The UK budget announced by the government earlier this week had a lot to unpack for both businesses and consumers, with some policies becoming cause célèbres, whether in a positive or negative sense.
As usual, most public discourse around Chancellor of the Exchequer, Rachel Reeves’ budget has revolved around taxation, whether this be on personal finances, business finances or products. This is understandable given the immediate impact the public feels on its pockets, and businesses on their finances.
Something that hasn’t got as much attention is the Labour government’s financial commitments to research, specifically around science and technology. Keir Starmer’s government has included policies such as a £70bn wealth fund, long-term strategies for small business growth, launching ‘Skills England’ for better employment, and generally supporting investment.
The party made commitments around Open Banking, Artificial Intelligence (AI) and Smart Data in its July election manifesto, some of which has now taken the form of legislation in parliament.
Investment commitments in this week’s budget could build on this and have a lot of relevance to the country’s fintech and payments industries. A notable commitment is a £40m investment into proof-of-concept funding and research support across science and technology.
Andrew Elder, Deputy Managing Partner at Albion Capital, an investment fund, says: “Albion welcomes the government’s commitment to increasing and protecting funding for science and technology research and development, a crucial investment that reinforces the UK’s position as a global leader in innovation.
“This commitment isn’t just smart policy; it’s a potential game-changer for the UK’s future. By supercharging support for the growth industries of the future, we’re not just nurturing groundbreaking ideas but solidifying the UK’s position as a global powerhouse.
“Albion is committed to fostering meaningful partnerships with visionary funds and academic institutions, working together to transform research into real-world impact.”
However, the tax implications of the budget have provided a counterbalance, a negative against the positives of research and funding. Alistair Dougals, CEO of personal finance app TotallyMoney, believes that the budget has ‘made things more difficult for the UK’s tech industry, which is already facing challenges as a result of the economy and high interest rates’.
“Over the past year, the Prime Minister has said he’ll show support – but actions speak louder than words, and we need to see a plan for growth,” he says.
“Fintech in particular has a strong role to play in helping people get their finances back on track after the past few years. And the government needs to work with innovative firms to help fix the financial services, so the people it serves can start moving forwards.”
Talking about tax
Whilst research funding and tech investment has a lot of significance for the UK financial services industry – which the government has repeatedly cited as a British success story – there is a reason taxation dominates conversations around budgets.
With the UK home to over 5.5 million SMEs, many of which are involved in the fintech and payment sectors, financial burdens on these companies could hinder further innovation and economic growth.
Meanwhile, taxation burning a hole in people’s pockets means they have less money to spend, meaning less volume going round businesses. On the other hand, this taxation can be used to support the investment plans outlined above.
For businesses, the biggest cause for concern has been Reeves’ announcement that capital gains tax will rise from 10% to 18% on the lower rate and from 20% to 24% on the higher rate. This forms part of Reeves’ plan to raise an additional £40bn in public funding via taxation to support government plans around education, healthcare and military spending, among other areas.
This will mean the UK will retain the lowest capital gains tax rate in the European G7 companies, though Hristo Borisov, CEO and Co-Founder of Payhawk, a spend management solutions company, expresses concern that this could ‘still dampen enthusiasm for equity-based compensation’.
“In sectors like fintech especially, equity packages play a pivotal role and the erosion of these incentives risks making the UK less appealing for skilled workers and entrepreneurs,” he says.
Further changes see employers’ national insurance contributions rise by 1.2% to 15% in April 2025, though the employment allowance will rise from £5,000 to £10,500, meaning over 865,000 businesses will not have to pay national insurance next year.
Lastly, Business Asset Disposal Relief – a cap on capital gains tax on income made when a company sells part of its business – will rise from 10% to 14% in April and 18% by 2026, under Reeves plans.
Borisov continues: “This phased approach could increase tax burden on founders in the future, potentially influencing decisions around scaling and investment. For fintechs on the verge of IPO, these policies could prove a mixed bag.
“The lifetime limit for Business Asset Disposal Relief is maintained at £1 million, enabling some continued tax advantages, however, these incremental changes may add complexity to an already challenging economic landscape.
“The government’s commitment to extending the Enterprise Investment Scheme and the Venture Capital Trust Schemes until 2035 reflects some recognition of the need to foster a supportive environment for growth.
“To ensure the UK does not find it increasingly difficult to compete with other global tech hubs, however, there may need to be more targeted support for startup equity structures and founder risk-taking.”
Next up, the consumers. In a classic Labour policy, the national living wage has been increased by 6.7%, which sees the average person working 37.5 hours per week on minimum wage gain an extra £1,400 a year, according to TotallyMoney.
However, the app’s CEO, Alastair Douglas, also asserts that increases in national insurance could have unintended consequences for the finances of individual people. The raise could have an impact on the company’s ability to offer pay rises and improve staff benefits.
Businesses have a lot to contend with in this year’s budget. On the one hand, investments in technology development and future research will have long-term benefits, coupled with the government’s legislation like the Digital Information and Smart Data Bill and the Data Use and Access Bill.
On the other hand, tax raises, while good for public coffers, can put stress on the UK’s business network, including the financial services success story Labour’s manifesto was so fond of as the party worked to present itself as a party for business.
