What does budget 2026 mean for business and growth?

It is a frustrating question to answer, because the truth about the economy, and most of the things that might have some bearing upon it, is that the former is very, very big, and the things are generally quite small. 

Those of us who think professionally about ‘government’ need to be reminded, from time to time, that it is in many ways much smaller than people realise. ¹² https://freethinkecon.wordpress.com/2010/01/06/the-government-is-smaller-than-you-think/  Yes, the state taxes a fair bit and spreads the revenues around. But it does not generate as much of GDP as the over-cited tax/GDP ratio would suggest. A great deal of what it does is redistribute incomes, rather than direct activity.

The budget sent few shockwaves across the economy

Its influence is vast, of course, but it mostly comes to bear over the medium to long term. In principle, sudden changes in tax and spending might rapidly heat up or freeze activity, but A. this does not happen often and B. it is usually the Bank of England that really holds the whip-hand over aggregate spending. Finally, C. if you are thinking about Wednesday’s budget, it takes only the briefest glance at various tables in the OBR’s Economic and Fiscal Outlook (e.g. A.10) ¹³ https://assets.publishing.service.gov.uk/media/6ae1f7b839d29f3f9b9b3f36/economic-and-fiscal-outlook-october-2026-web-accessible.pdf  to see that its direct effect on spending is likely to be slight.  

Therefore, the usual answer applies: in terms of immediate outcomes, John Healey’s budget ¹⁴ https://www.gov.uk/government/news/government-slashes-red-tape-and-tariffs-to-give-businesses-breathing-space  means nothing. I doubt any professional forecasters are changing their numbers. But even when the budget contains something as large and stinky as 2024’s employer NICs rise, it can be hard to detect the influence on actual economic aggregates. Only about one budget in 20 has that kind of effect; in my professional lifetime, 100% of such events were delivered by Kwasi Kwarteng (though this is hard to prove, because the mini budget was largely unwound a month later). 

The long-term effects

However, the question is not meaningless. Chapter 4 in John Healey’s first budget – titled “Good Growth in Every Postcode” – contains over 30 pages and 160 paragraphs of various growth measures. The point is that they will show their effect over the years or decades. They include many (mostly pre-announced) policies on energy, interesting new ideas for accelerating the delivery of data centres, some easing up of rules on high-talent immigration, the reprioritisation of climate-related spending towards defence, a more muscular and political approach to delivering infrastructure, and more money for the PuFins (public financial institutions). The government is also recreating the Better Regulation Executive and delivered savings administrative red tape that it measured at £800m. ¹⁶ You can find a nice assessment of it in Anna Valero’s blog: https://blogs.lse.ac.uk/politicsandpolicy/the-2026-budget-buys-stability-and-points-in-the-right-direction-on-growth/?123

On the negative side of the ledger, the chancellor raised some money by making capital allowances less generous. Defence capital, which is rising, is not generally as good for growth as other kinds of investment, which is not. The IfG’s perpetual call for a tax reform strategy has gone unheeded, again (fear not, we will not give up). The bullet is yet to be bitten on welfare reform, and as my colleague Tom Pope has pointed out, most of the difficult decisions have been punted forward into 2027. We do not know for certain how Healey will make his spending review work, so any uncertainty hanging over business was not fully dispelled. 

I will not attempt to weigh up both sides of the ledger and say which of them won: supply side measures take years to show an effect, and cannot be teased apart. 

Has 40 years of neoliberalism been brought to an end?

What we do know is that Andy Burnham’s government has some big long-term ambitions, in various states of definition. Devolution is pretty well understood; reindustrialisation vaguer and looser; the end of neoliberalism has a lot of work to do. None of them were meant to be achieved in a single fiscal moment. Progress is going to be observed gradually, if at all. 

John Healey’s first budget was a holding exercise, intended to prepare the ground for more challenging work ahead. On its own terms it worked. It was not meant to fire the starting gun on an investment boom, suddenly “unleash” the economy, or whatever your favourite, misleading metaphor for boosting growth might be. Anyone expecting otherwise who now feels disappointed should blame themselves, not the chancellor. Growth doesn’t come from headline grabbing budgets. It never has.