This week’s briefing highlights a deepening manufacturing slump, with output falling at its fastest pace since the pandemic. Against this backdrop, the OBR’s medium-term forecasts paint a sobering picture: near-term growth is slightly better than expected, but productivity shortfalls and subdued business confidence point to a flatter horizon from 2026 onward. Meanwhile, HMRC’s IHT receipts hit record levels, reflecting both structural changes and rising property values, while the Venture Capital landscape faces a shake-up as VCT tax relief is cut.
Read on for the full picture.
The Chancellor’s Budget has introduced two major changes to the UK’s venture capital landscape. VCT and EIS funds will now be able to invest larger sums into more mature, fast-growing companies - a shift intended to strengthen Britain’s scale-up ecosystem and close the funding gap for later-stage innovation.
The headline reaction has focused on the reduction of upfront VCT income tax relief from 30% to 20%. For many investors, this directly weakens the incentive to support higher-risk, illiquid early-stage businesses. Historical data reinforces the concern: when relief dropped from 40% to 30% in 2006, VCT fundraising collapsed by two-thirds and took more than a decade to recover.
Industry voices warn that changing the limits on what VCTs can invest is meaningless if those same funds can no longer raise sufficient capital from investors. With pensions still offering up to 45% tax relief, many expect capital to divert toward lower-risk products - the opposite of what a pro-growth strategy requires.
Critics are also questioning the Treasury’s projected gain of £125m by 2027/28, describing it is far too small to justify the potential damage to Britain’s high-growth ecosystem. The risk, they argue, is that smaller companies - those that sit between seed stage and mainstream private equity - will struggle even more to raise finance at a time when capital is already tighter.
The policy outcome is likely to be twofold. On one trajectory, EIS and SEIS become even more central to the UK’s high-growth pipeline, strengthened by their relative stability during a period of policy disruption. On the other hand, the broader ecosystem may contract if certain investors reduce activity in response to lower VCT incentives.
Kallum Pickering of Peel Hunt offered the bluntest assessment of the change, calling it “a stupid change… the one major negative in an otherwise tolerable Budget.”
HMRC’s latest figures confirm just how rapidly IHT receipts are climbing: £5.2bn collected in the first seven months of 2025/26 - £0.2bn more than the same point last year, and part of a decades-long upward trajectory. The combined effect of price growth, frozen thresholds, and tighter exemptions introduced in the 2024 Autumn Budget has created what some describe as a structural “IHT squeeze”.
Many of last year’s reforms have yet to be implemented, leaving the Treasury with a pipeline of changes already priced in but not yet felt by households. As a result, advisers are urging families to get fresh valuations of their estates, especially property, to understand their exposure within this shifting regime.
What’s becoming increasingly clear is that IHT is evolving from a niche issue into a mainstream concern. Rising property prices, especially over the past two decades, have pulled more estates across the nil-rate band, even without active wealth accumulation. This intersects directly with the warnings outlined in Section 2 around gifting rules and the potential for further tightening.
Estate planning now involves navigating complex rules, uncertain lead times, and a political environment where fiscal pressures and public sentiment can shift quickly. That complexity is why many advisers describe the coming months as pivotal for families who want to avoid being caught off-guard.
The latest CBI survey paints a stark picture of the UK’s industrial backdrop, with manufacturing output in the three months to November falling at the fastest rate since the pandemic. The weighted balance slipped to –30%, down sharply from –16% previously, and well below long-run norms. It reinforces what many in the sector have been feeling for months: demand has softened, costs have risen, and the policy environment remains far from predictable.
Order books tell a similar story. Both total and export orders were well below their historical averages, while stocks of finished goods once again sat above “adequate” levels. That combination points to weaker pipelines and an ongoing hangover from earlier front-loaded production, as firms scrambled to get ahead of potential tariff or tax hits earlier in the year.
There were, however, two faintly positive signals. Expectations for average selling price inflation eased back toward long-run averages, and economists immediately linked this cooling of cost pressure to the possibility of a December interest rate cut. This may prove an important backdrop for investors already watching the Bank of England closely, particularly given the easing inflation narrative referenced in later sections.
Beyond sentiment surveys, official production data has also been bleak. The ONS confirmed a 0.5% drop in Q3 industrial output, including a 2% fall in September alone. While part of this was a one-off - the cyberattack affecting Jaguar Land Rover - business groups remain clear that tax uncertainty and the risk of further fiscal tightening are suppressing investment decisions at precisely the wrong time for manufacturers.
The OBR’s latest outlook paints a mixed economic picture: stronger growth this year, but weaker prospects across the next four. Its estimate for 2025 has been revised upward to 1.5%, but projections for 2026 through 2030 sit flat at 1.4%–1.5%, noticeably below previous forecasts. The core issue is productivity, with expected growth reduced by 0.3 percentage points - enough to wipe about £16bn from future tax revenues in 2029–30 before being offset by higher inflation-related receipts.
This slowdown comes at an uncomfortable moment for a government that has made growth its flagship mission. The OBR notes that UK business and consumer confidence remains “subdued”, with global conflicts, trade uncertainty and the anticipation of further tax rises weighing heavily. That caution can already be seen across industry, including the manufacturing slump referenced earlier.
Taxes are set to increase to record levels by the end of the parliament, driven heavily by the extension of frozen income-tax thresholds. By 2029–30, the OBR expects 780,000 more basic-rate taxpayers, 920,000 more higher-rate taxpayers, and 4,000 additional-rate taxpayers simply due to fiscal drag. At the same time, public spending will rise each year, boosted by welfare changes such as the reversal of previous cuts and lifting the two-child limit in universal credit.
These forecasts matter not just for households but for the Chancellor’s fiscal rules, which require day-to-day spending to be fully funded and debt falling as a share of GDP by the end of the parliament. Reeves now has a £22bn buffer—double the previous one—but maintaining credibility relies heavily on productivity improving and global volatility calming, neither of which is guaranteed.
Reeves argued in her speech that the UK had already beaten this year’s forecast and would do so again. As one economist put it, “the factors driving that growth may be out of the government's control, decided by the largely unknowable impact of new technologies.”
This week underlines a shift taking place across the UK economy: the policy framework is tightening just as confidence weakens.
Manufacturing is flashing unwanted signals, and firms are making it clear that stability is what’s needed to unlock investment. At the same time, the inheritance tax data points to more households being drawn into scope and accelerating the need for careful estate planning. And for investors, the cut to VCT relief is a reminder that pro-growth rhetoric doesn’t always translate into pro-investment policy.
Taken together, these trends reinforce the importance of balancing risk with opportunity and focusing on strategies that combine stability, growth potential, and tax efficiency.