Budget 2025: What It Means For Your Business

It’s strange when a budget gets published before it gets announced in public by the Chancellor, but that’s what happened today when the Office for Budget Responsibility (OBR) forecast was accidentally made available online.

One headline published before the leak – a pre-leak leak if you like – has been an increase in the living wage. A 2020 report to the Low Pay Commission under the previous conservative government showed some negative consequences from increases in the living wage for the least efficient or most vulnerable businesses, but not a halt to overall business growth or increases in overall unemployment.

Listening to experts, this budget is not all bad, but it equally relies on fiscal drag – it is dependent on things like wage growth pushing people into higher tax brackets. Basically, it’s a budget that’s dependent on what happens tomorrow.

As David Rees, Head of Global Economics at Schroders said, “On paper, today’s Budget has done enough to put the UK public finances back onto a sustainable path and may allow the Bank of England to cut rates a bit further, but we suspect it will not be long before the government is forced to come back with more fiscal consolidation.”

While politicians shout at one another and attempt to get their agenda in front of the public, we’ve tried to cast a critical eye over what was announced.

Understanding the indicators (not the reality)

The best indicators for business growth in the UK, outlined in the budget, include a prediction for real GDP growth, business investment rates, increases in employment and participation levels, real household disposable income, and measures of confidence such as business sentiment and equity prices.

But these are indicators, not reality. They reflect what the government believes to be demand and supply conditions that will directly affect companies’ opportunities to expand.

Key Business Growth Indicators

• Real GDP Growth: An overall expansion of the economy will lead to business opportunities. The International Monetary Fund (IMF) forecasts that UK GDP growth will be 1.3% for 2025 and 2026, while the OBR forecasts 1.5% for 2025 and 1.4% for 2026. Both predict growth, but the OBR is more bullish.
• Business Investment: A rise in capital spending signals confidence in future growth and underpins productivity improvements. This could be fuelled by lower business rates for small businesses – not news that will bother larger enterprises.
• Employment and Participation Rates: Higher employment and workforce participation indicate robust demand and a capable labour market to support business expansion – and breaks to encourage apprenticeship employment will aid this.
• Real Household Disposable Income: Growth here would support consumer-facing businesses by enabling spending. But this is offset by measures that might reduce income, although the £2,000 salary sacrifice pension cap might encourage some to increase net income and invest in stocks and shares ISAs.
• Equity Prices and Business Profits: These impact the availability of finance and suggest the health of the corporate sector.

But there are challenges for growth and current budget contains several elements that present potential barriers to business growth.

• Higher taxation through the extension of personal tax threshold freezes to 2031, increases in employer National Insurance Contributions, and higher capital taxes mean higher costs for businesses and less disposable income for consumers, which could dampen demand and investment appetite.
• Subdued productivity and wage growth projections remain low, and real earnings are forecast to recover only modestly, constraining both the supply and demand sides of the economy.
• High and sustained inflation persists, and elevated financing costs – like higher interest rates – increase input costs and may deter new investment.
• Ongoing public sector borrowing and high debt levels remain higher than historical averages, maintaining pressure on the fiscal environment and potentially limiting the government’s scope for future stimulative measures.

But what does the detail of the budget mean for your sector?

Construction companies

Companies in the UK construction industry planning for growth should pay close attention to several key trends highlighted in the latest economic and fiscal outlook.

The labour market is experiencing loosening conditions, with rising unemployment and subdued job creation, especially affecting sectors like construction, which are sensitive to cyclical changes. Despite pressures, wage growth remains higher than anticipated, but it is expected to slow from 2026 onward, reflecting softer demand and the impact of changes to employer National Insurance Contributions (NICs).

Skills shortages and changing demographics – such as an ageing workforce and the impact of migration policies – will continue to influence recruitment and retention. Businesses should invest in training and retention to mitigate these issues.

Inflation is forecast to be more persistent, especially in services and wage settlements, before easing back towards target in 2027. This means construction firms are likely to continue facing higher materials and wage costs over the short term. Planning for cost increases and evaluating supply chain strategies will be important.

Real GDP growth is expected to remain subdued in 2025 and 2026 (around 1.4-1.5% per year), with slow overall economic momentum, but business investment’s share of GDP has risen and public investment is being front-loaded in areas like infrastructure, which may present opportunities for construction firms.

There are ongoing changes to business rates, capital allowances, and tax regimes that affect construction businesses. The Budget has introduced tweaks to capital spending plans, business rates, and tax thresholds, all of which could have cash flow implications.

Construction companies need to build resilience to economic shocks such as sudden changes in house prices, property transactions, and volatility in commercial property markets. Sustainability demands, new building regulations, and decarbonisation policies remain both a risk and an opportunity in the sector, as clients look for greener solutions and public policy increasingly supports these moves.

Finance and Banking companies

Companies in the UK finance and banking industry planning for business growth should consider several economic, regulatory, and market factors as outlined in the fiscal outlook.

The overall economic outlook is one of modest GDP growth but slightly above-expected nominal earnings, which will continue to influence demand for lending, asset management, and other financial services.

There are downward revisions to profits for financial institutions, partly due to specific interventions like the Financial Conduct Authority’s motor finance compensation scheme, which alone is expected to reduce sector profits (and thus corporate tax receipts) by about £2 billion over 2025-27.

Market volatility and changing asset prices, especially in equities and real estate, will impact investment banking and wealth management operations. Capital gains tax receipts are forecast to rise on the basis of higher equity values, suggesting opportunities and risks for capital market activities.

Reforms to personal tax rates – including on dividend, property, and savings income – will affect profitability, particularly for banks with retail operations and wealth management arms. Corporation tax policy changes (including reductions in writing down allowances) will increase tax burdens for many companies, moderating post-tax profits and affecting capital planning for growth.

The fiscal outlook warns of risks related to the nominal path for GDP, interest rates, and the valuation of financial assets – directly impacting the banking sector’s balance sheets, risk-weighted assets, and capital requirements.

Banks and financial companies should stress-test business growth strategies against scenarios of higher borrowing costs, continued regulatory tightening, and subdued consumer demand. Emphasis on digital transformation, efficiency, and resilience is critical as competitive pressure increases and policy uncertainty persists.

Utilities, Water and Infrastructure companies

Companies in the UK utilities, water, and infrastructure sectors need to plan for growth with careful attention to several economic, policy, and finance-related trends highlighted in the fiscal outlook.

Environmental levies – such as Contracts for Difference, Renewables Obligation, and capacity market payments – are forecast to rise as the UK continues decarbonisation and supports new nuclear (e.g., Hinkley Point C and Sizewell C) and renewable energy infrastructure.

Investment will increasingly be shaped by direct and indirect government support for clean energy, and by the structure and timing of subsidies, regulated asset base models, and capacity market arrangements. These drive both opportunities (new projects, funding) and risks (policy changes, market volatility).

There is a trend toward higher effective rates of tax on business profits, partly due to the main corporation tax rate and changes to capital allowances. Companies must factor in persistent increases in wage and procurement costs, pressures from inflation, and frozen personal tax thresholds (which may affect disposable income and demand).

Forecasts show ongoing strains on local authorities’ capital spending and balance sheets, in part due to historic deficits and statutory obligations (like costs for special educational needs), which may reduce their ability to fund major infrastructure and utility upgrades without central government support.

Water, utilities, and infrastructure firms must anticipate volatility in wholesale energy prices, ongoing changes to energy and carbon pricing/levies, and the gradual decline of fossil fuel tax receipts, which indicates a structural shift in utility revenues and government policy priorities.

Plan for a transition from fossil-fuel-based revenues to low-carbon infrastructure and services supported by new regulatory models and government-backed finance. Stress-test growth plans for sensitivity to changes in public sector demand, government subsidy/tariff regimes, and local authority spending power.

Energy Production companies

UK energy producing and oil & gas companies should consider several major trends and risks when planning for growth, as detailed in the latest fiscal outlook.

Market expectations for Brent oil and wholesale gas prices have been revised downward compared to previous outlooks, with oil prices projected to average $67 per barrel and gas at 78p per therm, both notably lower than prior estimates. Domestic oil and gas production is projected to decline steadily through the decade, reducing output volumes despite price fluctuations.

Government tax receipts from oil and gas are set to fall sharply by 2030-31 due to both declining domestic production and the scheduled expiry of the Energy Profits Levy (EPL) in March 2030, unless triggered to extend by a fall in global prices below specified thresholds.

The macroeconomic environment includes higher financing costs (bank rate and gilt yields) compared to recent years, and there is increased volatility in capital markets. The combination of high government debt and sustained inflation has driven UK government bond yields to the highest among G7 countries, pushing up borrowing costs for all sectors, including oil & gas investment.

The sector faces ongoing policy and regulatory pressures as the government prioritises decarbonization, transitions away from fossil fuels, and supports renewable and nuclear power, seen in the rise of environmental levies and support for new clean energy projects.

Companies should stress-test their business models against lower-for-longer oil and gas prices, volume declines, and higher costs of capital, as well as the risk of new or extended fiscal interventions. Investment decisions should account for declining tax incentives (as the EPL and other temporary support measures expire), as well as the competitive push toward decarbonisation and regulatory costs associated with energy transition policies.

Professional Services companies

Companies in the UK professional services industry should closely monitor several important trends when planning for business growth, as outlined in the latest economic outlook.

Personal taxes, including income tax and National Insurance Contributions (NICs), are rising steadily. This is due to both economic factors – like higher wage growth – and policy decisions, such as the extension of personal tax threshold freezes until 2031 and increases to employer NICs. These measures will raise the tax burden on employers and high-wage professionals, increasing costs for firms and potentially influencing compensation strategies.

The main rate of corporation tax remains elevated, and changes to capital allowances make investment in new capital less tax-advantaged than before. This will affect cash flow planning and the attractiveness of capital expenditure.

Nominal GDP is growing more slowly, and much of this growth is being driven by labour income rather than corporate profits. With subdued overall economic growth, demand for some professional services – especially those tied to business expansion or M&A – may remain modest in the near term.

Capital taxes, including capital gains tax and inheritance tax, are expected to increase, impacting wealth management, legal, and tax advisory parts of the sector. Market volatility in equity prices and property valuations can lead to uncertainty in client demand for advisory and transaction services.

The government is increasing efforts to close the tax gap and strengthen compliance, with a focus on small business non-compliance. Professional services firms – especially in accountancy and tax – should ensure robust advisory practices and compliance systems for themselves and their clients.

Professional services will be affected by the upward pressure on wage bills due to higher employer NICs, and the potential for a stagnating workforce participation rate. Attracting and retaining skilled professionals will remain a core challenge as the overall UK labour market faces continued structural and demographic headwinds.

Leisure and Public Transport companies

Companies in the UK leisure and entertainment industries should focus on evolving consumer demand, input costs, and operating risks when planning for business growth.

Household real disposable income growth is slowing, mainly due to persistent inflation and higher personal taxes driven by extended tax threshold freezes. Real GDP growth for the coming years is subdued, supported mainly by investment and exports rather than strong household consumption, which can impact discretionary spending on leisure and entertainment.

Business rates for leisure and hospitality venues benefit from short-term relief, but these are time-limited, with an anticipated increase in costs after revaluation and the expiry of current reliefs.

The cost of labour continues to rise due to higher employer National Insurance Contributions (NICs) and ongoing upward adjustments in the National Living Wage, which affect employment-intensive sectors like leisure, entertainment, and hospitality.

Utilities and energy costs remain volatile, and evolving regulatory charges (such as environmental levies) could add medium-term pressure on operational expenses.

Policy measures to reduce the tax gap focus on enhancing business compliance, especially for smaller companies, suggesting an increased requirement for sound financial administration and prompt adaptation to regulatory changes.

Businesses in the UK leisure and entertainment industries must monitor changing demand patterns, plan for rising wage and regulatory costs, and ensure robust compliance to succeed as the broader economy enters a period of slow, tax-rich growth.

Technology companies

Companies in the UK technology industries should prioritise resilience, adaptability, and investment in productivity-enhancing innovation when planning for business growth. There are several critical factors – both opportunities and challenges – outlined in the fiscal outlook that will shape the sector’s trajectory.

UK GDP growth is expected to be steady but subdued at around 1.5% annually through the rest of the decade, with productivity growth assumptions now lowered compared to past forecasts.

Business investment across the economy, a driver of technology sector expansion, is forecast to be weaker due to higher long-term interest rates, less buoyant corporate profits, and lingering uncertainty in business sentiment – factors that could weigh on funding for tech-driven growth and new ventures.

The outlook also implicates a slowdown in labour supply growth, though ongoing adoption of AI and technology innovation is projected to offset some of the effects and remains vital for underlying productivity.

The government’s fiscal policy raises the overall tax-to-GDP ratio to historic highs through personal tax threshold freezes, increases to National Insurance Contributions, and targeted increases (such as the digital services tax) – increasing the labour and operating costs for tech businesses, especially fast-scaling ones.

Long-term productivity growth is expected to benefit modestly from AI and technological advancements, but this is less optimistic than pre-2020 assumptions. Investment in digital transformation and adopting new technologies will be key for tech firms to excel and outpace broader sluggish productivity trends.

Wage and employment costs are rising, particularly for highly skilled roles; changes to the non-dom regime and skilled worker migration rules may impact talent acquisition and retention. Planning for competitive compensation and remote/hybrid models may help address labor market frictions.

The cost of capital is elevated due to higher interest rates and gilt yields, which may restrain investment in R&D and expansion for both startups and larger technology companies.

Technology companies should focus on investing in next-generation productivity tools, building highly adaptable teams, and maintaining robust compliance and financial planning. These strategies will help mitigate higher input costs and the drag of a slow-growth macroeconomic environment while positioning for long-term gains.

The truth is, every budget creates winners and losers. This one is no different. What matters now is how your business responds – with clarity, strategy, and a willingness to adapt to the realities ahead.