What does Labour’s first budget in over a decade mean for infrastructure investment?

Following their decisive election victory in July, the new Labour government has prioritised rebuilding the UK’s appeal to international investors as a cornerstone of its ambitious growth strategy. They've delivered promising signals aimed at winning over investors, from addressing persistent planning and permitting challenges to the Prime Minister’s commitment to fostering a pro-investment regulatory environment at the inaugural International Investment Summit.

While these signals have been well-received, today’s Autumn Budget represents the first litmus test of the government’s dedication to its pro-investment agenda. In the lead-up, business groups have strongly advocated for maintaining a competitive tax framework to secure future investment. With the budget now out, it’s worth highlighting the headline measures that stand out for infrastructure investors amidst the surrounding commentary.

Confirmed funding for National Wealth Fund and GB Energy 

The budget confirms substantial funding for the National Wealth Fund and the establishment of Great British Energy (GBE), both pivotal to the government’s mission to position the UK as a clean energy leader. GBE will receive an initial £100 million in 2025-26 for clean energy project development. GBE's investments will initially be backed by the National Wealth Fund, which has a budget of £28 billion and will be required to generate returns that surpass those of government gilts. This strategic alignment positions GBE and the National Wealth Fund to accelerate the UK’s shift towards renewable energy and energy independence.

 Funding commitments for Carbon Capture & Storage and Green hydrogen projects 

The budget commits £3.9 billion in 2025-26 to launch the UK’s first carbon capture and storage (CCUS) clusters, alongside green hydrogen initiatives. This funding supports the development of essential infrastructure for CCUS, enabling industries to reduce emissions and advance clean energy solutions. By backing CCUS and hydrogen, the government aims to drive investment, create green jobs, and lay the groundwork for sustainable energy industries.

The new “investment” debt rule 

In her opening remarks, Chancellor Rachel Reeves reiterated the government’s pledge to “invest, invest, invest”. In a major fiscal policy shift, the government has introduced a new investment debt rule, designed to support significant public capital investment. Over the next five years, this new rule is projected to deliver over £100 billion in capital spending, aimed at bolstering infrastructure, development, and essential public services.

The current rule, focused on limiting debt rather than borrowing, has been restrictive, particularly for public investment. However, the new framework aims to shift to a more flexible approach by targeting a broader measure of debt.

Carried interest Capital Gains Tax reform

The government has announced a reform to the tax rate on carried interest, a share of profits that fund managers receive from investment gains. Effective April 2025, the tax rate on carried interest will rise from 28% to 32% ahead of further reform into 2026. While this increase aims to boost tax contributions from high-earning fund managers, it stops short of the more aggressive option of aligning the rate with the top income tax rate of 45%. This approach seeks a balance, raising revenue without fully aligning carried interest tax with personal income tax brackets.

Corporate tax rate commitments 

The budget introduces a Corporate Tax Roadmap to provide stability and encourage business investment. Key commitments include capping the corporation tax rate at 25% and preserving capital allowances, including permanent full expensing and the £1 million Annual Investment Allowance. Additionally, the roadmap maintains R&D reliefs and implements a new process to enhance tax certainty for significant investments, aiming to bolster the UK’s competitiveness for investment.

While Labour’s first budget in 14 years may not have delivered many surprises – most of the policies had been signalled in advance – it does lay out some solid groundwork to back the ambitious vision they have for the UK. By fleshing out these policy frameworks, from new public capital investment to commitments for renewable energy and green infrastructure, the budget continues Labour’s commitment to making the UK a more attractive environment for international investment. This budget sets the tone for the years to come as Labour looks to put their plans into action.