Rachel Reeves’s Budget felt like a very big one indeed, with a major call in hiking employers’ national insurance contributions by £25 billion a year.

The Chancellor highlighted Labour’s focus on the economy and investment, as she delivered large rises in spending and increased borrowing.

And the University of Strathclyde’s Fraser of Allander Institute highlighted a “really significant uplift” in spending for Scotland, through the Barnett formula, as a result of the Budget measures. It said this was “likely to make the Scottish Government’s job of balancing its budget significantly easier”.

The growth forecasts for the UK for 2024 and 2025 were moved up by the independent Office for Budget Responsibility taking into account the Chancellor’s measures. However, the projections for the following three years are all lower than what were already uninspiring predicted rates at the time of the March Budget.

We have had a flurry of Budgets and other fiscal events in recent years amid much political volatility and upheaval but this one stood out - with the Chancellor highlighting early in her speech that Labour’s measures would increase taxes by £40bn annually.

Financial markets took Ms Reeves’ Budget in their stride. This was in stark contrast to the mayhem which ensued in the wake of the “mini-Budget” from former Conservative chancellor Kwasi Kwarteng in autumn 2022 during Liz Truss’s brief spell as prime minister.

While the rise in employers’ national insurance contributions accounted for the bulk of the £40bn tax hike, a huge increase by the standard of Budgets past, Ms Reeves also raised capital gains tax to bring in around an extra £2.5bn a year. And she moved to increase the inheritance tax take substantially.

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The Chancellor also delivered the anticipated rise in the energy profits levy, better known as the windfall tax, from 35% to 38% and extended this out to March 31, 2030. However, there was some relief on the North Sea investment front as she announced that 100% first-year capital allowances in the levy would remain.

The UK growth forecast for this year has been revised up to 1.1%, from 0.8% at the time of the March Budget, by the OBR.

And the 2025 growth prediction has been edged up from 1.9% in March to 2%.

However, growth forecasts for 2026, 2027 and 2028 are all lower than in March. Growth in 2026 is now expected to be 1.8%, down from the previous 2% projection. The OBR’s forecast for growth in 2027 has been cut from 1.8% to 1.5%. And the projection for expansion in 2028 has been reduced from 1.7% to 1.5%. The OBR’s growth forecast for 2029 is 1.6%.

Chancellor of the Exchequer Rachel Reeves holds up her ministerial red box, as she poses for the media outside 11 Downing Street, London, before delivering her Budget.Chancellor of the Exchequer Rachel Reeves holds up her ministerial red box, as she poses for the media outside 11 Downing Street, London, before delivering her Budget. (Image: Lucy North/PA)

These forecasts underline the challenges facing the UK economy, with these projected growth rates much lower than the trend pace of expansion before the global financial crisis.

However, there was some positive news for Labour in the OBR’s assessment of the longer-term impact of Budget measures.

In its economic and fiscal outlook, analysing the impact of the Budget, the OBR observes: “If the increased level of public investment were sustained, it would permanently raise supply in the long term and by significantly more than it does in the forecast period.”

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The OBR adds: “Some Budget policies also have lasting impacts, some positive and some negative, on the supply side of the economy. Their net effect on potential output is broadly neutral by the five-year forecast horizon, but becomes positive from the early 2030s.”

There was a predictably robust reaction to the hike in employers’ national insurance contributions.

There was much debate in the wake of the Budget as to whether the Labour Government had stuck to its manifesto pledges about not raising taxes for working people. Labour’s argument was that it had kept its promises, by not increasing the taxes levied in an employee’s payslip, and indeed it has not raised these. The counter-argument being made in the wake of the Budget was that working people would in effect shoulder much of the burden of the increase in employers’ national insurance.

The Institute of Chartered Accountants of Scotland declared the Budget “picks the pockets of UK businesses”, as it lambasted the rise in employers’ national insurance contributions.

Bruce Cartwright, chief executive of ICAS, said: “Firms are likely to compensate for the additional costs by limiting pay rises, freezing hiring plans and pausing employee benefits, or even paying a lower rate of pension contribution. These knock-on effects will directly impact working people’s wealth while stifling business growth.”

In comments which highlight the scale of the Budget measures, the OBR says: “This Budget delivers a significant and sustained loosening of fiscal policy which increases borrowing by £35 billion - 1.2% of GDP (gross domestic product) - in 2025/26 and by £30 billion - 0.9% of GDP - in 2029/30.”

It adds: “This increase in borrowing relative to our pre-measures forecast is the net result of: a £72 billion (2.1% of GDP) increase in spending in 2029/30, around two-thirds of which is current spending and one-third capital spending; and a £42 billion (1.2% of GDP) increase in taxes in 2029/30, of which over half comes from an increase in employer national insurance contributions.”

The reaction to the energy profits levy rise appeared to be softened by the worst fears on the capital allowances front not being realised.

Graham Kellas, senior vice-president for global fiscal research at energy consultancy Wood Mackenzie, said: "North Sea companies will be relieved that the Government has not followed through on its intention to reduce the EPL capital allowance. This is likely to allow minor, near-term investments to proceed.”

However, he added: “The EPL remains deeply flawed and [the] industry feels it is inappropriate for larger, longer-term developments. Attention will now turn to finding a successor to the EPL that is predictable and fairer. The good news is that government appears to be listening to the industry's concerns and where there's a will, there's a way."

The OBR, in its economic and fiscal outlook, highlights the continuing damage to the UK economy from Brexit.

It says: “Weak growth in imports and exports over the medium term partly reflect the continuing impact of Brexit, which we expect to reduce the overall trade intensity of the UK economy by 15% in the long term.”

Analysing the spending uplift for Scotland, Fraser of Allander deputy director João Sousa said: “For Scotland, there has been a really significant uplift in spending - largely through the Barnett formula due to higher spending in devolved areas. Funding for day-to-day spending is £1.5bn higher this year, which is likely to make the Scottish Government’s job of balancing its budget significantly easier.

“Barnett consequentials are £3.4 billion next year as well, of which £2.6bn is day-to-day spending. But, although that is a significant amount, several hundred million [pounds] of that will be compensation for higher staff costs through the NICs (national insurance contributions) measure for public sector employers. So, even though it’s a significant amount, it’s a bit less than [it] would initially appear.”