Budget 2025  Gambling on growth? A budget prioritising political survival ahead of tough decision making

It appears that political survival has been prioritised. As a result, there seems little prospect of difficult policy challenges being tackled during this parliament.

The administration now appears to be acutely aware of its deep unpopularity. Therefore, what future impact might the political climate have on UK businesses?

Despite the prevailing negativity, I believe there are at least some positives to be drawn for business owners and entrepreneurs alike.

Budget 2025: IoD members’ negativity

The immediate response to this year’s budget from my fellow members at the Institute of Directors has been overwhelmingly negative.

In an outcome that barely seems possible, the Chancellor’s policy changes have been even more negatively received than those of last year, with 80% negative this year versus 67% after the 2024 Budget.

However, I do feel that this moreover reflects the delayed recognition of the negative impact on employment from last year’s budget.

That being said, it would be unwise to ignore the record-low business sentiment continuing to be expressed by IoD members in the days following the budget.

Of particular concern is the news that IoD members’ confidence in their own businesses fell markedly, to levels now comparable with the first Covid-19 lockdown.

Meanwhile, IoD members are far from alone in expressing their concerns about the recent budget.

For example, a recent poll from the Institute of Chartered Accountants in England and Wales (ICAEW) reported that 74 percent of accountants and senior business leaders surveyed by them perceived the budget to be bad for their own businesses.

Budget 2024: An early Halloween horror show

At last year’s budget, appropriately scheduled for one day ahead of Halloween, something of a sleight of hand was employed in the introduction of additional payroll taxes.

This subsequently resulted in a relatively slow burning feed of impact analyses released by UK employers, largely across the retail and hospitality sectors.

However, as the budget’s impact slowly became more apparent, the inevitability of the consequences for the UK labour market became clearer.

This was something that the IoD membership warned of shortly after the budget itself, as I reported in both my first piece for the IoD this summer, and my follow up in September.

In the absence of any similar delayed reactions in the coming days, the JMAC team feels that the negativity of the IoD membership may prove to be slightly misplaced in comparison.

An administration facing discontent

Last year’s budget was one of a series of hapless policy and presentational errors that has resulted in the PM becoming the most unpopular on record according to IPSOS.

Similarly, the Chancellor is also facing historically low approval ratings, as indicated by a net approval rating of -69 points before the budget by YouGov.

As a consequence the Reform Party remains bookmakers’ heavy favourites at the time of writing to be the largest party at the next General Election.

The budget has therefore taken on even greater importance with crucial elections coming up in May 2026 across many UK council areas and within the Welsh Senedd.

With Labour Party backbenchers getting increasingly anxious, pre-budget messaging ahead of budget day became a key talking point.

To leak or not leak, that is the question?

The decision leaked on 14th November to row back on previously leaked plans to raise income tax rates caused bond markets to take fright over the course of that day.

In the subsequent period ahead of the budget, it appeared that the administration had made something of a conscious decision to refrain from its previously relentless strategy of policy kite-flying.

However, another embarrassing leak took place on the day of the budget itself, with the Office for Budget Responsibility (OBR) “mistakenly” releasing its accompanying budget documentation ahead of the Chancellor’s scheduled policy announcements in parliament.

The OBR’s documentation provided early sight of the budget’s contents, thereby generously providing the “Conservative” Party Leader with additional time to prepare her subsequent evisceration of the Chancellor in the House of Commons.

The OBR Chair resigned on 1 December in the fallout from this embarrassing episode. However, despite increasing pressure on the Chancellor herself, she remains in post for the time being.

Is political survival trumping the national interest?

Nonetheless, the future of the holders of the two Great Offices of State remains highly uncertain.

It should therefore come as little surprise to see the final budget announcements favour the demands of the Labour backbenches.

As a consequence there were no attempts made in the budget to address the longstanding challenges the UK faces around Welfare, Mass Immigration, Higher Education Reform, and Public Sector Productivity, challenges I warned of in my first piece for the IoD.

Furthermore, the decision to remove the two-child benefit cap on welfare further reinforces the huge disincentives to work within the Universal Credit benefits system, something I also warned of back in July with the IoD.

Meanwhile, the decision also further cements one of the many pull factors underpinning the mass immigration policy pursued by successive administrations, initiated by the New Labour administration in the early 2000s.

That even the French Prime Minister himself highlighted this issue during his visit in the summer should not go unnoticed.

Sadly, the ideological inability of the administration to make the required important and difficult decisions is something I fully anticipated ahead of its election. The content of the budget therefore did not come as a surprise to the JMAC team.

Deferred tax rises, with a high potential to unravel

With public expenditure growing unabated, the Chancellor chose to demonstrate a limited commitment to fiscal credibility by announcing tax raising measures deferred into the tail of the current parliamentary period.

The Chancellor has chosen to extend existing personal tax thresholds further in to the next parliament, drawing much attention (and ire) around pre-election manifesto promises.

However, it was the announcement of some of the additional measures that caught our attention at JMAC, where we see obvious potential for those policies to unravel in the face of the laws of unintended consequences.

Firstly, the Treasury calculation that the introduction of road charging for electric vehicles from April 2028, forecast to raise £1.1bn, has already come under close scrutiny.

In the absence of mandatory mileage reporting from new vehicles through the MOT process, this policy appears to require either a new (and costly?) method of calculation or voluntary reporting (with an inevitable impact on the second hand market).

Similarly, the planned introduction of the High Value Council Tax Surcharge from 2028 appears to be dependent on still-to-be-defined valuations strategies.

Finally, a decision to revise business rates from April 2026 has led hospitality sector representatives to report average increases of between 76% and 115% for their members.

With retail and hospitality sectors already reeling from last year’s rises in payroll taxes, not to mention inflation-busting National Minimum Wage announcements, we anticipate further casualties in this space that will limit funds raised by this policy.

Gilt markets remain calm, for the time being…

Despite those deferred tax-raising measures, the bond market has remained becalmed since the budget.

However, as I warned recently on Substack, in my view it is the political climate that is most likely to cause renewed stress within the bond market.

The markets gave an indication of this during the summer, when the Chancellor’s emotional PMQs appearance triggered a brief spike in UK gilt yields.

The administration is expected to suffer heavy defeats in May’s local and Welsh Assembly elections. This is therefore likely to be the moment for renewed pressure on the PM and Chancellor, and as a consequence, the bond market.

But what of upsides, you ask?

Although received extremely negatively by business groups, there are some positives to take away from recent policy announcements.

For example, the administration’s decision to row back on their plan for unfair dismissal rights from day one in the upcoming Employment Rights Bill is welcome news.

This was an important announcement, particularly given the OBR is forecasting that unemployment will remain at its current level of 5% until at least 2027.

It should be noted that this appears to the JMAC team to be a highly optimistic prediction, particularly given the ongoing difficulties within the labour market since the decision was made to tax employment in last year’s budget.

There is also reason to be hopeful that the deferral of tax rises until the latter stages of this parliamentary term might enable the economy to benefit from the large amount of uninvested capital remaining on the sidelines.

As I highlighted back in the summer, UK personal savings rates remain at levels not seen since Q1 2010, if one excludes the Covid-19 lockdowns.

In my view this also partly reflects an overhang in excess savings from those Covid-19 lockdown periods.

Here at JMAC we have seen a nascent recovery snuffed out on separate occasions during that post-Covid period.

It should be stated that the war in Ukraine, and subsequent inflationary spiral, is not something that UK policy makers can necessarily be overly criticised for.

However, I do strongly believe that the Labour administration’s negative messaging after their election victory only dampened an economy that was showing promising signs of recovery.

This comes from somebody who previously treated those with a strong belief in the economic value of “animal spirits” with suspicion!

In conclusion

In the face of a disgruntled (and ideological) backbench, the Chancellor was never in a position to carry out the types of spending reforms I have previously strongly called for.

Instead, by deferring tax raising measures to the tail of this parliament, it appears that the administration is gambling on growth for a turnaround in their fortunes.

However, by avoiding a repeat of the last year’s budget, I believe UK growth may well surprise on the upside next year and beyond.

Furthermore, the absence of a newly elected administration keen to talk down the state of the UK economy might further encourage the unleashing of those fabled “animal spirits”!

The Chancellor appears to have kicked the hardest decisions down the road and, consequently, potentially given private-sector Britain some breathing room. Let’s not waste it.