Five things we learned from the budget

After our preview looking at five key questions for the chancellor ahead of the budget, here are the answers we found based on the announcements made by Rachel Reeves this week.

1. This is a damaging budget for clean growth

The chancellor did not prioritise home grown energy and clean growth in this budget. Instead, the Energy Profits Levy (EPL), the extra tax on oil and gas companies in the North Sea, was a conspicuous absentee in the chancellor’s speech. Beyond some welcome changes to the support provided to renewable electricity generation, which will lower consumer bills, there was remarkably little attention paid to net zero or the green economy in the budget statement itself. Keen observers had to wait for the Treasury to publish the official budget documents to discover detail of the EPL’s replacement, which might not kick in until March 2030.

It is not just the oil and gas industry that is negatively impacted by the continued imposition of a windfall tax. Firms in the supply chain servicing the renewables sector, who will be key to the UK meeting its clean power targets, cannot grow without stable revenues from hydrocarbon projects. The government’s focus on energy is clearly wrong-footed, setting up false dichotomies between net zero and energy security, or renewables and oil and gas.

Inconsistent policy is clear elsewhere. Alongside the budget, the energy and net zero department published its new stance on oil and gas licensing, with permission granted for limited hydrocarbon production in the North Sea. While this change is welcome, it will have little marginal benefit: with the EPL remaining in place, the North Sea cannot be invested in by private developers. Simply allowing activity to take place – such as oil and gas drilling or consenting offshore wind projects – does not mean that it will happen if fiscal support is inadequate, as was clearly the case in this budget.

2. Workers to shoulder more of the burden of tax rises

Rachel Reeves’ second budget was the second largest tax-raising budget in history, raising an extra £26bn in revenues in 2029-30. However, in a change from 12 months ago, there were no significant tax burdens placed on businesses. Instead, it is workers who will have to share more of the pain of higher taxes, largely through extended freezes to personal tax thresholds.

But it is a misnomer to think of certain taxes as affecting only discreate categories of capital and labour. The centrepiece of last year’s tax changes – the increase in national insurance for employers also affected employees, through lower wages and lower employment. However, the chancellor’s decisions this week were perhaps a belated recognition that the private sector has been at the sharper end of recent tax changes.

Unfortunately, in the so-called smorgasbord of tax rises the chancellor did not address the deep concerns lingering over from last year’s budget, which have damaged growth. There was no word for the family firms and family farmers affected by changes to inheritance tax reliefs, which heightens the risk that families are forced to sell businesses.

3. Industrial strategy took a low profile

There was a smattering of project announcements related to the UK government’s modern industrial strategy, published in June 2025, including £14m for low carbon technologies in Grangemouth. However, the eight growth driving sectors were not centre stage in this budget, with tackling child poverty and bringing down NHS waiting lists taking precedence.

But that doesn’t mean the government has forgotten about industrial intervention. The chancellor should also be congratulated for enhancing capital spending over the spending review period. It will be critical that this additional investment is effectively coordinated with industry, through bodies like the National Wealth Fund, to raise business investment overall, where the forecast is more disappointing.

However, it still appears that the UK government’s industrial strategy is a policy plan largely for England, with the devolved nations added on as an afterthought. Some of this reflects the nature of the division between devolved and reserved competencies: an announcement on the planning system was for England only and need to be matched by the Scottish government.

But in a blow to Scotch whisky, spirits duty will continue to rise by inflation – forecast to be 3.7% next year. It will be harder for the UK government to realise the many expected benefits of its recent trade deals with the US, EU and India, without more domestic support for key growth industries. The UK’s global competitiveness also continues to be hamstrung by a lack of a scheme to exempt international visitors from VAT on shopping.

4. Scotland’s regional economies need more attention from both Holyrood and Westminster

England’s regional economies continued to be at the centre of attention in this budget. A £13bn flexible funding package for seven metro mayors to invest in skills, business support and infrastructure was announced as well as extending the business rates retention pilots for three regions.

But their counterparts in Scotland received little notice by the chancellor, beyond announcements for £20m of funding each for Kirkcaldy and also Inchgreen Dry Dock. Both came from the government’s new “Growth Mission Fund” for regional development. It is clear that this UK government has an active regional policy, but Scotland is missing out.

Progress on the Scottish regional agenda will require attention from both governments, and cooperation between them and local authorities, business and academic partners. Spreading around small pots of money will not be enough for Scotland’s diverse regions to prosper. The integrated settlement approach should be made available to Scottish city regions, on a level commensurate to their counterparts in England, and based on a shared position about the decisions and delivery which should be devolved.

5. Extra cash for Holyrood will only go so far in addressing spending pressures

The spending decisions made by the chancellor resulted in an extra £820m for the Scottish government based on the Barnett formula. The late timing of the budget had created fears about delays to payments for public and third sector organisations reliant on grant funding. Officials from the Treasury will need to work closely with their Scottish counterparts to ensure that this is not the case.

But most of all, it will be for politicians at Holyrood to decide how to spend this extra funding – choices that will show whether the pain of more UK tax rises is outweighed by improved delivery of public services in Scotland. Scottish government spending is coming under increased pressure, from higher demand for services and a more generous welfare system.

Reeves’ central decision in the budget to scrap the two-child limit on UK welfare payments will help the Scottish government with its spending challenges. In the last Scottish budget, finance secretary Shona Robison pledged to introduce mitigations for the two-child limit using Holyrood’s social security powers. However, it will no longer have to do so and any money that was going to be allocated for this purpose in the delayed Scottish budget in January can be freed up for other priorities.

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