Earlier today, the Chancellor of the Exchequer, Rachel Reeves, delivered the first Labour Budget in nearly 15 years. Outlined below are the key measures.
Headline announcements
Tax increases
- National Insurance: Employer contributions up 1.2 percentage points to 15% from April 2025.
- Capital Gains Tax: Lower rate from 10% to 18%; higher rate from 20% to 24%.
- Inheritance Tax: Threshold freeze extended to 2030.
- Air Passenger Duty: Small increase for economy; significant rise for private jets.
- Alcohol Duty: Increased for non-draught; reduced for draught products.
- Tobacco Duty: Annual rise by inflation + 2%; new rate for vaping from October 2026.
- Stamp Duty: Surcharge on second homes up by 2% to 5%.
- Non-Dom Regime: Abolished from April 2025.
Economic overview
- Inflation target: Kept at 2%; projected average of 2.5% in 2024.
- Growth forecast: 1.1% in 2024, rising to 1.6% by 2029.
- Borrowing: No borrowing for day-to-day spending by 2027/28.
Minimum wage and pension
- National Living Wage: Increased to £12.21; 18-20-year-olds’ wage to £10.
- State Pension: Rises by 4.1%, benefiting 12 million pensioners.
Spending announcements
- Education: Schools budget up by £2.3 billion; further education receives £300 million.
- Defence: Budget rises by £2.9 billion.
- Local Government: £1.3 billion extra in grants.
- NHS: £22 billion budget increase; £3.1 billion capital investment.
Infrastructure investment
- Infrastructure spending: Debt rules changed to allow up to £53 billion more borrowing for projects.
Skills, apprenticeships and further education
Apprentices pay
The Chancellor has announced an 18% increase to the minimum hourly wage for apprentices, raising it from £6.40 to £7.55 per hour starting in April 2025. However, apprentice pay has not been raised to match the minimum wage, as previously suggested.
Foundational apprenticeships
Treasury documents reveal that £40 million will be allocated to deliver new foundation and shorter apprenticeships in “key sectors.”. It is unclear how this will impact rail.
FE funding
The budget includes an additional £300 million in funding for further education.
Rail
Infrastructure investment
The Chancellor pledged over £100 billion in public investment over the next five years for infrastructure, including roads, rail, schools and hospitals. However, specific allocations have yet to be detailed.
Fiscal rules change
A review of the fiscal rules will allow the Treasury to increase borrowing by up to £53 billion, facilitating a broader range of infrastructure investments, including rail.
There were also announcements in the Budget on several ongoing rail infrastructure projects, including:
- Confirmation of the TransPennine upgrade.
- Confirmation of electrification projects between Manchester and Stalybridge, and York and Church Fenton.
- Ongoing progress on Northern Powerhouse Rail with further planning and design works committed to.
- Commitment to HS2 terminating at Euston, with private investment needed for completion.
- The government will deliver East-West Rail.
Cost savings
To make savings, the Restoring Your Railway programme has been scrapped.
Devolution for rail
The budget allocates an additional £200 million for City Region Sustainable Transport Settlements, raising local transport spending for Metro Mayors in 2025-26 to £1.3 billion.
Rail fares
The government has confirmed that the annual regulated rail fares cap will rise by 4.6% on 2 March 2025, one percentage point above RPI. This marks the lowest absolute increase in three years. Subject to an industry proposal, a £5 increase to most rail card prices (excluding the Disabled Person’s Rail Card) was announced.
Departmental funding
Day-to-day spending is set to grow by 1.5% in real terms from 2024-25 onwards, with total departmental spending, including capital, rising by 1.7% in real terms. Reading between the lines, this likely points to substantial cuts for unprotected departments. While the overall spending envelope has increased, much of this is expected to support the NHS and Department for Education.
Analysis
Overall, the Budget leaves the landscape for the rail sector largely unchanged, offering no clear detail on the government’s infrastructure priorities or spending commitments, which was what we were looking for. A detailed plan is unlikely until the release of the government’s infrastructure strategy and transport strategy, both expected in spring 2025. Similarly, we sought clarification on the impact on departmental spending, but details remain unclear, with further information not anticipated until the multi-year spending review, also expected in spring 2025.
Skills policy was also notably absent, with further direction expected once Skills England is fully established later this year. Despite the ambiguity, there are positive and negative aspects to consider. On the positive side, the budget signals some increase in infrastructure investment and indicates a government intention to attract private sector investment into rail. These are policy commitments consistently sought by the rail industry, so this direction is welcome. The recommitment to HS2 Phase 1 and the Northern Powerhouse Rail is equally encouraging. However, there are also concerns. Most notably that the increases in the minimum wage and employers’ National Insurance contributions will impose additional costs, posing challenges for addressing skills gaps, particularly for SMEs who may be disproportionately impacted.
Overall verdict
A neutral budget in terms of rail and skills. We’ll have to wait until the spring!
If you would like to discuss the budget and how it may impact on you, please do not hesitate to get in contact: Edward.hughes@nsar.co.uk