Another Budget: Perceptions, Reality and Delay
Central London Alliance (CLA) examines whether the Budget has done anything to restore business confidence, encourage investment and put London on a path to sustainable growth.
Purpose
The ‘not another one!’ previous exclamations could reasonably have referred to yet another Prime Minister. Another Chancellor. Another Budget, the third under this Government. Or a signal that a wrongly described ‘no harm Budget’ was a precursor to another General Election. Yes. Another General Election. When? Probably next year. Why? Because to announce the policies the Government needs to implement could be electorally damaging to the Government if announced in advance of a General Election. So the ambition of the Budget was to avoid the announcement of big decisions, because Labour MPs would not support policies and actions that risked their local seats, even if they responded to national needs.
CLA does not believe that the ambitions and purpose of the Chancellor and his Budget were to stimulate or to support growth and the Budget did not achieve this.
Fiscal discipline matters and is welcome. But London’s businesses are still dealing with the cumulative impact of rising employment costs, unprecedented levels of taxation, burdensome regulation and uncertainty. The latest Budget did little to resolve those concerns.
Relative stability in the markets should not be confused with confidence among the businesses that drive London’s economy. London’s confidence continues to decline.
For London, the real test is not whether the Budget could have been worse. It is whether it created the conditions for businesses to invest, employ people, expand and compete internationally.
There are four areas of particular importance to London’s economic health: employment, hospitality and the visitor economy, property and international investor confidence. These are not peripheral interests. They are central to the capital’s prosperity, disproportionately represented in London’s economy.
Employment: the cost of creating and sustaining jobs
Employment remains one of the most pressing concerns for businesses. London is home to a significant concentration of employers, particularly in hospitality, retail, leisure, tourism and other service industries. These sectors provide substantial numbers of jobs, offer routes into employment for young people and those entering the workforce, and support progression into skilled and managerial roles.
Employer National Insurance contributions, changes to thresholds, increases in the National Living Wage and the requirements associated with the Employment Rights Act (ERA) have all contributed to a more challenging, less flexible and more costly operating environment.
The Budget’s increase in the National Living Wage by 3.9% to £13.21 an hour from April 2027 represents another increase that must be absorbed, offset through productivity or reflected in prices.
The concern is not about whether employees should be fairly paid. It is whether businesses are being given the conditions they need to sustain employment and create new opportunities.
Since Labour took office, the number of young people not in education, employment or training has grown to over a million. These 16 to 24-year-olds in London and elsewhere are being failed and the Budget announcements have done nothing to encourage London’s businesses to change the trend, to take risks and engage young people in productive work.
NEETs to be £125 billion – more than the Treasury spends on education or defence. There are long term impacts recognised by Mr Milburn and his description of a “lost generation” and “moral crisis”. This should have signalled a reversal in the Government’s penalties for employers.
If the cost and complexity of employing people continues to increase, employers will not recruit, cease investment in training, reduce opening hours and/or fail to take on people at the start of their careers.
These pressures are particularly acute in London, where businesses already contend with higher property, energy and operating costs. Government policy neglects the cumulative burden on employers and businesses, and at best only considers each increase or regulatory requirement in isolation.
The Government should be asking whether its approach is making it easier or harder for businesses to employ people, rather than treating support for workers and support for employers as competing objectives. A healthy employment market depends on businesses being able to create and sustain jobs.
Hospitality and the visitor economy: a major employer treated unfairly on business rates
Whilst qualifying retail, hospitality and leisure properties in England will benefit from a two-year real-terms business rates freeze and an additional 20% business rates relief is indicated for pubs, social clubs and eligible live music venues, hotels have not been included. This is a significant omission.
The exclusion of hotels from additional business rates relief made available to other hospitality businesses is incomprehensible. Hotels are a vital part of London’s visitor economy. They accommodate international visitors, business travellers and conference delegates, and support sporting events and major cultural occasions. Their contribution extends far beyond guest bedrooms, supporting restaurants, shops, attractions and other local businesses. With over 2,300 hotels in London, any damage to the hotel sector inevitably has adverse impacts on London, on the extensive hotel supply chain and its workers, and on the sector’s ability to provide employment and services to businesses and the visitor economy.
A business rates system that supports investment and growth should recognise the contribution of hotels alongside other parts of the visitor economy and not discriminate between hotels and other forms of hospitality.
For London, this is about more than the financial position of individual operators. A competitive hotel sector helps attract visitors, events and investment. If operating costs undermine the ability of hotels to invest in their properties, provide service and employ and develop their workforce, the consequences will be felt across the wider economy.
It is difficult to understand why Government policy should discriminate between hospitality businesses when they all contribute to the high streets, employment and visitor economy that the Budget claims to support.
Property: an essential part of London’s wealth and economic infrastructure
Property is another area where the impact of Government policy is particularly significant for London. It is not simply a cost of doing business or a source of tax revenue. A substantial proportion of the wealth held by London businesses and Londoners is invested in property. Commercial premises, hotels, offices and residential accommodation underpin business activity, provide homes for the workforce, care homes for the elderly and represent a significant store of capital and investment.
Changes to property taxation and regulation have a disproportionate effect on the capital. The Budget’s changes to the taxation of property and savings income, alongside the proposed High Value Council Tax Surcharge, worsens the environment for investment in property.
Higher taxation on rental income is likely to adversely affect the returns available to landlords. The extent to which this changes rental supply or pushes up rents will depend on how property owners respond.
If the supply of rental accommodation contracts or costs rise further, employers may find it harder to attract and retain staff. This will add to pressure on businesses already competing for talent, and diminish London’s standing.
London has a distinctive property market, and measures affecting high-value homes will have a particularly visible impact in London where the highest proportion of high-value homes exists.
There is a wider economic consideration. Property investment supports development, regeneration, employment and the provision of commercial and residential space. Uncertainty or additional taxation can influence whether owners invest in maintaining, improving or bringing properties forward for use.
The proposed changes to the taxation of foreign sovereign investment are unhelpful for London. Sovereign wealth funds are significant sources of long-term international capital, and their investment can support major property, infrastructure and development projects in the capital. The Government’s proposed new regime will bring certain UK property income and gains earned by foreign sovereign investors within the scope of UK tax from January 2029, replacing the existing sovereign immunity arrangements with a new statutory framework and likely to divert capital away from London – the very opposite of what is needed.
While the Government has presented the changes as a ‘modernisation’ that will retain a competitive offer, the introduction of additional tax liabilities risks making the UK a less attractive destination for this important source of investment. Sovereign wealth funds have choices about where to deploy their capital. London competes internationally for that investment, and any additional tax change must reduce the relative attractiveness or certainty of investing here.
At a time when the Government says it wants to stimulate investment, regeneration and economic growth, it must consider whether this change sends the right signal to international investors. London cannot afford to deter the very long-term capital it needs to support development, create jobs and sustain its position as a leading global city.
Rewarding entrepreneurship and attracting investment
London’s long-term prosperity depends on its ability to attract people who establish businesses, employ others, invest capital and create wealth. That requires a tax environment that is competitive, predictable and supportive of ambition.
Businesses, particularly London’s private businesses, start their businesses with a view to growing them and, as they scale up, leaving them to their heirs. The changes in Business Property Relief (BPR) are the opposite of an incentive. They encourage de-scaling, sale and closure in advance of a founder’s or major shareholder’s demise. That explains why many private businesses have been sold to private equity or large global concerns, neither of which thinks long term or is community focused, and they do not face the prospect of inheritance tax. For London’s businesses, the BPR changes effective from April 2026 should be reversed.
The increase in the Bank Surcharge, from 3% to 6%, described as ‘temporary’ has not been received as such and is another measure that requires careful scrutiny. Banks are important employers and provide finance to businesses across the economy. The consequences of the increase will depend on how institutions respond, but any potential effect on lending costs, investment decisions and the competitiveness of the UK financial sector should be considered as part of the wider assessment of business taxation.
Fiscal stability must translate into economic growth with spending ambitions transparently articulated
The future policy ambition of a National Care Service is well meaning but currently unfunded. The 3% of GDP much needed for defence, which was so important to the Chancellor when in a different role, appears to be much less pressing now, and its funding arrangements ‘deferred’. In defence language, this would be described as a ‘dereliction of duty’.
The Benefits Bill is massive and continues to climb, with “a quarter of working age adults on some kind of benefit” according to the Leader of the Opposition. The Office for Budget Responsibility (OBR) reports that financing increasing Government debts will add to that debt which is now higher than at any time over the last 30 years.
The future reality is not clear and appears to be dependent on the speculative hope of growth somewhere down the line. This contrasts with the OBR view which sees the economy slowing in 2027 to a miserable 1% in real terms.
Overall, the Chancellor has sought to reassure markets that the public finances remain within the Government’s fiscal framework. That matters: confidence in the public finances helps underpin economic stability. But stability is a foundation for growth, not a substitute for it.
The OBR forecasts reinforce the importance of policies that encourage investment, productivity and employment now. Delaying tough decisions until after a General Election will be seen as manipulative and disingenuous: by London’s businesses, by inward investors and ultimately by global markets who look ahead and price risk.
The Government must now be clear about how its longer-term ambitions will be funded and delivered. Commitments on public services, defence and other national priorities require credible plans and specific funding proposals, while London’s businesses need confidence that future fiscal decisions will not repeatedly change the conditions in which they operate.
The danger for London is that the absence of a major new tax shock is mistaken for restored confidence. For many businesses, the issue is not one Budget in isolation. It is the cumulative effect of successive policy decisions, rising costs and uncertainty about what may come next. Predictability is key and this Budget has offered no reassurance as to the future.
Businesses make decisions over years, not just from one Budget to the next. They need to know whether they can afford to recruit, whether risk and investment will be rewarded and whether the policy environment will remain sufficiently predictable to support long-term planning.
Central London Alliance believes the Government must consider the cumulative effect of tax and regulation, rather than assessing each measure in isolation. A tax may be targeted at one group, but its consequences extend to housing supply, workforce availability, investment decisions and the wider economic performance of London and the UK.