Where was the applause for the budget from the business world? Well, there was the banking sector, but it was reportedly under strong encouragement from the Treasury to engage in a round of corporate cheerleading after being spared higher levies. Nor should one get carried away by JP Morgan’s coordinated announcement of a new £3bn office in Canary Wharf. Yes, the commitment shows some level of long-term confidence in the UK, but large international banks do not make property decisions on the basis of what they heard one afternoon.
In the non-banking business world, the broad day-after reaction to the budget can be summarised as a resigned shrug coupled with amazement that the chancellor, Rachel Reeves, offered so few pro-growth measures even as the Office for Budget Responsibility set out two depressing forecasts. First, that the average growth rate for the economy from 2026 to 2029 will be only 1.5%, rather than the 1.8% expected in March. Second, real-terms annual growth in disposable incomes will be tiny.
One FTSE 100 chair puts it this way: “There were no positive themes to hold on to or to build on. There was nothing structural to move us forward. The sense of distrust is very high.”
That distrust flows, of course, from the long weeks of briefing and speculation in the runup to the budget, which won’t be forgotten in a hurry. Income tax hikes were out, then in, then out again. As one executive said, you would not get away with running a public company in this fashion. It all undermines faith that a strategy sits behind the decision-making.
In defence of the government’s pro-growth ambitions, one could argue that big decisions, such as planning reform and a boost to infrastructure spending, were made a year ago and were always intended to pay off over the long term. Reeves – at least for now – also seems to have achieved one primary goal of calming the bond market, which may allow the Bank of England to cut interest rates slightly sooner. And she brought a definitive compromise to the technical wrangles over business rates that have consumed the retail and hospitality sectors for the past 12 months: big premises will still get hit, just not as severely as previously indicated.
Yet one suspects businesses’ grumble about lack of ambition and urgency in government will only grow louder. The most noteworthy piece of tax reform was the relatively minor one of introducing per-mile charging for electric vehicles from 2028 – a measure that could not be ducked any longer. But the flashier “council tax surcharge” for homes worth more than £2m, raising a modest £400m a year, obviously does not equate to fundamental overhaul of the UK’s dysfunctional property taxes. There seems to be zero appetite to tackle stamp duty on housing transactions, regarded by many economists as the most dysfunctional and growth-sapping taxation of the lot.
Meanwhile, the target of building 1.5m homes over the course of parliament is on course to be missed by a mile with little sense of how the position will be improved. On the sky-high cost of energy, ministers are driving big manufacturers mad by taking an age to extend the “British industrial competitiveness scheme”, which gives savings on electricity bills, to 7,000 energy-intensive companies. That scheme was meant to be the centrepiece of the industrial strategy but won’t arrive until spring 2027. And stamp duty on shares, a terrible advert for London as a financial centre, remains in place, even as the chancellor tries to prod Isa savers towards the stock market; the three-year holiday for companies listing in London was merely a token gesture.
The business world is not naive about Reeves’s fiscal challenges, or about the power of her backbenchers. But the general cry in the past year has been for more incentives to invest, hire and boost the UK’s international competitiveness. A tax-raising budget was perhaps always unlikely to produce a bounty on that front – but, for a government that still maintains that growth is its “number one mission”, something was needed to stir animal spirits. The mood has been flat for months.
Business, one suspects, would endorse every word of this overview by Helen Miller, the director of the Institute for Fiscal Studies: “The chancellor, like her predecessors, continues to shy away from meaningful tax reform that could move the dial. This felt mostly like the budget of a government trying to scrape through. Of course, no fiscal event can do everything, and reform is hard. But given the scale of the challenges we face, and given the government’s lofty rhetoric about change, and its ambitions on growth, I think we’re entitled to ask for more.”
