Published: November 2025
The countdown to the UK Autumn Budget 2025 is on, and speculation is intensifying. Chancellor Rachel Reeves has made it clear in recent weeks that she intends to be “candid” about the fiscal realities Britain faces — and that is likely to mean tax rises ahead.
With weak growth forecasts, a heavy debt burden, and limited fiscal headroom, the government faces a difficult balancing act: deliver on its promises to invest in growth and public services, while maintaining fiscal credibility.
The Economic puzzle: Why Tax Rises Are Back on the Table
A series of reports since early October have painted a sobering picture of the UK economy. The EY Item Club (a UK based economic forecasting group) predicts growth below 1% next year, citing falling business investment and the drag of higher borrowing costs. The Office for Budget Responsibility (OBR) is also expected to downgrade productivity forecasts by 0.1%, reducing government income and therefore the Chancellor’s wriggle room by £21 billion.
To make things trickier, to meet Labour’s own fiscal rules, think-tank The Resolution Foundation estimates the government may need to raise up to £26 billion.
That money will have to come from somewhere. With the UK now having the 5th largest debt amongst advanced economies and the cost of borrowing for the government at its highest level since 1998, it looks as though spending cuts and tax rises are the most likely source of revenue for the Chancellor.
The Political Tightrope
Labour’s 2024 manifesto pledged not to raise income tax, VAT, or National Insurance for “working people.” But the economic picture has changed, and Reeves’ recent speeches suggest she’s preparing the public for a pragmatic shift.
The Chancellor is walking a tightrope between keeping promises and keeping the books balanced — a task made harder by slowing growth and global uncertainty.
As Reeves herself said in her 4th November speech, “I have to face the world as it is, not what I want it to be.” That comment, along with her refusal to rule out increases to income tax, VAT, or National Insurance, signalled a shift in tone from earlier Labour pledges to protect “working people” from tax rises.
“No rises to Income Tax, National Insurance and VAT” – A promise set to be broken?
It’s hard to ignore the revenues that can be raised by the “Big Three”. Income tax, which is the most politically sensitive — yet potentially most lucrative — option could raise £10.9 billion per year by 2029-30 if she increased by just 1%.
A VAT increase of 1% would yield £9.9 billion a year by 2029–30, while 1% to NICs would raise £14.5 billion.
To find a balance, the Chancellor is reportedly considering a proposal made by The Resolution Foundation of increasing income tax by 2%, with the equivalent rate cut from National Insurance. This may satisfy not taxing the “working people” pledge and add £6 billion to revenues but would reduce income for landlords and pensioners. Considering the U-turn on the scrapping of winter-fuel allowance for pensioners last year, one does wonder whether the Chancellor would wish to avoid a similar uproar from a key voting demographic.
Even if headline rates remain unchanged, the government could rely on “fiscal drag” — freezing income tax thresholds so more people are pulled into higher bands as wages rise. This approach has already been a quiet revenue booster for the Treasury, and extending the current freeze that is due to end in 2027/28 would be an easy win for the Chancellor.
Areas to look out for
Should Rachel Reeves not be so bold, other areas she could look towards are:
- Reducing tax-free lump sums on private pensions
- Increasing capital gains tax rates or reducing allowances
- Reform stamp duty or council tax bands for high-value homes
- Tighten inheritance tax (IHT) reliefs, or
Perhaps a rise in the “Big Three” will negate the need for any of the above or there is the possibility of any of these in addition.
Markets Are Paying Attention
Markets have already reacted to the Chancellor’s pre-Budget signals. On 4th November, sterling fell and UK gilt yields dipped after Reeves’ speech — signs investors expect a tougher fiscal stance, possibly involving both higher taxes and restrained spending.
That market response underscores the stakes: fiscal credibility matters. If investors believe the government lacks a plan to stabilise debt, borrowing costs could rise, worsening the very problem Reeves is trying to fix.
Expect a Revenue-raising Budget
When Reeves stands at the despatch box on 26th November 2025, she will likely frame the Budget around stability, discipline, and fairness. In reality, Reeves is trapped in a fiscal escape room of her own party’s design: every wall is a campaign promise, every lock a self-imposed spending rule and each wrong answer risks setting off the alarms of market doubt.
Stay tuned for our post Budget blog which will cover the statement in detail and the future implications.
We are always here to help you with any questions or concerns you may have. If you would like to talk to me or one of our Financial Planners, please contact us on 01223 233331 or email info@mmwealth.co.uk.
Disclaimer
Opinions constitute our judgment as of this date and are subject to change without warning. This article is for general information only and does not constitute advice. All contents are based on our understanding of current taxation and legislation, which is subject to change.
The information in this article is not intended as an offer or solicitation to buy or sell securities or any other investment, nor does it constitute a personal recommendation.
The Financial Conduct Authority does not regulate estate planning and tax planning.
