Rachel Reeves has announced a £41.5bn tax increase in her first Budget, the largest increase since 1993 taking Britain’s tax burden to the highest on record. The Chancellor added £28bn per year in extra borrowing to this, unnerving bond markets and sending the cost of borrowing up sharply. Ten-year bonds rose to over 4.4% – their highest this year, while yields on two-year gilts jumped to 4.36%. The tax and borrowing hikes were accompanied by plans for a £100bn rise in capital spending. A £25bn rise in national insurance paid by employers will fund most of the tax increase, while roughly £9bn a year will be raised from higher taxes on non-doms, private schools, energy companies and private equity bosses. Labour’s Budget prompted the Office for Budget Responsibility to downgrade its growth projections from 2026-28 due to higher taxes weighing on household incomes and higher borrowing driving up inflation, keeping interest rates higher for longer. Speaking to Sky News following her appearance in the Commons, the Chancellor said the scale of the tax hike was a “once in a parliament” event but could not rule out further increases as this would be “irresponsible.”

Rachel Reeves confirmed the Government will abolish non-dom tax status from April 2025, replacing it with a residence-based regime with reliefs for temporary visitors. For the first time, the former non-doms will be taxed on their worldwide income and capital gains, not just from work and investments in the UK. The new regime will also bring foreign earnings into the inheritance tax system, but will extend the transition period for people to bring money onshore from two years to three. Another concession is an extension from two years to three years in the period during which former non-doms would pay a lower rate of tax on 12-15% on repatriated income used for spending or investing in the UK. While some have welcomed the move, others have warned that the abolition of the system could negatively impact the UK, with Miranda Fisher, partner in the family law team at Charles Russell Speechlys, saying it could lead to “a loss of the highest proportion of millionaires in the world over the next few year.” The OBR estimated that 25% of non-doms with offshore trusts would now leave the UK, up from a previous estimate of 20%. Scrapping the scheme could cost the UK £6.5bn by 2035, and 23,000 jobs by 2030, according to the free-market leaning Adam Smith Institute. But the Government believes the reforms would raise more than £12bn in the next five years.

Labour has made changes to carried interest relief – the tax due on the share of profits paid to investment fund managers. Previously subject to capital gains at rates of 18% and 28%, the tax will be a single rate of 32% from April 2025. The Chancellor said the fund management industry “provides a vital contribution to our economy” but there “needs to be a fairer approach to the way carried interest is taxed.” The changes will raise around £300m for the Treasury, according to Budget documents. Rachel Reeves previously suggested there could be allowances for dealmakers that commit their own personal capital to funds. Michael Moore, chief executive of the British Private Equity and Venture Capital Association (BVCA), said there should now be a “resolute focus on international competitiveness” as the Government fleshes out the details.

The Government is set to intensify its efforts against companies promoting tax avoidance schemes that enable workers to obscure their employment status and reduce tax liabilities. The Chancellor said the initiative will help close the £6.5bn tax gap and clamp down on those umbrella companies who exploit workers. Additionally, HMRC will hire 5,000 new staff by 2029-30, with an expected £2.7bn gain for the Treasury in that tax year. But Fiona Fernie, a partner at Blick Rothenberg, said: “Despite the Chancellor’s suggestion that she is going to raise billions each year by closing the tax gap, it is difficult to see how this is going to be achieved. The provisions set out show that only 200 additional HMRC compliance staff are due to start training in November and the training will inevitably take several months.”

Rachel Reeves has announced significant changes to National Insurance (NI) contributions, reducing the threshold for employers from £9,100 to £5,000 and increasing the rate by 1.2% to 15%. The move, part of a £40bn tax hike package, is expected to lead to a decrease in hiring and significantly impact living standards. Shevaun Haviland, director-general of the British Chambers of Commerce, said the increase in NICs, alongside a 6.7% rise in the national living wage, will stymie investment and slow recruitment. Elsewhere,  Roger Barker, director of policy at the Institute of Directors, warned that the Budget may negatively impact business confidence, stating: “The risk is that this will exert a negative impact on business confidence, with worrying implications for the economy’s future growth trajectory.” In a concession to small businesses, the Chancellor doubled to £10,500 the employment allowance that businesses can claim back against national insurance costs. This was welcomed by Tina McKenzie, of the Federation of Small Businesses, but she said small firms will struggle with the increase in NICs “on top of the large costs from the Government’s employment law plans.”

Industry leaders have raised concerns that a reduction in property tax relief will lead to store closures and job losses in small retail, hospitality, and leisure sectors. Rachel Reeves announced plans to cut the current 75% discount on business rates to 40%, affecting over 250,000 high street premises in England. Vivienne King, chair of the Shopkeepers’ Campaign, stated: “This will leave many facing unmanageable bills and difficult decisions about their future.” The changes are expected to result in an average 140% increase in business rates bills, amounting to £688m. Kate Nicholls of UK Hospitality warned that the reduced relief, combined with rising costs, will make 2025 a challenging year for the sector. Helen Dickinson, chief executive of the British Retail Consortium, said that with retailers paying more than 21% of all business rates in the economy, “the solution is not to simply shift the burden around, but to look outside retail to address the disproportionate impact of business rates on the industry”.

Founders in the UK fintech sector have expressed significant concerns regarding the regulatory environment, warning that it could jeopardise London’s status as a global fintech hub. A recent survey revealed that 39% of founders rated the UK’s regulatory framework as “poor” or “awful,” with many considering relocating to countries like the US and the Middle East. Seb McDermott, co-chair of Fintech Founders, said: “The UK remains an attractive place to start a business, but if founders don’t feel supported in their growth journey, they will look to greener pastures.” Despite these challenges, over 80% of founders remain optimistic about their business prospects in the coming year. The Fintech Founders Annual Survey, which has been conducted since 2019, highlights the need for better collaboration between entrepreneurs and policymakers to ensure the sector’s growth and sustainability. Earlier this month, 66 founders urged Chancellor Rachel Reeves not to raise capital gains tax in a way that could harm UK competitiveness.

The Guardian reports on how Lloyds Banking Group has responded swiftly to a recent court of appeal ruling that deemed certain car loan commission payments as mis-sold. The bank has cancelled commission payments across its £15bn motor finance arm and set aside £450m for potential compensation. CFO William Chalmers stated that the bank had to “adapt quickly” to continue issuing loans. The ruling has raised concerns across the financial sector, with analysts estimating potential costs for Lloyds between £2.5bn and £3.9bn. The Finance and Leasing Association is urging authorities to extend the pause on complaint responses, as the ruling could lead to broader implications for commission payments across various financial products.

Sir Howard Davies, former chairman of NatWest, has called for urgent reform of the anti-money laundering (AML) rules in the UK, stating they impose a £30bn annual burden on banks with minimal prosecutions. He described the current regime as “remarkably burdensome” and highlighted complaints from foreign banks about its complexity compared to Europe. “There’s a massive cost on the industry which seems to result in remarkably few prosecutions,” he noted during a House of Lords committee session. The Financial Conduct Authority defended the rules, stating they are essential to prevent misuse of the financial system for crime.

Rachel Reeves has decided not to increase existing taxes on banks or introducing a financial transaction tax after lobbyists warned it could hurt the sector’s international competitiveness. Britain’s banking sector paid a record £44.8bn in taxes in 2023/24. UK Finance and TheCityUK have called for an end to the bank levy and corporation tax surcharge altogether, arguing this would bring Britain’s tax rate closer to rival jurisdictions.