The Labour Party’s first budget since returning to power marks a significant shift in the UK’s economic policy, with implications that businesses of all sizes and their owners will need to navigate carefully.  What is clear is that increasing capital taxes and a desire to protect ‘working people’ are set for the next few years.  

Key tax changes include a 4% increase in the base rate of Capital Gains Tax (CGT) (perhaps lower than expected but after a significant period of pitch rolling), signalling the start of broader capital tax increases.  It is pretty clear that the direction of longer term travel for CGT is upwards – a disappointing signal to business owners and wealth generators. 

Another substantial change is the overhaul of Inheritance Tax (IHT). The revised approach could pose real challenges for family businesses aiming to pass wealth and control through generations. With limited exemptions, owners may face tough choices when planning succession, a critical issue for preserving family ownership. Sale may become the only real route for family businesses. 

Increases in employers’ National Insurance (NI) contributions, while framed as necessary for public funding, are a direct tax on businesses and ultimately ‘workers’ alike. Higher NI costs increase overheads for businesses, adding pressure across all sectors, but particularly in already hard hit sectors such as retail and hospitality.  Still reeling from the cost of living crisis, further jumps in the national minimum wage coupled with the national insurance hikes will be hard to swallow. Logically this will only lead to price rises, wage freezes and reduced employment levels.  

Finding a positive note, the budget’s commitment to growth via public spending could benefit certain industries, unsurprisingly those with exposure to the public sector. Additionally, predicted interest rate cuts (which we are already beginning to see) may relieve borrowing costs, albeit tempered by potential inflation from the aforementioned price rises and increased public expenditure. 

While the budget provides long overdue clarity, the economic backdrop remains challenging. Businesses now face a landscape of rising operational costs and potentially higher tax burdens, just as uncertainties on the international stage, particularly the U.S. political climate, loom larger.  Certainty was the demand which at least we now have for the next four years – as ever business owners and entrepreneurs will act accordingly.  For owners in particular it is pretty clear the capital tax environment is unlikely to improve and that should frame longer term thinking and planning.