What the Chancellor’s settlement really means for investment, wages and confidence across Herefordshire and Worcestershire

More than a month on from Rachel Reeves’ second Budget, the dust has settled but the implications are only just beginning to sink in for businesses planning ahead for 2026.

In November, the Chancellor billed it as “a Budget for fair taxes, strong public services, and a stable economy”. Behind that framing sits a hard number that will define the climate for business for the rest of the decade: tax decisions that, taken together, are forecast to raise around £26bn by 2030/31 and push the overall tax take towards 38% of GDP.

For firms setting investment plans, workforce strategies and prices for the new year, the question now is not whether the Budget was “good” or “bad” on the day – but whether this settlement supports the cautious optimism many hope will return in 2026, or risks choking it off with higher costs and persistent uncertainty.

What did Reeves actually do?
On the revenue side, Reeves has opted for a mix of stealth and symbolism rather than headline income tax hikes.

Key planks include freezing income tax and National Insurance thresholds for an extra three years from 2028, dragging more people into higher bands over time. She also announced higher taxes on property, dividends and savings income, with basic and higher rates on these streams up by two percentage points.

A new “mansion tax”-style surcharge on homes worth more than £2m from 2028, worth £2,500 a year rising to £7,500 for properties above £5m was also announced, as was a £2,000 cap on pension contributions that can be sheltered from National Insurance via salary sacrifice from 2029, a move expected to raise billions and described by parts of industry as a tax on workers “in spirit if not in name”.

New duties on electric vehicles were also announced, with per-mile charges phased in to help replace declining fuel duty receipts.

At the same time, the Chancellor used some of the fiscal room to make highly political choices, like scrapping the two-child benefit limit, boosting the minimum and National Living Wage, freezing rail fares and prescription charges, and pledging extra capital for the NHS, schools and regional investment.

The Office for Budget Responsibility’s forecast, accidentally published early in a now-notorious leak, painted a picture of modest growth and stubbornly weak productivity. Growth is expected to come in around 1.4–1.5% a year from 2026, lower than previous forecasts, while productivity and business investment are both judged weaker than hoped.

In other words, as we head into 2026, the Government is banking on a high-tax, high-spend, “steady as she goes” strategy in a world of low productivity growth and higher interest rates.

A divided national reaction
Politically, the Budget has been contentious from the moment the OBR numbers leaked. The Prime Minister immediately praised Reeves for retaining market confidence and keeping borrowing on a downward path, but the Opposition seized on the £26bn tax package and the removal of the two-child cap as proof that this is, in Kemi Badenoch’s words, “a total humiliation” that “hikes taxes to pay for welfare” and pushes the overall burden to record levels.

Think-tanks to the right of centre, such as the TaxPayers’ Alliance and Institute of Economic Affairs, all lined up to describe it as a “benefits bonanza”, a “dog’s dinner of damaging tax rises” and a sign that the Government has “raised the white flag in the battle for economic growth”.

More centrist and left-leaning organisations have been more measured but still wary. The Institute for Fiscal Studies labelled it “a big Budget” with a significant tax rise and higher near-term borrowing, but credited Reeves with building sensible headroom against the fiscal rules – while noting the lack of any grand, pro-growth tax reform. The National Institute of Economic and Social

Research argued that the Budget effectively locks in a high-tax, high-debt steady state with only a “coin toss” chance of actually meeting the Chancellor’s fiscal rules, given the uncertainties around revenue later in the decade.

Those judgments will matter more in 2026 than they did on Budget day as they frame expectations about the kind of fiscal environment businesses will be operating in for the rest of the parliament.
Business said: stability, yes – transformation, no

Herefordshire & Worcestershire Chamber of Commerce Director of Business Development and Policy, Robert Elliot said “several measures will have a significant impact”.
“For months we have been concerned that this Budget might repeat the chaos businesses faced in October 2024” he said. “While this statement is more stable, several measures will still have a significant impact on the 1360 Member businesses we represent.

“Last year’s Minimum Wage and National Insurance changes were hugely damaging. Particularly to small, medium sized businesses, the SMEs. A further increase in the living and minimum wage levels will be welcomed by many. But this is only going to create pressure across companies as supervisors, and managers see their differentials narrowed and request increases. Wage growth may lead to cost increases and competition gaining the upper hand.

“We welcome the support for under 25 apprenticeships and measures being introduced to promote youth employment. As a Chamber we are delivering the Local Skills Improvement Plan. We will ensure that part of this plan’s activities will be to signpost businesses to the financial support, and we will be working with local partners and training bodies to maximise the support.

“We also welcome Business Rate support for hospitality, leisure and retail premises. It is essential that implementation is swift and that the £500,000 cap does not exclude too many businesses.

“On sustainability, we wait to see the real effect on the adoption of EV’s now that their financial attractiveness might have been compromised. Equally we have several Members who have high energy usage. Whilst the Industrial Strategy laid out some industries that might benefit for levy savings, there are a number still awaiting clarification and we will lobby on their behalf.”

His reaction echoes national concerns about wage compression, energy-intensive business pressures, and uncertainty around EV incentives.

The British Chambers of Commerce (BCC) said the Budget “made the right choice by not piling major new tax rises on businesses’ shoulders”, highlighting support for youth employment, stamp duty relief, protection for capital spending, lower business rates multipliers and some investment tax breaks. But Director General Shevaun Haviland also warned that many members would be “disappointed” by the failure to set out a more transformative vision for growth, amid concern about salary sacrifice changes, wage pressures and the retained energy profits levy.

In his full statement, she said: “The Chancellor has listened to our calls and made the right choice by not piling major new tax rises on businesses’ shoulders, which will calm nerves.
“Firms will be pleased to see the commitment to transport and infrastructure, and critically the funding for planners the BCC has called for. It is now vital that the Government delivers on these promises.

“Business will welcome support for youth employment, stamp duty relief, protection for capital spending, a reduction in business rates multipliers and some investment tax breaks.

“They will be worried about salary sacrifice changes, mandatory wage increases, and retention of the energy profits levy, which will maintain cost pressures.

“Alongside this, we have seen UK-wide business support funding of almost £1bn axed and replaced with a system of piecemeal support which favours select urban regions. That risks further regional inequality and damage to rural economies.

“While most businesses will weather this new financial landscape, they are still being squeezed by rising costs. Many will be disappointed that this Budget did not provide a more compelling blueprint to deliver transformational growth.”

The CBI echoed the BCC’s sentiment, describing the Government’s growth mission as “stalled”, and warning that the combination of higher wage floors and extra employment-related taxes would raise the cost of hiring and make it harder to invest.

Small firms, represented by the Federation of Small Businesses, have been blunter still, branding it a “tax-raising Budget” in a context where the tax burden is already at historic highs and calling for a more explicit pro-growth, pro-small business agenda.

All of this is feeding into already fragile sentiment. The Institute of Directors’ latest survey, fielded around the Budget, shows directors’ confidence in the UK economy falling to near-pandemic lows, with revenue expectations turning negative and investment plans being pared back.

The key issue for 2026 is whether the promise of macro stability and targeted support can, over time, outweigh those immediate cost pressures and help unlock investment – or whether firms stay in “wait and see” mode.

The local verdict: fairness, incentives and the cost of driving
At street level, the picture was equally mixed. At a weekly community kitchen in Worcester, where people on low incomes can get a free meal, residents told the BBC they could see both winners and losers.

“Some of the Budget was ok,” said working grandmother Roni Skye. “But I don’t agree with the child benefit cap being lifted – at the end of the day all working people will have to pay for that.”

She added: “If people are really struggling, [removing the cap is} great – but some people will abuse the system and pop out more children because they know they’ll get more money.

“It’s another excuse for the younger generation not to work.”

Pensioner Graham Key, who is in his 70s, told the BBC: “A 4.8 per cent increase on pensions will be a great benefit for me.

“And it’s a good Budget for parents with more than two children – but I realise somebody has to pay for it.
“Is it a fair Budget? Well it helps the worst-off. But I don’t think any Budget can be ‘fair’ – most working people will end up paying extra taxes.”

For motorists, the mood is cooler. While fuel duty is frozen until late 2026, new road pricing for electric vehicles is on the way and the prospect of higher fuel duty after that is looming.

Actor Hannah Kryszewski said: “I’m a bit upset about what [the chancellor] has done to motorists.

“Overall the Budget is ok but for car users it’s going to be more expensive – that’s thrown me somewhat.”

Keiron Doyle struck a more mixed tone: “I think it’s good that they’ve kept rail fares at the same price, and increased the taxes on smoking and alcohol.

“All of that is really good. I’m not sure about the other taxes though – if you tax people too much it’s not great for working people.”

In microcosm, Worcester reflects the national debate. There’s cautious support for help with pensions, children and public services, but persistent anxiety over who ultimately pays – and whether the tax system still rewards work and enterprise.

2026: cautious optimism or slow grind?
So what does all this mean for 2026, and for the businesses trying to plan in the middle of it?

On the positive side, the Budget and OBR forecasts offer a degree of predictability that has been missing in recent years. Market reaction has been calm; gilt yields have not spiked, and the

Government now enjoys a meaningful amount of forecast headroom against its main fiscal rule.

For many finance directors, simply not having to price in a crisis is a material win. There is also tangible support in the form of:
lower business rates multipliers and targeted reliefs for retail, hospitality and leisure extended capital allowances and a higher write-off for investments, helping tilt the dial towards productivity-enhancing capex devolution and regional funding – including flexible pots for mayors and billions more for devolved governments – which could underpin local infrastructure and skills programmes over the next parliament

Layered on top of this, early signs from industry surveys suggest that while overall confidence is fragile, certain sectors – manufacturing among them – are starting to see marginal improvement, with forecasts for 2026 pointing to modest growth rather than recession.

But against that sits a structurally higher cost base:
wage floors are rising again, especially for younger workers
employment costs will increase further if salary sacrifice and benefit reforms bite as expected
tax on capital, property and some forms of investment income will be higher by the end of the forecast period
the broader tax burden will edge up, not down, through the second half of the decade

For many businesses, especially SMEs already squeezed by energy, rents and borrowing costs, that risks turning “cautious optimism” into “cautious retrenchment”.

Navigating the new landscape
Against this backdrop, how can businesses respond as they look ahead to 2026?

Plan for a high-tax, high-wage, low-growth baseline
The prudent assumption for 2026–28 is that taxes will not fall materially and wage pressure will remain. Investment cases should be stress-tested against weaker-than-hoped demand and higher employment costs, rather than best-case scenarios.

Double down on productivity, not just cost-cutting
With margins under pressure, the path to sustainable profit growth is likely to run through productivity: automation, process redesign, better use of data and AI, and upskilling existing staff. The Budget’s investment allowances and skills schemes are designed, at least in part, to support this shift.

Engage locally as devolution deepens
New devolved funding and powers – from mayoral investment pots to visitor levies and local growth initiatives – mean the “where” of your business matters more. There is an opportunity for firms to shape local priorities, from transport to town-centre regeneration, by working with chambers of commerce and combined authorities.

Revisit reward and benefits strategies
Changes to pension tax treatment, salary sacrifice and minimum wages make this a good moment to review total reward: what you pay, how you pay it, and which benefits really matter to recruitment and retention. There may be ways to rebalance packages that are more tax-efficient for both employer and employee.

Communicate clearly with staff and customers
As the Worcester voices show, people understand there are trade-offs – but they are sensitive to fairness. Being open about how tax, wage and cost-of-living changes affect your business, and what you are doing to remain fair and competitive, can help sustain trust through what may still feel like a long grind back to normality.

The 2025 Autumn Budget does not deliver a big-bang moment for growth. It does, however, set the contours of the business environment for 2026: more stable than the recent past, but still tough; more predictable on the fiscal side, but more demanding on tax and wages.

For businesses, the challenge now is to treat that landscape not as a reason to retreat, but as a framework within which to invest selectively, raise productivity – and rebuild confidence from the ground up.