The U.K. Budget: Eye Openers and Opportunities

• to be treated as ‘qualifying carried interest’, requiring: (i) a minimum co-investment requirement and (ii) sitting alongside the Income Based Carried Interest rule, a minimum time period between a carried interest award and receipt.

The asset management industry will no doubt be watching developments closely.

Also of relevance is the announcement that the concept of domicile is to be removed from the U.K. tax system (with a residence-based system) and there will be an extended relief to encourage remittances to the U.K.

Energy and Infrastructure

The Government reaffirmed its intention to encourage private investment in the economy, including by “creating the National Wealth Fund to catalyse over £70 billion of private investment in the U.K.’s clean energy and growth industries, and using the Pensions Investment Review, along with the British Growth Partnership, to unlock more pension fund investment into U.K. growth assets”.

The Government stated its commitment to “GB Energy” through the provision of £125 million in 2025 to set up the institution in Aberdeen. The GB Energy Bill was introduced in the Kings’ Speech in July setting out plans for a publicly owned energy production company that “will own, manage, and operate clean power projects up and down the country" and that will “develop, own, and operate assets, investing in partnership with the private sector”. Whilst the Chancellor did not provide exact numbers in the Budget, Labour’s election manifesto committed to capitalising GB Energy with £8.3 billion of new money over this Parliament.

The Chancellor also announced a new multi-year investment into carbon capture and storage and the provision of funding to 11 new green hydrogen projects.

The Government promised continuing support for the take up of electric vehicles. Existing incentives for electric vehicles under the company car tax regime will be maintained and it will also increase the differential between fully electric and other vehicles in the first rates of the Vehicle Excise Duty beginning in April 2025. This should drive demand for, and the need for investment in, the U.K.’s charging point infrastructure.

The Government also committed to several other key infrastructure projects, such as the tunnelling necessary for the extension of the HS2 rail line to Euston.

Employment

The Government made “protecting working people” and “boosting wages for the low paid” key pillars of the Budget. In terms of details, it promised an increase of 6.4% to the national minimum wage paid to those aged over 21, rising from £11.44 to £12.21 an hour. Those aged between 18 to 20 also saw their minimum hourly rate increase 16.3% from £8.60 to £10.

The rate of National Insurance contributions that employers pay for their employees has also increased by 1.2 percentage points to 15%, whilst the earnings threshold at which companies pay has been lowered from £9,100 to £5,000 and the employment allowance has been increased from £5,000 to £10,500, meaning 865,000 businesses will not pay any National Insurance contributions at all next year.

The changes come hot on the heels, so to speak, of the Employment Rights Bill introduced on 10 October 2024 in which the Government announced circa 28 individual employment reforms, which are widely and reasonably regarded as the biggest shakeup in U.K. employment law for a decade.

ESG

To help make the U.K. a clean energy superpower:

1. Oil and gas companies will contribute more to support the energy transition through increasing the Energy Profits Levy (EPL) from 35% to 38%, removing the 29% investment allowance, and extending the levy until 31 March 2030;
2. The Government will publish a consultation in early 2025 on how the taxation of offshore oil and gas will respond to price shocks once EPL ends in 2030 and a separate consultation on new environmental guidance for assessing end use emissions related to oil and gas projects;
3. The Government will also leverage £8 billion of private investment in carbon capture, usage, and storage infrastructure and continue funding for the development of Sizewell C and “new nuclear”;
4. £3.4 billion will be committed to heat decarbonisation and household energy efficiency; and
5. The U.K. Carbon Border Adjustment Mechanism will be introduced on 1 January 2027, placing a carbon price on goods that are at risk of carbon leakage imported to the U.K. from the aluminium, cement, fertiliser, hydrogen, and iron and steel sectors.

Next steps

We are happy to discuss these or any of the other proposals outlined in the Budget, and help you to assess their impact on, and the opportunities they present for, your business. Please reach out to any of the authors of this update or your usual Paul Hastings contact.