The Fiscal Picture
The Chancellor announced £26 billion in tax rises, pushing the tax burden to 38% of GDP, the highest since the Second World War. Much of this will come from fiscal drag, with income tax and National Insurance thresholds (amongst many others) frozen until 2031. This approach avoids headline rate hikes but concentrates the impact on middle earners and risks behavioural distortions, such as reduced work incentives.
Public borrowing remains high, and debt servicing now consumes 10% of tax revenues. While fiscal headroom has doubled, the probability of meeting fiscal targets by 2030 is only 56%, underlining the fragility of the outlook. The Budget also presumes a fiscal tightening – both higher taxes and lower spending – in the year of the next election, setting up a larger political challenge.
Economic Context
Growth forecasts hover around 1.5% annually, with productivity downgraded yet again. Inflation is easing but remains sticky in consumer-facing sectors. Household spending is subdued as savings rise, despite real wage gains. This matters because two-thirds of UK GDP depends on consumer demand.
As Christian Spence observed during the recent budget analysis:
“Where are the policies to actually deliver growth? The UK has had a terrible productivity outcome since 2008, and this budget still doesn’t answer that question.”
Impact on Real Estate
The Budget introduces incremental changes for the property sector rather than sweeping reform. Early steps toward business rate reform are emerging, with relief aimed at smaller retail, leisure, and hospitality businesses, while those with larger properties, particularly those over £500,000, face higher multipliers. On the residential side, the proposed “mansion tax” adds complexity to an already inefficient council tax system, creating uncertainty for high-value homes and likely slowing transactions as buyers await clarity on valuations. Despite these adjustments, the lack of comprehensive property tax reform remains a missed opportunity, leaving the sector navigating piecemeal changes instead of long-term stability.
Regional Opportunities
While national growth is modest, Northern cities are outperforming. Manchester, Leeds, and Liverpool are driving productivity and inward investment, supported by strong housing demand and commercial development. The English Devolution Bill and proposed visitor levies could unlock new funding streams for local authorities, creating opportunities for businesses aligned with regional growth strategies.
What This Means for Business
For organisations, the implications are clear:
- Plan for higher taxes and tighter labour markets. Frozen thresholds will pull millions into higher tax bands, and wage pressures persist.
- Focus on productivity and innovation. With no clear national growth plan, businesses must lead the way in efficiency and technology adoption.
- Leverage regional momentum. Northern cities offer strong growth prospects, and devolved powers will create new investment opportunities.
The Bottom Line
Budget 2025 stabilises the short term but does little to address the UK’s structural growth challenge. Businesses that act decisively, investing in productivity, adapting to fiscal changes, and capitalising on regional opportunities, will be best placed to thrive.
