At last, after months of anticipation and uncertainty, the waiting was finally over this week and the Chancellor (with some unwelcome advance assistance from the OBR) announced her second Autumn Budget. UK businesses can get on with dealing with its measures, as they affect each and every one of them. The economy can emerge from the long limbo, which for all intents and purposes froze innovation and suspended investment for an unconscionably long time.

The detailed Budget measures themselves and their direct impacts are a matter for careful analysis and cautious consideration depending on the circumstances of each business and the sector in which it operates, but how will the Budget shape the overall economy over the foreseeable future? Against what background should businesses adapt to the new realities?

Growth will still be subdued

There was almost no mention in the Budget of the government’s oft-stated priority of growth. Most commentators are taking the view that it’s difficult to see that any of the measures will boost growth either immediately, or even in the medium-term. In large swathes of the economy, the economic sluggishness is mainly attributable to weak consumer confidence, which despite the reprieve on the much-trailed income tax rise is highly unlikely to be helped by frozen tax thresholds and the stream of negative comment about the ‘smorgasbord’ of revenue raising strategies.  The critically low level of lending to SMEs is another growth inhibitor.

The dominant driver for the economy has long been consumer spending in the services sector. The OBR predicts that disposable incomes will grow by just 0.5% in the current fiscal year and by only 0.25% per annum for the four years after that. The long-term average previously was 1.0%. This is no basis for the consumer demand that would have to underpin sustained growth.

Businesses should plan for growth to be modest at best for the foreseeable future.  The OBR itself estimates that GDP increases will average no more than 1.5% a year over the next five years.  This compares with the long-term average since the 1970s of 2.3%.

Doing business will keep on getting costlier

A substantial 7% increase in the Real Living Wage had already been announced in October for those businesses committed to its higher level of basic pay. Immediately prior to the Budget a 4.1% rise for over 21s in the lower National Minimum Wage was confirmed, with a bigger increase for those aged between 18 and 20. Their pay will have increased by 26% in two years.

The impact of the forthcoming Employment Rights Bill remains a major concern for labour-intensive companies, which means that employers will be cautious about who, and how many, people they take on. Lobbying and Parliamentary debate on the final contents of the Bill continues, but pressure on the government from trade unions will almost certainly mean that most of the changes against which the business community has campaigned hard will happen anyway.

There is at least some relief for businesses operating from smaller premises that the Business Rates relief announced last year on a temporary basis have now been made permanent. Unfortunately, the news is very different for larger premises with a rateable value of £500k or more, for which there will be a substantial surcharge. There had been hopes that supermarkets, larger stores and leisure facilities might be exempted, but these have been dashed.

Increased government capital spending will continue

The concentration of both the media and public opinion has been firmly on the obvious government’s woes on the revenue raising and spending sides of the fiscal equation. Much less attention has been paid to its commitment to increased public sector capital investment, announced in its first Budget in 2024.

This a mixed blessing for the private sector. The eventual positives will be better infrastructure, improved transport links, a more skilled labour force and a healthier population, all of which are good for business. In the short run, this expenditure will create opportunities, especially for businesses that trade directly with the public sector.

Unfortunately, the downside last year came when the government dumped the cost of these worthwhile initiatives onto the cost base of the private sector, particularly on consumer-facing industries.  The sharp increases in Employers’ National Insurance contributions have caused havoc with many vulnerable smaller companies. The concern over the past year has been that an increase in the size of public sector investment will almost inevitably act as a limiter on private sector growth.

How to convince consumers to loosen their purse strings

The Autumn Budget, by common consent, lacks any meaningful growth strategy and will raise some £26 billion in extra taxes, most of which will come out of the pockets of the consumers whose spending drives the UK economy.

Despite the general gloom, there are still businesses out there doing well and reporting strong results. The lasting impact of the long period of suppressed demand has been a growing gap between the winners and losers in consumer-facing sectors.

If a business offering is strong, well focused on its target customers or clients and well executed, growth is still achievable, especially with a flexible and nimble approach. This is the reality of business in such a poorly performing economy: growth now is much harder to get than in more prosperous times, but it is possible for those businesses doing the right things.

Investment is crucial

Despite the uncertainty and uninspiring economic news, this is, as far as affordable, the time to be investing in innovation, in upgrading skills and in customer or client service. Without investment, businesses can easily fall behind and falter. There were changes to tax reliefs for capex in the Budget, which may complicate decision making in this respect.

Geopolitics will remain a potential disruptor

There are genuine concerns about risks of the AI bubble bursting across the pond, the implications of the weak US economy and yet more random tariff changes caused by affordability issues there. Neither can the continued efforts of Russia to destabilise Europe be ignored, any more than Middle East instability should be. No man is an island and nor is the UK economy.

A closer look at some key sectors

For those sectors that depend on consumer confidence, such as retail, hospitality and leisure there are some very small crumbs of comfort, but some far more threatening and stark realities:

• The Office for Budget Responsibility calculates that disposable incomes will rise by 0.5% in 2025/26 but then by only 0.25% a year until 2029/30. The long-term average rise until now has been 1%.
• One in four workers will be paying the higher rate of 40% tax by 2030.
• More than 1.7 million workers will be dragged by ‘fiscal creep’ into either paying tax for the first time or be pushed into a higher band.
• The tax take as a percentage of GDP will be 38% by the end of the current Parliament, the highest ever burden.
• GDP growth will average 1.5% over the next five years, compared to the long-term average of 2.3%.
• Labour costs will rise sharply following the latest increase in the National Minimum Wage (NMW).
• Changes to Corporation Tax reliefs for some capital expenditure will complicate the investments crucial to maintaining and improving customer experience.

The key sectors are all affected in different ways, but with some common themes:

Retail

The good news was the ending of uncertainty on the business rates relief for smaller premises now that this has been made permanent, but there is concern at the inclusion of larger supermarkets and stores in the new surtax for properties with a rateable value of more than £500k, even if the additional charge will be less than originally thought.

Unfortunately, any net benefit on business rates is dwarfed by the rise in the NMW, especially for employees aged 18 to 20 where the hourly rate from April 2026 will be 26% higher than it was in April 2024. This is on top of the 2% rise in employers’ National Insurance (NI) contributions and fall in the NI threshold which came into force last April.

Retailers had been asking for a lower rate of VAT, as well as calls for the reinstatement of the VAT exemption for foreign visitors to eliminate the so-called tourist tax.  These pleas have been ignored.

The Chancellor did close the custom duty relief loophole that allows small packages worth less than £135 into the UK without being charged import duties. This should curb the flow of cheap goods flooding the market, but there will need to be careful planning to avoid this creating friction at UK border. The annual value of imports through this route has soared to £5.9bn, but unfortunately this change won’t occur until March 2029.

In another important change, from January 2026 there will be a new tax relief at 40% on investment in new ‘plant and machinery’, but the standard tax relief on other capex will fall from 18% to 14%. Whatever the net effect, this will surely complicate retailers’ investment plans, but it will also be a bonanza for accountants and tax advisors helping them navigate the new regime.

The trade body, the British Retail Consortium summed up the industry’s reaction: “we will see winners and losers across retail and the impact for consumers will unfold in the coming months, but this Budget does not go far enough to mitigate the inflationary pressures already bearing down on the industry.”

Hospitality

As with retailers, hospitality operators will face sharply increased labour costs and uncertainty on tax reliefs for business investment, as well as feeling the denial of a lower VAT rate for the sector. In addition, they will be disappointed that the Chancellor is going ahead with raising alcohol duty by RPI from next April.

On Business Rates, the trade body UK Hospitality has particular worries about cost rises from April 2026 caused by the application of new rateable values. It calculates that the likely increases will be 76% for accommodation businesses, 30% for pubs and 14% for cafes and restaurants.

Leisure

The leisure sector’s principal concern lies with the new arrangements for Business Rates, but is also worried about increased labour costs. The Sport and Recreation Alliance has expressed its disappointment that its venues have not been exempted from the larger premises surtax. UK Active has highlighted the labour cost issue. The Meetings Industry Association is asking for urgent clarification that its event venues come within the Retail, Hospitality and Leisure (RHL) definition for inclusion in rate reduction reliefs under the revised Business Rates regime.

Business failure risks

The new challenges introduced by the Budget facing these key industries must heighten the possibility that insolvencies will increase in the near and medium terms. RHL businesses already make up more than a quarter of all UK business failures, a figure that could rise, especially in the first few months of 2026 if this year’s festive season is a disappointment because of consumer caution.

Industry consolidation

Apart from the increased failure risk, there is likely to be a surge in merger and acquisition activity across the RHL spectrum as stronger operators take advantage of opportunities to add competitors weakened by the Budget measures to their portfolios.  This process has been particularly noticeable so far this year in the pub sector, as exemplified by The Restaurant Group and Upham Inns acquiring significant parts of Oakman Group. The trend will almost certainly accelerate as we move into 2026.

If you are seeking professional advice for your business, Opus is here to help. You can speak to one of our Partners who can discuss options with you. We have offices nationwide and by contacting us on 020 3326 6454, you will be able to get immediate assistance from our Partner-led team.