst certainly better than an immediate and entire removal of the relief, it remains to be seen how the market will react to this measure. Ultimately, we should be encouraging investment into AIM-quoted companies rather than doing the opposite. AIM is already at its smallest size in almost 25 years. We should be looking to maximise incentives for both companies and investors in small-caps rather than scale those incentives back. The concern, as was demonstrated in the lead up to the budget, is that this policy might do the opposite over the long-term.”
Pensions
Phil Jelley, pensions partner at Gateley Legal, says: “Bringing inherited pensions into the IHT regime will mean that if the value of pension savings takes the value of the deceased’s estate over the IHT threshold (currently £325,000), tax will be levied (subject to other exemptions that might apply, such as the main residence exemption). The current IHT rate is 40%.
“The Government has published in its Technical consultation – Inheritance Tax on pensions: liability, reporting and payment, which highlights that from 6 April 2027, when a pension scheme member dies with unused funds or without having accessed all of their pension entitlements, those unused funds and death benefits will be considered a part of their estate and therefore may be liable to IHT. This change will apply to both Defined Contribution and Defined Benefit schemes.
“We will have to wait and see quite how this change will be structured; however, this change will mean more people will pay IHT as a result of the Government including inherited pension benefits as part of their estate. This change will apply to both defined benefit and defined contribution pension schemes.
“The practical implications of this are that families may effectively receive less benefits from pension schemes (including defined benefit schemes) in the event of the death of a loved one if IHT is now applied as a result of the benefits payable as it takes them over the threshold.
“It is likely to trigger an increase in the amount of withdrawals from defined contribution pension schemes as pensioners seek to mitigate any potential exposure to IHT for their families and may also cause a reduction in future pension savings being made by some, as there is less incentive to do so.”
Digital connectivity
Paul McCullagh, director and head of telecoms and utilities at Gateley Hamer, said: “We welcome the recognition of the importance of supporting economic growth and Levelling Up, including in rural areas, through digital initiatives including Shared Rural Network. Digital connectivity and technology remain critical to improving under-served parts of the UK and should not be overlooked. As technology continues to advance, so does the tangible economic and social benefits that it brings. Equally, where it is not applied, the digital divide will increase and be detrimental to growth. Effective and accelerated strategic plans that can be easily implemented (with empowered stakeholder parties) are critical.”
Energy infrastructure
Joy Finc, an associate at Gateley Hamer, said: “With ambitious targets for both new housing and net zero to work towards, today’s Budget announcement mentioned Labour’s manifesto pledge to build 1.5 million homes and maintain incentives to encourage further uptake of electric vehicles. Part of making Britain a ‘green energy superpower’ will be ensuring the connection of large-scale generation schemes to the grid. With both the National Grid and individual DNOs struggling to provide capacity to facilitate projects currently in planning, there is much, continued, collaborative work to be undertaken around network reinforcement works within the electricity transmission and distribution space to support. Innovative solutions which reduce the requirement for electricity capacity from the grid are more important now, than ever.”