Budget 2025: A Missed Opportunity for Growth and to Boost the Confidence of British Business

Today, the Chancellor of the Exchequer, Rachel Reeves, delivered her long-awaited Budget. Coming so soon before Christmas, there were few presents for businesses. For the UK’s recruitment industry and wider labour market, this was a Budget that promised ambition but fell short of providing the confidence employers need to invest in hiring and drive growth.

Confidence was already fragile after weeks of policy leaks and U-turns, and the Budget got off to a difficult start when, just an hour before the Chancellor spoke, the OBR’s economic forecast was accidentally published online. Not a good look for a Chancellor under extreme scrutiny.

National Minimum Wage and Living Wage Increases

Further increases to the National Minimum Wage and National Living Wage were confirmed. The rate for 18 to 20-year-olds will rise from £10 to £10.85, and the National Living Wage will increase from £12.21 to £12.71. While these uplifts support household incomes, they arrive at a time when employers are already managing rising costs and are reticent to take risks when it comes to who they hire. The level of increase could deter employers taking on younger entrants into the labour market. Recruiters will be monitoring closely how these changes affect hiring and investment decisions.

Rising Costs and a Record Tax Burden

Despite manifesto commitments from the Government, the tax burden is heading towards a seventy-five-year high. Personal taxes are expected to raise an additional £15 billion through frozen income tax thresholds, higher taxes on savings, property and dividends, and a new mileage charge for electric vehicles. A council tax surcharge will also apply to properties valued above £2 million.

The Budget also introduced National Insurance on salary sacrificed pensions from 2029. From that date contributions over £2,000 per year in such schemes will incur NI contributions for both employers and employees. While this allows businesses time to plan for the change, it effectively reduces the incentive for higher pension contributions. 

For businesses, the headline Corporation Tax rate remains unchanged. However, with no reductions in other business taxes, no simplification of employment regulation, and no new incentives to invest, hire, or expand, many employers will feel this Budget does little to improve the operating environment. On key issues such as rising employment costs, skills shortages, and regulatory uncertainty, progress remains limited. Updates to the Employment Rights Bill delayed through a long process of amendments being ping ponged back and forth between Lords and MPs.

Skills, Apprenticeships and the Youth Guarantee

There were some positive developments in skills, apprenticeships, and youth employment, aimed at helping more young people not in employment or education. The Government announced over £1.5 billion for employment and skills support, including £820 million for the Youth Guarantee, offering six-month paid work placements for 18 to 21-year-olds in receipt of Universal Credit for 18 months. This had been previously announced in September, more detail had been promised in the budget, but has not yet materialised. There was mention of £725 million being allocated to support the Growth and Skills Levy, the main beneficiaries mentioned today being SMEs, with a promise of full funding for their apprenticeships for under-25s.

Local Growth, Devolution and AI

The Local Growth Fund will provide £902 million over four years to Greater Manchester, the North East, the West Midlands, South Yorkshire, West Yorkshire, Liverpool City Region, Greater Lincolnshire, Tees Valley, Hull and East Yorkshire, York and North Yorkshire, and the East Midlands. Funding will support infrastructure, business support programmes, employment schemes, and skills interventions.

Good News for the Devolved Nations

The Scottish Government will receive £510 million in additional resource funding, the Welsh Government £320 million, and the Northern Ireland Executive £240 million. This is aimed at supporting regional skills, infrastructure, and business programmes and stimulate demand in areas that have lagged behind the national average. The Government also confirmed three additional AI Growth Zones in the North East, North Wales, and South Wales, supported by planning and energy reforms to accelerate AI infrastructure. These initiatives offer opportunities for digital innovation, high-tech jobs, and industry development in devolved regions.

Building Business Confidence for Growth

Despite the OBR providing some positive news by upgrading expected growth this year to 1.5 per cent, the Chancellor’s ambitions to promote entrepreneurialism and align private enterprise with public purpose are overshadowed by rising taxes, regulatory uncertainty, and a lack of strategic focus. For businesses to thrive, the UK needs a stable workforce strategy, a tax system that rewards investment, a skills system developed in partnership with industry, and strong support for SMEs. While the Budget makes some progress there weren't enough confidence boosting measures required to give businesses the certainty they need to invest and grow.