UK Budget Increases Wages but Raises Taxes on Farm Inheritance, Sugar, and Tobacco

Chancellor Rachel Reeves has unveiled a new Budget that includes significant changes to national insurance contributions for employers, alongside increased taxes on farm inheritance, sugary drinks, tobacco, and vaping products.

In her address to Parliament, Reeves announced a 6.7% increase in the National Living Wage, raising it to £12.21 an hour for workers aged 21 and over. Additionally, there will be a 16.3% rise for 18 to 20-year-olds, bringing their minimum wage to £10.00 per hour. This adjustment is expected to have a notable impact on grocery retailers as they adapt to higher labor costs.

A significant shift in inheritance tax policy was also introduced, as the Chancellor revealed plans to eliminate 100% relief on inheritance tax for farms and agricultural properties valued above £1 million starting from April 6, 2026. Instead, properties exceeding this value will only qualify for 50% relief, potentially creating financial challenges for farmers.

In an effort to enhance public health, the Chancellor announced an increase in the Soft Drinks Industry Levy, aimed at incentivizing manufacturers to reduce sugar content in their beverages. While specific new tax rates were not disclosed, this follows the initial implementation of the sugar tax in April 2018, which currently applies two rates: 18p per litre for drinks containing more than 5.7 grams of sugar and 24p per litre for those with 8 grams or more.

The Budget also introduced new measures targeting smoking. The government will maintain the Tobacco Duty escalator at RPI +2% for the duration of Parliament, along with a further 10% increase in duty on hand-rolling tobacco this year. Additionally, a new Vaping Products Duty is set to be introduced on October 1, 2026, at a flat rate of £2.20 per 10ml of vaping liquid. This move aims to encourage a transition from traditional tobacco products to vaping.

The alcohol industry faced its own challenges with the government’s decision to raise alcohol duty in line with the retail price index (RPI). This increase has been criticized as “counterproductive” and described as “a real kick in the teeth” by the wine and spirit sector, which has been advocating for the duty to remain frozen following its suspension in March 2020 due to the pandemic.

Miles Beale, chief executive of the Wine and Spirit Trade Association, expressed his disappointment regarding the decision, stating, “The Chancellor’s decision to increase alcohol duty by RPI is a real kick in the teeth for both businesses and consumers. We simply cannot understand why Government has said they are trying to protect income and in the next breath raising alcohol duty in a move that is totally counterproductive.”