Nearly five months after the UK public voted in a new government, the top finance minister of Keir Starmer’s administration has given an overview of the planned spending and borrowing for the next 12 months, including several key transport decisions.
The Chancellor of the Exchequer Rachel Reeves (the first woman to hold the crucial role) gave a macro overview of the “inherited” fiscal situation and her plan to “fix” it.
She then dove into the detail, which included a key tax paid by airlines and commercial aviation operators and government investment in the railway sector.
Air
The direct change for the aviation sector is limited to changes to the Air Passenger Duty (APD).
Reeves said she worked in conjunction with Transport Secretary Louise Haigh when deciding to increase the taxes paid by airlines and private operators (and often passed on to customers via ticket prices).
For the first fiscal year under the Labour administration, starting April 2025, tax levels will increase by the Retail Price Index (RPI) – one of the two standard measures used by UK governments to keep taxation in line with inflation.
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From April 2026, the lower rates for domestic and short-haul routes (in economy seating) will increase by £1 and £2 respectively. Long-haul passengers will be required to pay an extra £12 ($15.50). Premium and Business ticket taxes will increase “relatively more” on the same timescales.
But the headline APD announcement focused on private jets and increasing the tax share on those who fly on larger private flights.
From 2026 the higher rate of APD, which is paid on private flights using jets that weigh more than 20 tonnes but carry fewer than 19 passengers, will rise by 50%. The rise will revert to RPI for 2027 onwards.
Although this segment of commercial aviation is relatively small, passengers flying more than 5,000 miles privately will pay £673 ($875) in taxes, compared to £224 ($291) at the standard rate.
Along with these announcements, Reeves announced a new consultation on extending the Higher Rate to all private flights, rather than only those using larger planes.
Perhaps unsurprisingly, the trade association representing UK airport operators AirportsUK shared a negative reaction to the announcement.
“It was disappointing… that the Chancellor increased air passenger duty, especially at a time when airports are investing in new security technologies, sustainable flight and airspace modernisation, as well as facing increasing burdens in other areas,” CEO Karen Dee said.
“If the Government is serious about realising its aim for the UK is to become the fastest growing economy in the G7, then it must recognise and champion the role that airports play in growth and international connectivity, and minimise the cost and regulatory burdens imposed,” Dee added.
A key segment of the air passenger population which could be affected by the changes is business travellers.
Peter Slater, CEO of CMAC Group which manages corporate travel for its clients, told Airport Technology the increased APD could prompt firms to look at other modes of transport.
“The Chancellor’s decision to increase Air Passenger Duty will have a considerable impact across the travel industry. For short-haul flights, the increased APD might seem marginal, but these incremental costs add up, especially for businesses reliant on regular short-haul travel for meetings, networking and client visits. Businesses will need to budget carefully to manage these rising costs and may consider alternative travel arrangements that are both cost-effective and sustainable,” Slater said.
“The 50% APD hike for private jet users could redirect demand towards commercial and more environmentally friendly travel options, which aligns with a growing commitment to reducing carbon footprints and driving greener operations in corporate travel,” he added.
Rail
The railways are a key area for Transport Secretary Louise Haigh, and she started her policy of “move fast and change things” soon after Prime Minister Starmer invited her to the Cabinet position. So far, the most visceral manifestations of this credo have been the Rail Reform Bill and Public Ownership Bill, which aim to take control of UK passenger rail services away from underperforming TOCs.
Despite the Budget actually slightly decreasing the overall cash Haigh has to spend in the next 12 months, Reeves committed to funding upgrades and electrification projects across the country.
One project, which Railway Technology has reported on since its 2017 inception, will seek to complete the Transpennine Route Upgrade (TRU) between York and Manchester, two of the larger cities in the North of England.
Along with directly improving connections between the two major cities and others, it will “lay the groundwork for Northern Powerhouse Rail.” Other lines in the North of England and further afield will be electrified, and Manchester Victoria will undergo work to improve its capacity.
In the South, East-West Rail will connect two smaller, yet world-famous towns: Oxford and Cambridge. Currently, passengers would have to travel into central London and then out again to move between the major university centres.
“The first East West Rail services will begin operations next year, running between Oxford, Bletchley, and Milton Keynes. The acceleration of the Marston Vale Line will ensure these services extend to Bedford from 2030. To deliver the next stages of East West Rail the
government is launching a consultation,” the Budget document explained.
These regional projects were celebrated by the Railway Industry Association’s CEO Darren Caplan.
“RIA… applauds the Chancellor’s commitment to continue delivering the TransPennine Route Upgrade (TRU), the delivery of East West Rail, and the other announcements to strengthen both national and regional rail connections.”
Perhaps the loudest roar heard from the Labour Members of Parliament sitting behind Rachel Reeves followed her announcement that HS2 would continue to be “progressed” in Phase One, between Birmingham and London. She confirmed that trains will run to the ‘hub’ of London Euston, rather than the ‘spoke’ at Old Oak Common, several miles from the centre of the city.
Central government will fund the tunnelling needed for HS2 trains to reach Euston, which Reeves said would “catalyse” private investment in the project and the Euston station renewal.
Alex Vaughan, CEO at Costain, said: “This is positive news that gives certainty and clarity for the UK’s largest and most complex infrastructure programme. Having the HS2 railway connected to Euston, in the heart of London, will be vital for the programme to deliver its many benefits, and will act as a catalyst for the regeneration of the Euston area.”
Costain is part of Skanska Costain Strabag, and is building the London Tunnels for HS2 between West Ruislip and Euston.
Meanwhile, managing director of engineering firm Mott Macdonald Richard Risdon said:
“Hearing the government’s commitment to progress HS2 from Birmingham to Euston demonstrates their understanding of the role of connectivity in delivering economic growth and opportunities.”
“The plans set out by Keir Starmer for a mission-led government are key to achieving net zero but can only be delivered in the timescales planned through consistent investment in infrastructure. The new funding detailed today is critical for delivering those environmental improvements and creating climate resilience for the UK, while also improving public services and connectivity with better access to jobs and services,” Risdon added.
And Darren Caplan said the RIA was pleased to see the HS2 promise, as it had raised the issue with Reeves in the weeks prior to the landmark announcement.
“Ahead of the Budget, the Railway Industry Association (RIA) wrote to Chancellor Rachel Reeves urging her to be ambitious in leveraging the full economic potential of UK rail, including supporting private investment. Rail suppliers will therefore welcome today’s decision to progress HS2 tunnelling between Old Oak Common and Euston, which means that there will now be a sufficient basis for future north-south capacity, something RIA specifically asked for in our Budget submission.”
However, Caplan noted the RNEP is still unpublished, meaning long-term investment is still stunted.
“Looking ahead to the comprehensive spending review and ten-year infrastructure strategy due next year, we hope the Government will consolidate on today’s commitments by setting out a long-term investment pipeline for both infrastructure and rolling stock, giving businesses the confidence to continue to invest,” Caplan said.
“RIA continues to seek clarity from the Government on both rail enhancements and on leveraging private investment into public infrastructure projects. Rail is a significant enabler of UK economic growth – today is hopefully a first step towards a fresh start for rail, enabling the railway industry to help boost the UK’s economy and its productivity in the years ahead.”
