UK Budget 2025: Labour's £26 billion tax gamble risks choking off economic growth

Instead, their focus is likely to be on the massive increase in taxation, expected to amount to an estimated £26 billion by 2029/30, with the tax-to-GDP ratio reaching an all-time high of 38.3 per cent a year later.

This has been achieved mainly by freezing personal tax thresholds, along with what analysts described as a “smorgasbord” of other tax rises, for example, on property, savings, electric cars and gambling.

The changes mean Scotland will get an extra £820 million by the end of the decade, although SNP Finance Secretary Shona Robison huffily described this as a “small amount” – a comment to keep in mind when she trumpets the next SNP spending spree, funded by Labour. And of course, the Scottish Government now has a decision to make about its own tax thresholds.

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1.8 million unemployed by next year

While a higher tax take may help the government balance the books, the effect on a spluttering economy is likely to be less beneficial. GDP is now expected to grow by about 1.5 per cent a year until 2029, which is better than nothing but hardly cause for celebration.

Meanwhile, unemployment is forecast to rise to 4.9 per cent, or 1.8 million people, next year, adding to the already large number of economically inactive people, such as those on disability benefits.

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Included among those statistics will be the 1,000 people losing their jobs every month, according to Offshore Energy UK, as a result of the decline of the North Sea oil and gas industry. The sector’s plea for the energy profits levy, or windfall tax, to be replaced was ignored by the Chancellor, despite their arguments that reducing this burden would actually increase revenues.

David Whitehouse, OEUK’s chief executive, warned: “The future of North Sea energy depends on investment, which won’t come without urgent reform of the windfall tax. If the levy stays in place beyond 2026, projects will stall and jobs will vanish...”

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Funding the just transition

The hopes of a ‘just transition’ from fossil fuels to renewables rest on sensible management of the decline of the former and careful nurturing of the latter. However, according to a recent report by the Future Economy Scotland think tank, three oil and gas jobs have been lost for every one created in clean energy over the past decade.

Those numbers should be in balance. That they are so badly aligned raises the prospect of a devastating scenario. Instead of oil and gas companies and associated firms in their supply chain diversifying into renewables, which many are well-placed to do, they may simply go out of business.

The reduction in tax revenues from oil and gas – which fell from £6.1 billion in 2023/24 to £4.5bn in 2024/25 – will also hit the government’s ability to spend money on infrastructure needed to modernise the economy so that it’s fit for the new industrial age.

Labour needs economic growth

So Reeves must, at the very least, review the effects of the windfall tax next year. Businesses usually complain about high taxes, but they’re not always crying wolf.

As for the public, many will view Reeves’ tax-raising Budget as an expensive gamble – with their money. And if the UK’s economy doesn’t improve, Labour’s troubles and poll ratings will only get worse.

The early publication of the Budget was embarrassing, but breaking their election pledge to boost economic growth by instead choking it off will put Labour to such shame that the party may never recover.