This was a Budget written in London, delivered in London, but almost totally ignored the region that drives the British economy. Rachel Reeves made only one mention of London — about par by recent standards — in her 77-minute speech, compared with five references to Manchester and Scotland, three to Wales and a brace for Leeds. The one time London did get a nod was when she confirmed the heavily trailed decision to find the money to pay for the Sunak-savaged stump of HS2 to at least connect through to Euston.
It may be a crude measure of the Treasury’s priorities, but telling nonetheless. When Sir Keir Starmer talks about “those with the broadest shoulders bearing the heaviest burdens”, he is essentially talking about London and Londoners. Latest official figures show that the Government raised £216.4bn in tax from London households and businesses last year, an average of £24,600 per person. That compares with just £12,800 in the north-west.
Yesterday’s package of announcements suggests that the burden on the capital will only go one way — with small and medium sized businesses particularly badly affected.
Most of the Chancellor’s £40bn of fiscal heavy lifting will be carried out by employers, who will have to shoulder the surprisingly swingeing increase in their National Insurance rates to 15 per cent, kicking in from a threshold of £5,000, rather than £9,100. That represents a £615 hike in business costs per employee per year and comes hard on the heels of the 6.7 per cent rise in the minimum wage to £12.21 an hour.
For London’s already battered hospitality sector these amount to potentially life-threatening increases in costs, particularly for more fragile sub-sectors such as late-night bars. Thankfully there was an extension of business rate relief for hospitality, retail and leisure businesses; but at a reduced rate of 40 per cent rather than 75 per cent. There was no broader reform of the business rate system until 2026, another tricky can kicked even further down the road.
It could have been worse
From the wealth creators who make London such a vital, attractive place to live, the reaction was “not great, it could have been worse”. The Government’s expectations management strategy did what it was supposed to do.
Capital gains tax rates went up — but not by nearly as much as some of the more apocalyptic forecasts suggested. Similarly the rate on carried interest — the extra layer of jam enjoyed by the head honchos in private equity firms — was also hiked, to 32 per cent, but worse had been feared. Still the direction of travel will not make it any easier to persuade business founders to base themselves in London, or indeed anywhere in the UK.
On income tax, news that frozen thresholds will be uprated again from 2029 will be a relief but that still leaves four years of the fiscal ice-age to run when thousands of middle earners will find themselves dragged into the 40 per cent higher rate, or even the £100,000 tax trap at which their effective marginal rate of income tax jumps to 60 per cent, thanks to the withdrawal of the personal allowance.
For the nervous non-doms, the wealthy class of internationally mobile people who have enjoyed making London their home, this Budget will not have brought any great surprises. As flagged in Labour’s manifesto, the 200-year-old regime will end in April next year, to be replaced by what the Chancellor called a “simpler” residence based scheme.
The devil — as ever — is in the detail, but initial feedback from tax advisers suggests that the few concessions offered in the reforms will not be enough to persuade those who have considered quitting the UK to change their minds. There is particular alarm that the new rules appear to bring non-doms’ overseas assets within the scope of UK inheritance tax. For many this will be the final straw — they will leave. Nevertheless, this was a good Budget for tax planning advisers, one industry that will definitely prosper on the back of the statement.
Blow for capital rentals
There was also unhelpful news for the London property market. The extra two percentage point surcharge on stamp duty for buy-to-let investments, lifting it to five per cent, was a real surprise, one of few not pre-spun in the entire Budget statement.
It will bring the stamp rate for investment properties above the £1.5 million mark to 17 per cent. There is an argument to be had about whether the wall of foreign money that has poured into the London property market over the past 30 years has been positive or negative for London — but we are where we are.
In the short term the capital is crying out for good quality affordable rental properties to house the young talent that drives the London economy. By milking landlords even more aggressively, Reeves will make it less likely that the rental sector can grow.
Even some of the more eye-catching giveaways in yesterday’s statement will do more for the regions that delivered the election to Labour in July rather than the capital, which has been a rock solid Labour bulwark for several Parliamentary cycles now. The Chancellor had fun with her tease on fuel duty, eventually revealing she will maintain the “temporary” 5p cut for yet another year. That was clever politics, heading off any potential revolt from “white van man”. Just to rub salt into the wound, the Government sneaked out the news under cover of the Budget that rail fares will go up by 4.6 per cent next year, punishing already squeezed London commuters.
Overall it was an ambitious and unashamedly old-school tax-and-spend Budget aimed at avoiding the hated austerity cuts of the previous decade, keeping the bond market onside and putting the UK on a path towards higher growth. But it will do little to power the London economy that generates so much of the country’s tax revenues. Successive chancellors of all colours have taken the capital for granted. They do so at their peril.
Jonathan Prynn is business editor
