Delivering the first labour budget in 14 years - and the first ever by a female chancellor - Reeves outlined a series of measures aimed at supporting economic growth, putting more money in people’s pockets and rebuilding public services.
During a commanding performance beginning with an attack on the former government - which she accused of playing fast and loose with public finances - Reeves’ first budget (which kicked off with an assurance that there will be no increases to NI, VAT or income tax for working people) marked a distinct shift in tone for an administration that has been criticized for its gloomy mood-music since taking office in July.
The headline announcement is an eyewatering £40bn increase in taxation, an estimated £25bn of which will come from increases to employer National Insurance contributions and the remainder chiefly from rises in capital gains and inheritance tax as well as a clamp down on various tax loop holes, which Reeves said will save an additional £9bn per year.
Under the new NI rules, employers’ contributions will increase by 1.2 per cent from April 2025 and the salary threshold at which employers must start paying NI will be reduced from £9100 to £5000.
This increase will be offset for many smaller employers by an increase in employment allowance (which allows companies to reduce national insurance liability) from £5000 to £10,400. Indeed, according to Reeves, 865,000 employers won’t pay any national insurance at next year, whilst around one million will pay the same or less than they do currently. Nevertheless, the move has sparked concern across the manufacturing sector.
Raising Employer National Insurance contributions and, the surprising change in thresholds, at a time of other cumulative increases in employment costs will be challenging for many businesses
Stephen Phipson - Make UK
“Additional National Insurance Contributions will put massive pressure on the automotive supply chain which is predominantly SMEs,” said Mike Hawes, chief executive of auto industry body SMMT. “Next year’s spending review must find resources to fund measures that alleviate the strain on these companies and help them transition to an electrified future.”
Make UK CEO Stephen Phipson, echoed these concerns, saying: “raising Employer National Insurance contributions and, the surprising change in thresholds, at a time of other cumulative increases in employment costs, will be challenging for many businesses and especially SMEs.”
There is also concern that SMEs will be further squeezed by increases to minimum wage - which rises by 6.7 per cent from £11.44 to £12.21 from April 2025 – although many seemed sanguine about the decisions the government has made.
“The increase in national minimum wage has the potential to squeeze other pay levels within companies and that – when combined with the employer NI contributions – will ramp up costs and put additional pressure on bottom lines throughout the country” said Nick Lathe, finance director of Staffordshire precision fabricator Mec Com Fabrications. “With my glass half full, I’m hoping that the impact of these tax rises will hopefully be partly offset by the market reacting positively to the delivery of a fully costed and balanced budget.”
Whilst headline spending announcements included a £2.3bn increase to the schools budget and a an extra £25.7bn for the beleaguered NHS, there was also some positive spending news for industry with defence seeing a £2.9bn bump, an extra £1bn pumped into the aerospace sector, and £2bn allocated to help drive the automotive sector’s zero carbon transition.
An additional pledge to protect more than £20bn of R&D funding, including £6.1bn for core areas including engineering was warmly welcomed by many across industry, including Dr John Lazar CBE FREng, president of the Royal Academy of Engineering who said: “We know the pressures on public finances that put government spending on research and development in the spotlight, and also that R&D spending is the catalyst for economic success. It is now up to the Science, Engineering and Technology sector to work with the government to deliver the innovation and growth needed to unlock investment and create jobs.”
Katherine Bennett CBE, CEO of the High Value Manufacturing Catapult, struck a similarly upbeat tone. "By investing £1bn in aerospace, £2bn in automotive, £500m for life sciences and £6.1bn to protect core research funding in engineering, biotechnology and medical science, the government is cementing the UK as an advanced manufacturing nation," said Bennett. "From these foundations we can build a dynamic and ambitious new industrial strategy."
Bennet also welcomed additional funding for green technology, including newly announced investment in 11 green hydrogen projects. "The government's commitment to the world's first commercial scale green hydrogen projects has moved us a step closer to unlocking the $1tn global hydrogen technology market,” she said.
There has also been a positive reaction from the rail sector which received a number of welcome announcements, including the decision to properly complete the London to Birmingham section of HS2 by funding tunnelling from Old Oak Common to Euston. “Rail suppliers will therefore welcome today’s decision…which means that there will now be a sufficient basis for future north-south capacity,” said Railway Industry Association (RIA) Chief Executive Darren Caplan. “RIA also applauds the chancellor’s commitment to continue delivering the TransPennine Route Upgrade (TRU), the delivery of East West Rail, and the other announcements to strengthen both national and regional rail connections.”
From the engineering sector’s perspective one of the key priorities for government now is the delivery of a meaningful industrial strategy that will help put some flesh on the bones of its various budget pledges. “The chancellor’s commitment to high-growth sectors like aerospace and automotive reaffirms the important role these industries play in strengthening the UK economy” said Dr Graham Hoare OBE, CEO of the Manufacturing Technology Centre (MTC). “Manufacturers will now be eager for the forthcoming industrial strategy to provide the right conditions to supercharge investment in new technologies, as well as the skills needed to anchor emerging sectors in Britain. This is what we need to push the boundaries of UK manufacturing, as well as to drive productivity and global competitiveness.”
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PMI falls as manufacturers feel the squeeze
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