Few people outside the Treasury understand how a Budget really comes together, or how the fiscal chess game inside Whitehall determines what happens to your tax bill, pension allowances, and savings returns.
One man familiar with the horse trading that goes on ahead of a Budget inside 1 Horse Guards Road, London – home of the UK Treasury – is David Gauke, a former chief secretary to the Treasury (2016-17), the second highest position in the department after the chancellor.
Now chair of Negotient, which advises on partnerships between the government and the private sector, Gauke, speaking exclusively to MoneyWeek, said while speculation about potential policy changes – such as will taxes rise – is playing out loudly in public, the story of this Budget will be in what happens behind closed doors.
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“Budgets aren’t invented in a week,” Gauke said, “they are the culmination of complex negotiations between departments, the Treasury, No10, and sectors that matter to the economy: from energy to finance to housing”.
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A common mistake many organisations make is to approach the run-up to a Budget as simply a lobbying exercise: a one-way pitch for a particular tax cut or subsidy, said Gauke.
“The Treasury rarely responds well to that. What works is negotiation, a two-way process where both sides understand each other’s constraints and build something sustainable, together,” he added.
MoneyWeek asked the former Treasury insider what Britain could expect from chancellor Rachel Reeves’ second Budget, due on 26 November. He revealed a complex picture of competing priorities and unpalatable decisions.
What could be in the Autumn Budget?
Officials and ministers are – as we speak – weighing how to fill what the Office for Budget Responsibility calls a “fiscal black hole” without stifling investment. The trade-off between fiscal rules and political promises dominates every conversation. Departments want more; the Treasury wants restraint.
With an estimated shortfall ranging from £27 billion (according to analysts at KPMG) and £50 billion (says independent think tank the National Institute of Economic and Social Research), it’s not going to be an easy gap to plug.
“When the fiscal headroom is thin, the question becomes not what the chancellor wants to do, but what she can responsibly afford to do,” Gauke explained.
Each year, this process includes quiet discussions with industry groups and sector bodies whose proposals can shape how policy lands. “These talks rarely make headlines,” Gauke said, “but they decide whether a tax or spending measure works in practice or ends up being reversed.”
The chancellor is clearly going to need to raise a lot of additional revenue. But she also needs to be able to sell the measures to the country as a whole and her political party. This means Reeves will “need to show the richest are making a big contribution”, said Gauke.
Before any decision the key factors Reeves will consider, according to Gauke, are:
- How much revenue will be raised?
- What will the political reaction be?
- Can this be presented as fair, especially to Labour voters?
- Does this disincentivise enterprise and investment?
How might this pan out for workers, pension savers and homeowners? Potentially, said Gauke, something like this.
1. Income tax
"If the chancellor is going to need a very large sum of money, it is very hard to do that without using the big tax levers, the most likely of which will be income tax,” said Gauke.
That would do less economic harm than a series of smaller tax increases, he said, but will be a clear breach of a manifesto commitment not to raise income tax, National Insurance or VAT. Reeves also “needs to show the wealthy will pay a greater share”, Gauke said.
Putting a penny on the basic rate of income tax would cost more than £1 a day in extra tax for higher earners, according to analysis by investment platform AJ Bell. It could also raise almost £7 billion next year for the Treasury, according to HMRC estimates.
2. Property tax
Various property tax changes have been mooted, including replacing stamp duty with a national tax on the sale of homes worth more than £500,000 and introducing a form of mansion tax with a capital gains tax charge on homes that sell for more than £1.5 million.
Further reports in the Daily Telegraph have suggested the chancellor could introduce a regular 1% charge on homes worth above £2 million.
“A property tax must be tempting, in that our current council tax system fails to distinguish between a quite expensive property and a very expensive property,” said Gauke, adding the allure for is stronger as a property tax “is also simple to explain”.
3. Inheritance tax
Changes to inheritance tax are “also possible”, said Gauke, but the ongoing row about agricultural property relief and business property relief shows increasing inheritance tax revenue comes at a high political cost.
“Tightening the ability to make gifts outside the IHT regime, for example, will raise little by way of revenue but will provoke vocal opposition, including from those unlikely ever to be affected,” said Gauke.
“The Treasury might, however, think they need a row here to demonstrate that they are trying to raise revenue from those with greater assets.”
4. Pensions
Various Budget pension policy changes have been suggested, from reducing tax relief to cutting the amount of tax-free cash. In another life, Gauke was also work and pensions secretary (2017-2018), so he knows the struggles of pension reform.
Reducing the pension tax-free amount radically could be criticised as retrospective, he said – people invested in their pensions on the assumption they would get 25% tax free. But if the change is set for some future date, it will not raise substantial revenue for many years, Gauke pointed out.
Either way, constant speculation about changes to the pension tax-free amount “is damaging for our system and Reeves needs to end the uncertainty one way or another”, he said.
5. ISAs
Reeves is heavily tipped to cut the cash ISA allowance, down from its current level of £20,000 to somewhere between £10,000 and £4,000, to get Brits investing in UK companies instead.
“I expect they will go ahead with some reforms here,” said Gauke. “But I think it will get some pushback given this will reduce the tax-efficient options for people who will already have paid tax once on this money.”
Where could Reeves slip up?
Some of the measures Reeves will announce in her Budget will be more about a political message than the revenue raised, Gauke said. But he added “there are a couple of issues where she needs to be careful”.
1. Too much double (or triple) taxation
“Many of the options that appear to be under consideration may well involve the same people being hit multiple times, and that might mean very vocal opposition,” Gauke said.
2. Too hostile to the wealthy
Our tax system already relies heavily on the richest. If the government gives the impression of being hostile to the wealthy, there is a risk more of them will move elsewhere, or that people won't come to the UK in the first place, said Gauke. “When the government is hoping to get the economy growing, that is a bad message to send out."
Budget negotiations behind-closed-doors
Reeves has little room for giveaways – so how the Treasury negotiates with key sectors will determine the real-world effects on your personal finance balance sheet.
“Expect renewed talks with utilities as the government considers longer-term energy-price reform,” said Gauke. “A poorly structured deal could see bills spike again, feeding inflation and higher interest rates – bad news for mortgage rates and bond portfolios”.
Likewise if ministers revive home buyer incentives, the negotiation with lenders and developers will dictate whether that supports supply or merely pushes up house prices. “A well-designed deal could stabilise property values; a hasty one could reignite volatility,” said Gauke.
Examples of successful Budget compromises
Some of the most successful policies of recent years have been born of negotiation, not confrontation. A case in point was the single-use plastics tax, introduced after extensive talks between the Treasury, manufacturers, and environmental groups such as Greenpeace.
“That policy worked because environmental campaigners, business, and government found common ground,” Gauke explained. “Rather than imposing a blanket ban, the Treasury designed a tax that rewarded recycled content and supported investment in cleaner production.”
One of the clearest examples of Budget-era negotiation shaping personal finances came during the 2022 energy crisis. As wholesale gas prices surged, the Treasury, Ofgem, and energy suppliers negotiated the Energy Price Guarantee – a deal designed to shield households from soaring bills.
“It was the right instinct,” Gauke said. “But the negotiation focused on short-term relief rather than long-term resilience. A more creative, risk-sharing approach between government and suppliers could have produced greater stability and less inflationary pressure.
“And that matters, because inflation feeds directly into mortgage rates and the real value of savings.”
He also pointed to the Help to Buy scheme, which emerged from Treasury discussions with lenders and developers to boost market confidence after the financial crisis. “That showed what Treasury negotiation can achieve when the aim is to unlock credit and stimulate investment,” Gauke said.
It also, he added, illustrated the importance of balance, ensuring measures to support growth work alongside policies to increase supply. “Getting that right is exactly what the government faces again now,” he added.
“Whether it’s energy transition, housing, or pensions, the government will have to negotiate intelligently with the private sector,” Gauke said. “That’s how you deliver value for taxpayers while creating opportunities for investors.”
