Chancellor Rachel Reeves has indicated that she is considering both tax increases and spending reductions in advance of her Autumn Budget, scheduled for November 26.
Prior to the 2024 general election, the Labour Party pledged not to raise income tax, National Insurance, or VAT for working individuals.
However, the Institute for Fiscal Studies (IFS) suggests that the Chancellor will “almost certainly” need to increase taxes to address a £22 billion deficit in government finances.
The Chancellor of the Exchequer’s Budget statement provides an outline of the government’s plans for tax adjustments, including both increases and cuts. It also encompasses significant decisions regarding expenditure on public services, such as healthcare, education, and law enforcement.
The statement is delivered to Members of Parliament (MPs) in the House of Commons. It typically commences around 12:30 UK time, following Prime Minister’s Questions, and lasts approximately one hour.
The Leader of the Opposition, Conservative MP Kemi Badenoch, will provide an immediate response. Subsequently, MPs will engage in a four-day debate on the proposed measures before voting on their implementation.
Extensive speculation surrounds the possibility of tax increases, driven by the need for additional revenue to meet the Chancellor’s self-imposed fiscal rules.
Ms. Reeves has articulated two primary fiscal rules, which she has deemed “non-negotiable”:
The IFS has stated that securing £22 billion would enable the government to maintain its current £10 billion buffer, further arguing that there is a “strong case” for increasing it.
The £10 billion margin established by Ms. Reeves after her Spring Statement in March represents one of the lowest margins set by a Chancellor since 2010, with the average for the period standing at £30 billion.
Income Tax and National Insurance
The government may consider extending the existing freeze on income tax thresholds, which is currently scheduled to end in 2028.
Freezing these thresholds implies that as salaries increase over time, more individuals will reach an income level at which they become subject to taxation or qualify for higher tax rates, a phenomenon often referred to as a “stealth tax.”
In a September interview with the BBC, Ms. Reeves did not dismiss the possibility of extending the freeze.
The Resolution Foundation, a think tank with close ties to some members of the government, suggests that certain personal taxes will need to be raised.
As part of a comprehensive set of measures, the Foundation recommended reducing the employee NI rate by 2p while concurrently increasing the income tax rate by the same amount.
Such a policy shift could disproportionately affect pensioners, landlords, and the self-employed, as their tax liabilities would increase without a corresponding reduction in National Insurance contributions.
Help with the cost of living
In October, Ms. Reeves informed the BBC that she would take “targeted action to deal with cost of living challenges” as inflation remains elevated.
Sources indicate that the government may intervene to lower gas and electricity bills, possibly through the reduction of certain regulatory levies applied to bills or by cutting the current 5% VAT rate on energy.
The Sunday Times previously reported the possibility of a reduction to zero.
Property taxes
Reports suggest that the government may undertake reforms to property taxes, including the potential replacement of stamp duty—a tax paid by buyers on properties exceeding a certain value in England and Northern Ireland—with a property tax.
Landlords may face higher taxes, and the existing council tax system could be replaced.
Furthermore, individuals selling their primary residence may become subject to capital gains tax.
Youth employment guarantee
In September, Ms. Reeves announced that young individuals who have been unemployed for 18 months will be provided with paid placements to facilitate their transition into full-time employment.
Isa reform
In July, the Chancellor ruled out immediate reforms to cash ISAs (Individual Savings Accounts), following speculation that she intended to reduce the annual allowance to encourage investment in shares.
However, the Financial Times has reported that she may announce a reduction in the cash ISA limit from the current £20,000 to £10,000.
Pension changes
Speculation also surrounds potential changes to pension regulations, including the level of tax relief available to savers and the size of the cash lump sum that can be withdrawn.
Reducing the higher-rate tax relief on pension contributions could yield savings for the Treasury but may diminish the attractiveness of pension savings.
Business taxes
The Trades Union Congress (TUC), the umbrella organization for trade unions in the UK, has advocated for increased taxes on online gaming companies and bank profits.
In September, the Chancellor told ITV News that “there is a case for gambling firms paying more.”
The Labour government has stated that bolstering the economy is a key priority.
A growing economy generally results in increased consumer spending, job creation, tax revenue, and wage increases for workers.
The UK economy has experienced a slowdown in recent months following a strong start to 2025.
The latest figures indicate that the economy grew by 0.1% in August, following a 0.1% contraction in July.
Over the three months leading up to August, UK GDP increased by 0.3%, a decrease from the 0.6% growth observed between March and May.
Meanwhile, government borrowing—the difference between public spending and tax revenue—reached £18 billion in August. This represents the highest level recorded for the month in five years, driven by increased expenditure on public services, benefits, and debt interest.
Prices are also increasing at a faster rate than anticipated. Inflation stood at 3.8% in the year leading up to August, consistent with July and above the Bank of England’s 2% target.
In August, the Bank of England reduced interest rates for the fifth time in a year, bringing the cost of borrowing to its lowest level in over two years.
This reduction was motivated by concerns regarding the weakening jobs market, as data indicated a continued decline in job vacancies and a deceleration in wage growth.
However, the Bank held rates at its subsequent meeting in September, asserting that the UK was “not out of the woods” concerning inflation.
In October, the International Monetary Fund (IMF) forecast that the UK is projected to be the second-fastest-growing major economy in 2025.
Nevertheless, the IMF also predicted that the UK will experience the highest rate of inflation among G7 nations in both 2025 and 2026, driven by rising energy and utility bills.
Upon approval by MPs, any tax changes outlined in the Budget can take effect immediately. However, the government must pass a finance bill to ensure their permanence.
Further details regarding Budget measures—and their associated costs—are published by the Treasury, the government’s economic and finance ministry.
The Office for Budget Responsibility (OBR) also releases its assessment of the UK economy’s health, along with a forecast of future economic trends.
The Chancellor is planning measures to support households with the cost of living in the Budget.
The government has also imposed new sanctions targeting a major Indian energy company and Chinese oil terminals.
The 0.1% growth follows a slight contraction in the economy during July, according to official figures.
The strength of the UK economy influences the amount of tax revenue the government collects to fund public services.
The Institute for Fiscal Studies indicates that the Chancellor needs to identify £22 billion to address a financial shortfall.