A Budget to fix the foundations and deliver change for Northern Ireland

The Chancellor has delivered a Budget to fix the foundations to deliver on the promise of change after a decade and a half of stagnation. She set out plans to rebuild the United Kingdom, while ensuring working people across Northern Ireland don't face higher taxes in their payslips.

The UK Government was handed a challenging inheritance; £22 billion of unfunded in-year spending pressures, debt at its highest since the 1960s, an unrealistic forecast for departmental spending, and stagnating living standards.

This Budget takes difficult decisions to restore economic and fiscal stability, so that the UK Government can invest in the economic future of Northern Ireland and lay the foundations for growth across the UK as its number one mission.

The Chancellor announced that the Northern Ireland Executive will be provided with a £18.2 billion settlement in 2025/26 - the largest in real terms in the history of devolution. This includes a £1.5 billion top-up through the Barnett formula, with £1.2 billion for day-to-day spending and £270 million for capital investment.

Secretary of State for Northern Ireland Hilary Benn said:

This is the biggest real terms settlement for Northern Ireland since devolution.

The Northern Ireland Executive will get an additional £640 million in Barnett consequentials this year, and an additional £1.5 billion next year.

This will provide a strong foundation for stability and growth, and sees the UK Government delivering real change for the people of Northern Ireland.

We have also confirmed the UK Government's investment in Northern Ireland's City and Growth deals, which is a huge boost to communities in both rural and urban areas. The Mid South West and Causeway Coast and Glens Deals alone will receive a combined investment from the UK Government of £162 million, and I look forward to seeing them progress and make a real impact now and in years to come.

Meanwhile, measures such as the Northern Ireland Enhanced Investment Zone, continuing support for Northern Ireland integrated schooling and the UK-wide investment of over £500m in digital infrastructure through Project Gigabit and the Shared Rural Network benefit people across Northern Ireland's communities.

The increase to £37.8 million in funding for the Police Service of Northern Ireland through the Additional Security Fund, combined with £8 million for the Executive Programme on Paramilitarism and Organised Crime, underscores the UK Government's continuing and steadfast commitment to security.

This budget is positive news for people across Northern Ireland, encouraging economic growth and enabling the conditions for a brighter future.

Protecting working people and living standards

While fixing the inheritance requires tough decisions, the Chancellor has committed to protecting the living standards of working people. The decisions taken by the Chancellor to rebuild public finances enable the UK Government to deliver on its pledge to not increase National Insurance, Income Tax or VAT on working people in Northern Ireland, meaning they will not see higher taxes in their payslip.

• The National Living Wage will increase from £11.44 to £12.21 an hour from April 2025. The 6.7% increase - worth £1,400 a year for a full-time worker - is a significant move towards delivering a genuine living wage.
• The National Minimum Wage for 18 to 20-year-olds will also see a record rise from £8.60 to £10 an hour.
• Working people will benefit from these increases, with there estimated to be around 100,000 minimum wage workers in Northern Ireland in 2023.
• The Chancellor has made the decision to protect working people in Northern Ireland from being dragged into higher tax brackets by confirming that Income Tax and National Insurance Contributions thresholds will be unfrozen from 2028-29 onwards.
• The Chancellor is also protecting motorists by freezing fuel duty for one year - a tax cut worth £3 billion, with the temporary 5p cut extended to 22 March 2026. This will benefit an estimated 1.3 million people in Northern Ireland, saving the average car driver £59, vans £126 and Heavy Goods Vehicles £1,079 next year.
• To support pubs and smaller brewers in Northern Ireland, the UK Government is cutting duty on qualifying draught products by 1p, which represent approximately 3 in 5 alcoholic drinks sold in pubs. This measure reduces duty bills by over £70 million a year, cutting duty on an average strength pint in a pub by a penny. The relief available to small producers will be updated to help smaller brewers and cidermakers.

Rebuilding the United Kingdom

This UK Government will not make a return to austerity and will instead boost investment to rebuild Britain and lay the foundations for growth in Northern Ireland. This includes £760 million of targeted funding for the Northern Ireland Executive, of which £662 million is as committed in the 2024 restoration financial package and £90 million is for capital investment.

• The UK Government today confirmed that investment in the Mid South West and Causeway Coast and Glens City Deals will continue, supported by a value for money assessment as part of the review of the business cases for projects to ensure best value is being delivered. The Mid South West and Causeway Coast and Glens Deals deliver a combined investment from UK Government of £162 million over 15 years to rural areas in Northern Ireland.
• The Chancellor committed the UK Government to working closely with the Northern Ireland Executive on the Industrial Strategy, 10-year infrastructure strategy and the National Wealth Fund - to ensure the benefits of these are felt UK-wide and as part of the relationship reset between governments. These will mobilise billions of pounds of investment in the UK's world-leading clean energy and growth industries.
• The UK Government has today reaffirmed its commitment to develop an Enhanced Investment Zone in Northern Ireland and will continue to work closely with the Northern Ireland Executive to develop proposals.
• The UK Government has increased funding to £37.8 million for the Police Service of Northern Ireland's Additional Security Fund and confirmed £8 million for the Executive Programme on Paramilitarism and Organised Crime to ensure that people and communities are kept safe from violence and harm.
• To support community cohesion the UK Government is providing £730,000 of additional funding in 2025-26 to support schools in Northern Ireland through the transformation process as they work towards integrated status.
• Under-served parts of Northern Ireland will benefit from the rollout of digital infrastructure enabled by over £500 million of UK-wide investment in Project Gigabit and the Shared Rural Network.
• A corporate tax roadmap will provide businesses with the stability and certainty they need to make long-term investment decisions and support our growth mission. It confirms our competitive offer, with the lowest Corporate Tax rate in the G7 and generous support for investment and innovation.
• The UK Government will also proceed with implementing the 45%/40% rates of the theatre, orchestra, museum and galleries tax relief from 1 April 2025 to provide certainty to businesses in Northern Ireland's thriving cultural sector.

Repairing public finances

The Chancellor has made clear that, whilst protecting working people with measures to reduce the cost of living, there would be difficult decisions required. The Budget will ask businesses and the wealthiest to pay their fair share while making taxes fairer. This will go directly towards fixing the foundations of the UK economy.

• The rate of Employers' National Insurance will increase by 1.2 percentage points, to 15%. The Secondary Threshold - the level at which employers start paying national insurance on each employee's salary - will reduce from £9,100 per year to £5,000 per year.
• The smallest businesses will be protected as the Employment Allowance will increase to £10,500 from £5,000, allowing firms in Northern Ireland to employ four National Living Wage workers full time without paying national insurance on their wages.
• Capital Gains Tax will increase from 10% to 18% for those paying the lower rate, and 20% to 24% for those paying the higher rate.
• To encourage entrepreneurs to invest in their businesses Business Asset Disposal Relief (BADR) will remain at 10% this year, before rising to 14% on 6 April 2025 and 18% from 6 April 2026-27.
• The lifetime limit of BADR will be maintained at £1 million. The lifetime limit of Investors' Relief will be reduced from £10 million to £1 million.
• The OBR say changes to CGT will raise over £2.5 billion a year and the UK will continue to have the lowest CGT rate of any European G7 country.
• Inheritance Tax thresholds will be fixed at their current levels for a further two years until April 2030. More than 90% of estates each year will be outside of its scope. From April 2027 inherited pensions will be subject to Inheritance Tax. This removes a distortion which has led to pensions being used as a tax planning vehicle to transfer wealth rather than their original purpose to fund retirement.
• From April 2026, agricultural property relief and business property relief will be reformed. The highest rate of relief will continue at 100% for the first £1 million of combined business and agricultural assets, fully protecting the majority of businesses and farms. It will reduce to 50% after the first £1 million. Reforms will affect the wealthiest 2,000 estates each year. Inheritance Tax reforms in total are predicted by the OBR to raise £2 billion to support stability.

The Budget also announced a package of measures that disincentivise activities that cause ill health, by:

• Renewing the tobacco duty escalator which increases all tobacco duty rates by RPI+2% plus an above escalator increase to hand rolling tobacco (totalling RPI+12%). 
• Introducing a new vaping duty at a flat rate of 22p/ml from October 2026, accompanied by a further one-off increase in tobacco duty to maintain financial incentive to choose vaping over smoking.
• To help tackle obesity and other harms caused by high sugar intake, the Soft Drinks Industry Levy will increase to account for inflation since it was last updated in 2018, and the duty will rise in line with inflation every year going forward.
• The UK Government will also uprate alcohol duty in line with RPI on 1 February 2025, except for most drinks in pubs

The UK Government has set out the next steps to deliver its tax manifesto commitments in the July Statement. Having consulted on the final policy details where appropriate, this Budget delivers the UK Government's manifesto commitments to raise revenue to pay for First Steps, with reforms that are underpinned by fairness, and tackle tax avoidance by:

• A new residence-based regime will replace the current non-dom regime from April 2025 and will be designed to attract investment and talent to the UK.
• Offshore trusts will no longer be able to be used to shelter assets from Inheritance Tax, and there will be transitional arrangement in place for people who have made plans based on current rules.
• The planned 50% reduction for foreign income in the first year of the new regime will be removed.
• Reforms to the non-dom regime will raise a total of £12.7 billion according to the OBR.

• The tax treatment of carried interest will be reformed by first increasing the Capital Gains Tax rates on carried interest to 32% and then, from April 2026, moving to a revised regime - with bespoke rules to reflect the characteristics of the reward.

• The Higher Rate for Additional Dwellings surcharge of Stamp Duty Land Tax will rise from 3 to 5%, providing those looking to move home, or purchase their first property, with a comparative advantage over second home buyers, landlords, and businesses purchasing residential property.

• The UK Government will also introduce 20% VAT on education and boarding services provided for a charge by private schools from 1 January 2025.

The Chancellor also doubled down on fiscal responsibility through two new fiscal rules that put the public finances on a sustainable path and prioritise investment to support long-term growth, and new principles of stability. Spending Reviews will be held every two years, setting plans for at least three years to ensure public services are always planned and improve value for money.

One major fiscal event per year will give families and businesses stability and certainty on tax and spending changes, while giving the Northern Ireland Executive greater clarity for in its own budget-setting. A Fiscal Lock will also ensure no future government can sideline the OBR again.