Aberdeen Business News: UK Budget’s Ripple Effects on Scotland & Industry Comments on the Budget – Aberdeen Business News

The UK Chancellor, Rachel Reeves, has announced a new budget that introduces significant changes across public services, taxation, and business regulations. These changes are poised to have notable impacts on Scotland’s economy and various sectors.

Education and Public Services

The budget promises a substantial £2.3 billion increase to the core school budget and a tripling of funding for breakfast clubs. While these measures primarily target England, similar initiatives could benefit Scottish education if adopted by the Scottish Government. However, the introduction of VAT on private school fees starting January 2025 could pose challenges for Scotland’s private education sector, potentially leading to increased costs for families.

Taxation Changes

Several tax reforms are set to affect Scotland:

• Oil and Gas Industry: The windfall tax on oil and gas profits will rise to 38%, expiring in March 2030. This increase could impact Scotland’s vital oil and gas sector, potentially affecting jobs and investment. However, it might also accelerate the transition towards renewable energy sources.
• Real Estate: An increase in the stamp duty land surcharge for second homes from 2% to 5% may influence Scotland’s housing market, particularly in areas popular with second-home buyers.
• Business Taxes: Employers’ National Insurance contributions will rise from 13.8% to 15%, with the threshold lowered from £9,100 to £5,000. This change could increase operational costs for Scottish businesses. However, the Employment Allowance will rise from £5,000 to £10,500, providing relief to smaller enterprises.

Impact on Businesses and Employment

The budget includes measures aimed at supporting smaller businesses through an increased Employment Allowance. This change is expected to benefit over a million employers across the UK by reducing their National Insurance liabilities. For Scottish businesses, this could mean reduced financial pressure amidst rising operational costs.

Transportation and Tourism

The increase in air passenger duty for private jets by 50% might affect travel costs significantly. This change could impact Scotland’s tourism industry and business travel sectors, potentially leading to higher expenses for travellers using private aviation services.

While the budget introduces several challenges for Scotland—particularly in terms of increased taxation on businesses and potential impacts on the oil and gas sector—it also offers opportunities through educational investments and support for smaller businesses. As these measures unfold, Scottish businesses and policymakers will need to navigate these changes carefully to maximize benefits while mitigating any adverse effects.

Comments from Industry experts, leaders and businesses:

Abby Glennie, manager of the abrdn UK Smaller Companies Fund, says:

“The Government did not quite throw in the hand grenade for AIM entrepreneurs and investors that many expected – and valuations of AIM companies ticked up immediately after the announcement, supported by buying demand. However, inheritance tax (IHT) applied on AIM assets at 20% still makes investing in the market less attractive than previously.

With tax benefits halved, investors will need to be more positive on return prospects to allocate cash to AIM and this could swing allocations towards other areas.

UK smaller companies have been battered by a decade of difficulties – from the collapse of their natural investor base (UK pension funds) to increasing regulation – so now is the time to be looking at how we can support them, not pull the rug out from under them. AIM aligns with the rhetoric on investing in growth and innovation, and the tax cuts on IHT here go against supporting external capital investment in this area.

Ultimately, it is not the companies who are the issue. The quality and growth dynamics remain strong, and very competitive versus listed smaller companies markets globally. The problems are external – and, with the right policy conditions in place, we could really see this area of the stock market thrive.”

James Burgess, Head of Commercial and insolvency expert at Atradius, says of the outcome of the Autumn Budget:

“Today’s Autumn Budget could be a game-changer for businesses across the UK, marking a pivotal moment for the economy. With Labour’s proposals set to impact retail, hospitality, and leisure businesses, these firms need to stay sharp as we head into 2025.

“As Labour confirms tax hikes of £40 billion, uncertainty looms over National Insurance contributions and small businesses across the UK, which will bear the brunt.

“SMEs, especially, will now have to prepare for the changes to Capital Gains Tax and increased employer National Insurance Contributions, which for many could be a deal breaker.

“In times like these, diversifying supply chains and reinforcing liquidity are essential for absorbing unexpected costs. The ‘domino effect’ of insolvency is real—protecting trade credit agreements with insurance is the smartest move to safeguard your business in 2025.”

Scottish Conservative MP for Gordon and Buchan, Harriet Cross, who recently led a Westminster debate on the issue, said: “These changes to agricultural property relief and business property relief could be fatal to family farms who rely on these inheritance tax lifelines.

“This appalling decision from the Labour government is a devastating blow to farming, the effects of which will be felt for decades to come.

“Without the full reliefs, we risk losing a generation of farmers which will ultimately decimate the industry.

“Whether it’s the owners or tenants of farms, the Chancellor’s deplorable move will threaten our food security, rural landscape, employment opportunities and our economy.”

“Labour’s decision to raise the windfall tax, end the investment allowance and oppose all new oil and gas licences is economic suicide.

“The Chancellor has shown no remorse for the tens of thousands of workers whose jobs now hang in the balance following her party’s deeply damaging move.

“I now fear large investors, who are key in helping us move towards net zero, will walk away from Scotland and take their investments and jobs elsewhere.

“This UK Labour budget will hammer workers and businesses with additional taxes at a time when the SNP’s tax and axe budget for Scotland has resulted in fury across the North East.”

Kevin Brown, savings specialist at Scottish Friendly commented on today’s announcement by the Government to increase Capital Gains Tax: “Using tax-efficient wrappers such as Individual Savings Accounts (ISAs) and Junior ISAs (JISAs), and as much of your annual allowance as you can afford each year, is, after pensions, an accessible way to make the most of savings for the majority of UK households. Alongside pension wrappers, ISAs and JISAs shield your investments from capital gains tax (CGT). So, with the changes announced to CGT by the Chancellor today, where CGT on shares is set to increase from 10% to 18% at the lower rate and from 20% to 24% at the higher rate, stocks and shares ISAs and JISAs just became a whole lot more attractive.

“Here’s hoping the attention these changes get in the media over the coming days and weeks doesn’t spook people into inaction – putting aside even just a little money each month can build a solid financial buffer for whatever life throws at us. Doing so tax-efficiently can help to ensure your hard-earned money works equally hard for you in return.”

Robert Kilgour, CEO of Dow Investments PLC, said: “This La-La-Land budget threatens to rupture the traditional contract between the business community and the state, where wealth is generated to pay the taxes which in turn fund our public services. 

“If it takes two to tango, Ms Reeves has instead flung a drink in the face of business and waltzed off alone for a kebab.

“As a result, fewer businesses and would-be entrepreneurs will risk investing in Britain, tax revenues will drop and public services will be left to suffer.

“The absence of private-sector experience among Labour’s front bench highlights a troubling disconnect from the realities of running a business. It’s as if they’ve never heard of the Laffer Curve!

“I hope I’m wrong, but if this sets the tone for Labour’s economic approach, Britain is in for a long and painful five years.”

Asif Alidina, Co-Founder & CEO of Inntelo AI, said: “This was a disappointing Budget for the hospitality sector. After years of hardship, this was not the time to reduce critical support, leaving businesses grappling with higher staffing costs while faced with higher business rates. While the sector’s call for an extension to that relief were addressed, the lower rate of relief will place an additional burden on an industry already under strain. 

“Now, more than ever, is a pivotal time for the industry. As hospitality businesses strive to reinvent themselves through technology and innovation, the absence of government support risks curtailing these efforts before they can gain momentum. AI-driven solutions like ours can provide a much-needed operational boost, but only if businesses are given the chance to keep their doors open. Let’s hope the sector can adapt quickly enough to navigate these challenges in the absence of broader support.” 

Susan Love, Strategic Engagement Lead, Scotland, said:

Many of today’s announcements had been signalled well in advance, which helpfully avoided any unexpected shocks for businesses. Growth-enabling investment in economic opportunities, such as energy transition, as well as in public services, is welcome. Similarly, the commitment to long-term forecasting and planning, as well as the commitment to work with devolved governments to maximise opportunities is positive. However, the Chancellor should have gone further on simplifying our tax system, with the changes announced today arguably adding to existing complexity.  
 
Crucially, business confidence, critical to positive investment intentions, has been in short supply in recent months, and it remains to be seen whether businesses in Scotland are convinced that all the bad news is out of the way, not least with the Scottish Budget still to come.  While some of the worst fears about today’s package of announcements might not have come to pass, nevertheless, it still places substantial pressure on SMEs, especially employers. Given the number of changes announced, it’ll be more important than ever for these businesses to seek the advice of their accountants; to ensure they comply with changes, as well as refocusing business growth plans.

Responding to the Budget Statement, Russell Borthwick, Chief Executive at Aberdeen & Grampian Chamber of Commerce, said:

“We welcome the commitment to 100% first year allowances for oil and gas investment, something we have campaigned for, and confirmation of the initial funding Great British Energy. These are signals that the government is listening, although the devil will be in the detail.

“However, there is no justification for a super tax on ‘windfall profits’ which no longer exist in a world where the oil price has returned to $70.

“The damage being done to the North Sea is clear for all to see. In the past week alone one major has put the for sales signs up on six fields, another has reported a 30% dip in profits and we have one operator paying millions to relinquish a licence rather than develop a loss-making field.

“Without significant long-term reform, this is not a fiscal foundation for growth; it is quicksand through which a world class industry and its supply chain could disappear.

“Therefore, we need to see a successor regime to the Energy Profits Levy accelerated to provide industry with confidence to invest in the oil and gas we need today, and the energy transition which will power our future.

“We urge the government to work with industry to design a new tax approach that secures billions of investment and tax receipts, while protecting the jobs of tens of thousands of working people.”

Andrew Bowie, West Aberdeenshire and Kincardine MP and Conservative shadow energy minister, said: “This budget is the worst possible outcome for the North East. It’s obvious that on their whistle-stop tours of Aberdeen, Keir Starmer and Anas Sarwar didn’t tarry long enough to listen to businesses here.

“They have reversed, at a stroke, years of government support for the oil and gas industry. They’ve extended the EPL by six years, increased it, and scrapped vital investment allowances.

“Their tax plans will cause businesses to struggle more than they currently are.

“And spirit producers face a double whammy, between increased whisky duty and damaging SNP unit prices.”

“Whether it’s in energy, food and drink, tourism or agriculture —

 the negative impact of this Budget will be felt for years to come. 

“Labour have betrayed the North East.”

Stephen Montgomery spokesperson for the Scottish Hospitality Group, which represents the
largest group of independent, family-owned hospitality businesses in Scotland, comments:
“Today’s announcements are a blow to businesses across the country, but it is particularly
concerning for the hospitality industry. It is estimated that it the Chancellors plans will add
10% to operating costs and it could certainly cost jobs.

He explains, “The rise in National Insurance Contributions for employers at 1.2%, and the
reduction from £9100 to £5000, will see most of our members paying an additional
£160,000 a year and that’s before the 6.7% and 16% increase in the National Minimum
Wage is included or the added costs implementing the Employment Rights Bill. For the larger
businesses in our group, those with 700+ employees, it will add a staggering £3m of costs
when you factor in the National Living Wage increase.

“SHG cannot see how this budget addresses the Government’s ambitions of a “dynamic,
modern and growing economy”. The effect on hospitality, a key sector to growing the
economy, will be to stifle growth and investment, the very opposite of what has been
promised”

“With £3.4billion in additional Barnett consequentials, the Scottish Government now has the
funds available to make good on its commitment to support the hospitality sector and deliver
an immediate reduction of the business rates poundage to 35p in the coming Holyrood
budget.

“This is particularly the case given the Chancellor of the Exchequer has extended business
rates relief for the hospitality sector in England and has also indicated the UK Government
will reform the entire business rates system from 2026.

“Reducing the business rates poundage to 35p in the Holyrood budget would help the hospi-
tality sector to boost economic growth, create jobs and support Scotland’s communities and
high streets, while also ending the inherent unfairness that sees hospitality businesses taxed
at a higher rate than retail businesses.”

*The £3m quoted is made of National Insurance and NMW increases it excludes Pension
Contributions increase and cost implementing the new Employment Rights Bill.