The Battle Between British Businesses and the Upcoming Budget.

With the November budget inching ever closer, will Rachel Reeves be able to jumpstart the British economy as she had hoped to do so over a year ago? 

In the October 2024 budget, Reeves succeeded in making life more difficult for British businesses. Since April of this year, businesses have seen a hike from 13.8% to 15% in national insurance contributions, making growth through reinvestment less attainable. 

This has worsened an issue that some experts have argued Britain already faces; existing red tape makes taking financial risks in the UK less palatable. This is because when startups or new campaigns fail, it is much harder and more expensive to fire a workforce, especially compared to countries like the US.

Even Reeves’ own party is unimpressed with how she is perceived to be trying to please too many people at once.  Despite this common criticism of the current labour government, it may prove strategic in a political climate where Reform is becoming an ever-larger threat. It is, of course, difficult to tell at this stage whether this will pay off or not, but for the time being, it is creating division within the party. 

Unfortunately, it seems she is planning on making the issue worse, especially for small businesses.  From her speech on November 4^th, it has been implied that whilst Reeve’s might lower NIC’s, she is planning on increasing the basic rate of income tax, something which hasn’t been done since the labour chancellor Healey in 1974. 

The sting will be felt sharply by the self-employed who will not benefit from the lowered NIC’s, and will have a huge negative impact on the businesses they run. Small businesses are already struggling following the minimum wage hike, and if Reeves goes forward with the entailed budget, they will be taking less (potentially reinvestable) money home.

Reeves seems to be forgetting that the British economy is driven by small businesses, targeting them for a second time. The Federation of Small Businesses expects one in three small firms to shrink or even shut down in the coming year.  This is a problem for the future of the economy as we see rising unemployment as we have in the last year, and the government will have fewer businesses to collect money from. This all begs the question: what the typical high-street will look like as independent shops face more and more challenges?

In an immoral turn, the government may be able to make gains from the small businesses or limited companies which are forced to sell. Capital gains tax is set to rise to 18% in April 2026, having been increased from the previous 10% level before April 2025. A rather miserable silver lining to the whole ordeal. 

We can only hope that Reeves’ new budget will be considerably less harsh than expected. The Bank of England is set to lower inflation, which may help offset any negative effects the budget has on businesses and should encourage investments. However, it has stated that inflation may stay above the 2% target “if firms start to charge more to cover increased costs”.  As a cost increase is certainly on the cards, it is likely therefore that any fall in inflation will not be significant in helping jumpstart the economy. 

Reeves’ plan is flawed. Businesses have reason to brace themselves for the changes and challenges to come, and perhaps the government should be doing the same.