Even by the standards of the Treasury, it has turned into a spectacular own goal. Over the past few years, Britain has pushed capital gains tax (CGT) significantly higher. The whole thing started, shamefully, with the last Conservative government, which reduced the tax-free allowance from £12,000 a year to just £3,000.

The system has become punitive under Labour, with the chancellor, Rachel Reeves, in her first Budget, raising the standard rate of CGT from 10% to 18% and the higher rate from 20% to 24% while also increasing the rate paid by entrepreneurs when they sell their business. The left of the Labour party is pushing for an even bigger increase, pressing for CGT rates to be equalised with income tax, which would take the top rate to 45%.

The results are now clear. According to the latest update from HMRC, in 2025 the amount collected from the tax actually fell by 8%, or by £1.3billion. The amount raised by CGT varies more than most taxes, depending on how well the stock market and property prices are doing. You only owe tax when you make a gain, and that doesn’t happen much when the markets have collapsed. Still, the evidence is striking. The higher tax brought in less revenue.

It’s not hard to work out why. With the allowance at £12,000 it typically made sense to sell an asset when you felt the time was right and most private investors would not end up owing too much tax. With an allowance of just £3,000, many will decide to hold on and avoid triggering extra tax liabilities.

It’s going to get worse this year. The latest revenue figures only reflect the first increase, not the Labour one from October 2024. At rates of 10% and 20% the tax was fairly affordable. If you made a 50% or 100% profit on an investment it is irritating if you have to pay a tenth of that to HMRC, but it is hardly the end of the world – you are still showing a handsome return. Most investors would pay the tax and move on. At 24% plenty are going to decide to hold instead. The result? The revenue raised from the tax will go down even further.

Rachel Reeves’s tax rises are likely to backfire

It is not going to stop there. There are a whole series of tax rises that are about to backfire spectacularly. It looks certain that Britain will raise significantly less from wealthy foreigners with non-dom status now that their tax breaks have ended. Not many of them want to pay punishingly high British taxes on their global assets given that they made their money elsewhere. They are already fleeing in droves to Dubai, Milan or the Caribbean. Far from bringing in an extra £33billion over the next five years, as the Office for Budgetary Responsibility forecast when the change was announced, it is likely to bring in less than ever, especially when all the VAT and council tax those people would have paid is taken into account.

Likewise, it’s starting to look as if the imposition of VAT on school fees will raise less money than forecast, as schools close down and as the government has to pay for the education of those children instead. The huge rises in business rates imposed in the 2025 Budget, a tax that collects £26billion a year for the Treasury, will almost certainly raise less than forecast as pubs and restaurants close down because they can’t afford their tax bills.

Stamp-duty revenue may drop if the fall in house prices in central London, hit by all the non-doms fleeing, spreads to the rest of the country. The rise in national insurance for employers is likely to backfire as companies cut back on staff. Even frozen income-tax thresholds may eventually backfire as people decide it is not worth the hassle working extra hours or taking a promotion if most of the money they might earn is taken from them in tax.

Britain has clearly hit the point on the Laffer curve beyond which higher taxes mean lower revenues. The government already takes 39% of GDP in taxes, one of the highest levels ever. It may well prove impossible to squeeze any more out of the economy. Instead, each rise will backfire, less revenue will be raised, and the government will have to borrow yet more to make up the difference. Capital gains taxis a warning sign of what lies ahead.

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There’s one very easy prediction to make for 2026 – Keir Starmer’s government will make a whole series of U-turns. The one thing we know for certain about this government is that, as soon as it runs into any serious opposition, it quickly changes its mind. We saw that early on with the reversal of the decision to scrap the winter fuel allowance for pensioners, followed by the decision to abandon the very modest attempt to control the spiralling cost of welfare. Likewise, just before Christmas, it more than doubled the threshold at which farmers have to pay inheritance tax on their estates after widespread protests. A clear pattern has been established. A policy is announced, it sparks a backlash, and the government quickly caves in to the pressure.

It is not hard to work out where the next U-turns will come from. The farmers may have been exempted from IHT on what is in effect a small business, at least up to a value of £2.5million. But other businesses owned and run by families will still have to pay huge levies when they are passed on. Almost every country in the world exempts family firms from the tax for a reason. If a firm is worth £10million, it is usually impossible for the heirs to raise 20% of its value to pay the tax bill, so it has to be sold or broken up instead.

And the bill is actually greater than 20%. As James Dyson has pointed out, a dividend has to be paid to meet the tax bill, which is also subject to tax, meaning the real rate is 40% of the company’s value. That is crazy. Almost none of Britain’s estimated five million family businesses, which account for almost half the total number of jobs in the country, will survive that. Once it becomes clear how much damage the policy is doing, the tax rise will be reversed.

The next reversal will be in business rates. At the last Budget, chancellor Rachel Reeves hiked the amount that pubs, cafes and restaurants have to pay to local councils. In many cases bills doubled. Given that many of these businesses were already struggling with rises in national insurance and the living wage, it is not surprising many of them will now close. Pubs were already shutting at a rate of one a day in 2025. As it becomes clear how many are folding, that rise will be scrapped as well.

The Employment Bill is not likely to last much longer. We have already seen one major U-turn, with the decision that full employment rights will only kick in after six months instead of on day one. But that won’t be anything like enough. We are already seeing a massive drop in hiring as companies decide that employing anyone in Britain is too risky and expensive. Unemployment has been rising steadily, more and more people have quit the workforce, and new graduates face the worst jobs market in a generation. The two-year rule that allowed companies to try a person out over a serious length of time will have to be restored sooner or later.

Finally, the crackdown on landlords has now clearly gone too far. After the Budget, you now have to pay a higher rate of tax on rental income, even though the job involves more work and risk than regular employment. As apartments vanish from the market, the government will have to ease up on that tax as well. Countries such as Portugal have introduced a lower rate for landlords to encourage more investment in the sector. At some point, Britain may have to do something similar. A functioning economy needs properties to rent, and they won’t exist if they are taxed out of existence.

Keir Starmer's policies are catastrophic for businesses

Add it all up, and one point is clear. The government has imposed a whole series of policies that are starting to have catastrophic consequences for businesses. Eventually even the chancellor will notice. The government will end up U-turning on all of them. There is just one catch. Much of the damage will already have been done. Once a pub has closed down, it won’t re-open even if its rates have been reduced. Once a family business has been sold off, it won’t be handed back to the original owner even if the inheritance tax is reduced, nor will entrepreneurs come back from Dubai. Each policy will do real damage. Perhaps by the end of the year, the Treasury team will have learned the lesson of that and start working out that they should listen to businesses before they impose a tax rise instead of afterwards – although, right now, no one should hold their breath.

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If you’re a high earner, but not rich yet (also known as a HENRY) then the Autumn Budget which took place three weeks ago could mean your purchasing power may be significantly reduced by 2029 by thousands.

After all the kite-flying ahead of chancellor Rachel Reeves’s Autumn Budget announcement (not to mention the Office for Budget Responsibility’s (OBR) report being leaked early on the day), the amount of tax hikes announced was not a surprise. But that is small comfort for the high earners that could be left thousands of pounds worse-off by the end of the decade.

Analysis from investment platform IG suggests HENRY households earning around £100,000 could see their annual real purchasing power reduced by as much as £15,000 by 2029 thanks to measures in the Budget.

“While the chancellor met her fiscal rules and avoided increases to income tax or national insurance, the combination of policy measures and frozen thresholds will have a disproportionately large effect on HENRY households,” said Chris Beauchamp, chief market analyst at IG.

IG’s analysis found that, when factoring in household inflation and fiscal drag resulting from frozen tax thresholds over the next three years, ninth-decile earners (with an average household income of £65,700) face an average reduction in real purchasing power of £8,935 by 2029. For top-decile earners (average income of £103,700), the reduction is £15,658.

How will the Budget impact high earners?

There are a number of measures that will dent your finances. From frozen tax thresholds, council tax hikes to IHT changes - these are the ones HENRYs should look out for.

Frozen tax thresholds

Reeves extended the freeze on tax thresholds until 2031. This is widely regarded as a ‘stealth tax’ because, assuming incomes rise roughly in line with inflation, more people will be dragged into higher tax brackets without being significantly wealthier in real terms – a process known as ‘fiscal drag’.

“At that point, it’s not just more income tax you have to worry about, but potentially higher rates on everything from dividend tax to capital gains tax, and a shrinking personal allowance,” says Sarah Coles, head of personal finance at Hargreaves Lansdown.

Investment taxes

Despite the chancellor’s claims to be building an investment culture in the UK, Reeves also announced higher taxes on investments. This includes higher rates of tax on income from dividends, as well as a cut to tax relief on new shares in venture capital trusts from April.

Higher inheritance tax

Inheritance tax (IHT) bands have also been frozen until 2031, meaning the nil rate band for estates and residences will remain at £325,000 and £175,000 respectively until then. The annual gift allowance has also been capped at £3,000. This essentially means more families will fall into the IHT trap.

“IHT used to be seen as a wealthy person’s tax, but a mix of booming house prices and threshold freezes mean this may not be the case for much longer,” says Coles.

Council tax hikes

Council taxes are also going up in April; the government has previously said that councils will be allowed to hike council tax by 5% without requiring a referendum.

Some parts of the UK face a council tax hike of as much as £500 by 2029/30.

There will also be a new ‘mansion tax’, collected via council tax, on homes worth £2m or more, from April 2028.

Higher “sin taxes”

The government has increased taxes on a range of undesirable behaviours. The one that will likely impact the most households is the withdrawal of 5p fuel duty relief, which will be gradually unwound between August 2026 and March 2027.

Alcohol duty will rise by RPI inflation from 1 February. Tobacco duty will increase annually by RPI + two percentage points (with immediate effect). There will also be a one-off increase of £2.20 per 100 cigarettes or 50g of tobacco, coinciding with a similar levy on vaping products, of £2.20 per 10ml of vaping liquid, in order to ensure that there is still an incentive for smokers to switch to vaping.

How to reduce your Budget tax exposure

While the Budget measures will cause a hit on your income, there are things you can do to cushion the blow and maintain your household spending power.

First, make the most of your ISA allowance – which still stands at £20,000 for cash ISAs until the new limit applies from April 2027. This will protect you from increases to capital gains tax, as well as taxes on your income from interest on cash.

If your money is not in an ISA and you are a basic tax rate payer, you will pay tax on any interest above £1,000 that you earn, and anything over £500 if you are a higher rate tax payer. Keeping your money in an ISA shields your returns from the tax man, so make the most of the cash ISA allowance while you can.

Dividends from investments held in a stocks and shares ISA are also exempt from dividend tax, so you will avoid the higher tax rates applying to this form of income.

If you’re married or in a civil partnership, you can take advantage of increased personal allowances for tax purposes. “If one spouse is a non-taxpayer and the other is a basic rate taxpayer, the marriage allowance lets the non-taxpayer give £1,260 of their personal allowance to their spouse in the current tax year,” explains Coles

Spouses maxing out their ISA allowance may also be able to pass some of their holdings to their partner in order to reduce their tax bill. Assets that produce an income “can be passed between spouses (or civil partners) without triggering a tax bill”, says Coles. “They can therefore be shared between a couple, so that both can take advantage of their ISA allowances, and they can both take an income up to the threshold.”

Pension contributions – up to £60,000 annually – also qualify for tax relief at your highest marginal rate, while contributions to self-invested personal pensions (Sipps) also offer tax relief on the first £3,600 per year.

“If you can afford to put more money away for the long term, it’s a great way to cut your tax bill – as well as securing the income you need in retirement,” says Coles.

Salary sacrifice is another approach that can reduce your tax bill, and the time to use it is now: from 2029, only the first £2,000 will be free of employer and employee National Insurance. “However, there’s still time to take advantage before this change,” says Coles.

It took a couple of months for the amount of damage it would do to become painfully clear. In her first Budget, chancellor Rachel Reeves pushed up the national insurance (NI) charges that companies have to pay on every person they employ. Over the following months, vacancies started to fall dramatically, and unemployment rose. Something similar is about to happen after Reeves’s most recent Budget. This time, it is the punishing rise in business rates that will crush the British economy.

After all the speculation, the Budget was a damp squib. The basic rates of income tax were not in fact increased for the first time since the 1970s, and there was no sign of a wealth tax – although the levy on “mansions” comes very close – or an exit tax on the entrepreneurs fleeing for Italy and Dubai. Instead, there was a big increase in welfare spending, paid for with lots of fiddly stealth taxes to raise the money needed to pay for it all. Now, however, the implications of the small print is starting to become clear – Reeves has hiked business rates on companies that are already struggling to make a profit in the UK.

With a series of reforms of the way that rates are calculated, and the way that various reliefs are set, plenty of horror stories are starting to emerge. According to UKHospitality, the average pub is expected to see a £1,400 increase in its rates bill over the next year, and that will be hitting a sector where businesses are already closing at a rate of eight a week.

Property tax consultancy Ryan calculates that music venues such as London’s O2 and Co-Op Live in Manchester face rises of up to £1.8 million in their annual property tax bills. British music studios face punishing increases of £20,000 a year or more.

Eurotunnel, which operates the Channel Tunnel, has said it may have to pull out of any further investment in the UK over fears that its rates bill could rise from £22 million a year to £65 million. The list goes on and on. Right across the UK, firms are facing punishing increases in the amount they have to pay in tax on their premises. It now looks as if many businesses will be facing rises in their rates bills of 50% or more over the coming year.

There are three problems with that. To start with, business rates have to be paid regardless of whether a company makes any money or not. There is “financial hardship relief”, but that is very hard to apply for and there are lots of conditions attached. In effect, it is just a huge fixed cost, much like rent, or staff or raw materials. At least corporation tax is only due on any surplus you manage to generate. A rise in the rates bill will mean that lots of companies, and small companies in particular, are no longer viable, and will have to close down simply because they can’t afford the extra tax.

Higher business rates will force companies to close

Next, they penalise a company for investing and expanding. It is already expensive for a shop to open a new store in the next town, or for a cafe to open up an extra outlet. There is rent to be settled in advance, and stock to be paid for. It might be a year or more before the owner starts to make even a modest profit. But extra business rates will make it even harder to break even. At the margin, it will stop companies from attempting to grow their business.

Finally, rates make it harder for physical businesses to compete against virtual ones. The latest round of reforms might have been designed to level the playing field, but have ended up simply imposing higher bills on traditional businesses. An online shop pays far lower rates than one on the high street, and a food-delivery app pays far less than a gastro pub in the same village. It punishes the businesses that are already having a very hard time staying afloat.

Rachel Reeves came into office promising to prioritise growth. But you can’t do that while at the same time piling more and more stealth taxes onto businesses. The lesson from the NI debacle was that extra employment costs for businesses simply meant they ended up hiring fewer people. Likewise, extra property costs will mean they close down branches and, in some cases, give up completely. The government is repeating exactly the same mistake of its first Budget.

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“There is a great deal of ruin in a nation,” wrote the economist Adam Smith, meaning that a successful country can withstand a lot of mistakes and incompetence before it is destroyed. He did not, of course, intend it as an open invitation to politicians to try their worst. That point appears to have been lost on every British government of the past decade.

The latest Budget is a deeply dispiriting one: anti-growth, anti-optimism and anti-investing, as Andrew, Kalpana and I discuss on the new MoneyWeek Talks podcast. It goes without saying that there was nothing to alleviate growing fears of long-term economic decline. What felt like a new low was the undermining, for no obvious reason, of things that still work.

The reversal of much of the ISA flexibility brought in just a decade ago. The slashing of tax relief on venture capital trusts at a time when fundraising has been weak. The cap on salary sacrifice for pension contributions. These were accompanied by pointless ideas such as the three-year break from stamp duty for new initial public offerings (IPO), which will do nothing to revive the increasingly moribund London Stock Exchange. All suggest a chancellor and a Treasury who have no clue what they are trying to achieve.

Hidden opportunities in Britain's stock market

Still, the level of pessimism about Britain and the lethargy of the stock market probably increases the extent to which opportunities can keep hiding in plain sight. Take investment trusts. There are several sectors that trade at yawning discounts to net asset value (NAV), including infrastructure, renewable energy, private equity, real estate and various niche strategies. In some cases, these discounts will be justified – reported NAVs will not be realistic and we see this when funds take huge write-downs as they wind down and try to sell assets. Yet in other cases, we see funds carrying out sales near their carrying value or better, which helps to validate NAVs. Overall, there is a substantial amount of mispricing, with not enough investors to do all the hard work.

This situation will not persist indefinitely. Where assets are worth more than their market price, they will be taken out by specialists. These are one-time gains, and the market will shrink as they are snapped up, which is not good for the long-term health of London. But as investors we can only take what chances we are given.

More attention from activists will help speed this process along, so it’s worth taking a look at MIGO Opportunities Trust (LSE: MIGO), one of a handful of funds that invest in other closed-ended funds. Under Charlotte Cuthbertson and Tom Treanor of Asset Value Investors, the trust’s strategy is shifting towards a more concentrated portfolio and greater engagement to unlock value. At £75 million in assets, it can take meaningful positions in small targets and will have limited overlap with AVI Global Trust (LSE: AGT), its £1.3 billion stablemate. This makes it an obvious way to capitalise on some of the market’s blind spots.

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What happened at the Autumn Budget?

Taxes are up – a lot: another £26 billion a year by 2029, drawing millions more into higher tax bands. That’s almost as big as the £32 billion raised in last autumn’s Budget, with its job-destroying increase on employers’ national insurance contributions. Spending is going up, as a political choice, as is borrowing. Thanks to the higher taxes, fiscal headroom will double to £22 billion – this is the amount by which government can increase spending or cut taxes without breaking its own fiscal rules, in this case, to have national debt falling as a percentage of GDP within five years.

Most of the spending increases will happen up front, while the tough fiscal consolidation (threshold freezes, other tax rises and spending restraint) is pencilled in for the future. Reeves’s choices mean that tax as a fraction of national income is now expected to be a full percentage point of GDP higher than forecast in March, at 38%. That’s an all-time high and five percentage points higher than in 2019.

Did the Budget contain any good news?

Increasing fiscal headroom is a “sensible move for which the chancellor deserves credit”, say economists at the Institute for Fiscal Studies. “By providing greater insulation against economic turbulence, the additional buffer will reduce the risk of playing out this year on repeat in 2026.” Even so, that £22 billion is judged by the Office for Budget Responsibility (the government’s own fiscal watchdog) to be small compared with the uncertainties in the economic outlook. Moreover, it is only 75% of what her predecessors, on average, thought prudent.

There were some other good things, says William Hague in The Times: an increase on limits for investing through venture capital trusts and the enterprise investment scheme, an expansion of the number of companies eligible for share-option schemes for employees; promoting innovation in government procurement; increasing the annual budgets for UK Research and Innovation through to 2030, and mooted improvements in the regulation of the nuclear industry.

Will the Budget boost growth?

Not according to the OBR, no. The watchdog, for all its sparring with the Labour government, actually rode to Reeves’s rescue with a surprisingly upbeat forecast of higher tax revenues driven by higher wages and employment. Yet in their economists’ judgement, none of the policy measures announced in the Budget had a “sufficiently material impact” to justify changing its growth forecast.

The OBR upgraded its GDP growth prediction for the current year to 1.5%, but cut its expectation for the remainder of its five-year forecast. The watchdog now thinks growth will be 1.5% in 2029, below its previous prediction in March of 1.8%. Its overall forecast, averaging 1.5% for the next few years, is better than the 1.2% average since 2008, but far too weak to be transformative.

Does it mean the Budget will harm growth?

The OBR could be wrong, of course. Economic forecasts are famously a mug’s game and the OBR’s are no exception. And Reeves’s speech included some high-flown rhetoric about growth and business. But the prosaic reality is of a directionless and floundering government that is raising taxes to prioritise welfare spending – and appease Labour’s disillusioned backbenchers – at the expense of enterprise, supply-side reform and growth.

What’s more, notwithstanding the relatively sanguine reaction in financial markets (including gilts), the Budget as a whole lacks credibility, according to the Institute for Fiscal Studies. “The additional spending and borrowing in the short term is readily believable. The future restraint, just before the next election? One could be forgiven for treating that with a healthy dose of scepticism.”

What are the damaging measures?

The extra three-year freeze to personal tax thresholds, paired with a surcharge on high-value properties and increases to income-tax rates on property, savings and dividends, all “risk undermining a significant portion of the tax base by pushing more affluent and mobile taxpayers abroad”, says the Financial Times. The ill-judged plan to raise £4.7 billion by curbing pension salary-sacrifice reliefs will penalise savers, raise employers’ costs and damage work, investment and confidence. A steep rise in minimum wages next April will layer on further costs for businesses and weaken hiring incentives.

And the Budget leaves the UK on an ever-upward trajectory of government debt. According to the OBR, its measures means that UK debt will rise to 95% of GDP this year and end the decade at 96% of GDP, which “is two percentage points higher than projected in March and twice the debt level of the average advanced economy”.

Any reasons to be cheerful?

The most “depressing” thing, says Martin Wolf in the Financial Times, is the lack of any meaningful pro-growth agenda. It is bizarre, and ominous, that even a “government with a huge majority dares to do so little to transform economic prospects”. The optimistic view, says David Smith in The Sunday Times, is that if the chancellor (as she hopes) has finally delivered the stability promised, then this will bring benefits. “Financial markets will no longer be constantly on edge and businesses will have the confidence to invest (though the OBR revised down its business investment forecasts).” Consumers could regain the confidence to spend, helped by lower interest rates.

But that’s a lot of ifs. Labour’s “soak the rich” approach is not the way to drive growth, says Ambrose Evans-Pritchard in The Telegraph. It deserves credit for “ending the long and lamentable failure of the British state to invest in infrastructure” – pushing up public investment to 2.6% of GDP from the long run average of 1.6% – and it’s possible a productivity boost from AI will lift the UK’s growth rate and public finances in the coming years. But will Labour still be around to reap the rewards? You wouldn’t bet on it.

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MoneyWeek editors Budget 2025 special episode
In this special Budget episode of the MoneyWeek Talks, MoneyWeek editors Kalpana Fitzpatrick, Andrew Van Sickle and Cris Sholto Heaton chew over what was announced and what it means for savers, investors, workers and homeowners. We gave the Autumn Budget a big thumbs down — but why?

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

More budget news

• Budget 2025: the winners and losers
• Autumn Budget 2025: what was announced?
• Autumn Budget quiz: How closely were you following Rachel Reeves’s tax-raising speech?
• The Autumn Budget as it happened: updates and analysis from the MoneyWeek team

The long run-up to the Budget gave rise to fevered and increasingly alarmist speculation about its contents. This descended into chaos as frantic lobbying by interested parties, dire warnings by expert observers, and threats of rebellion by the government’s backbenchers led to U-turn after U-turn. Now, at last, the Budget has been delivered, and the speculation is over. What does it mean for the UK stock market?

The answer is very little. The FTSE 100 is very likely to continue climbing, while mid and small caps, which have underperformed in recent years, should recover lost ground. There is very little correlation between the performance of a country’s economy and its domestic stock market, which is why the Australian stock market has more than doubled in the last 10 years while China’s Shanghai index is up 10%.

About 75% of the FTSE 100’s revenues and about 50% of the FTSE 250’s sales stem from outside the UK. Many FTSE 100 companies, such as BAT, Shell and Rio Tinto, are based in Britain but do very little – if any – business here. Others, like Mondi, Airtel Africa and Coca-Cola HBC (formerly Coca-Cola Hellenic Bottling Company) use a London listing as a mere flag of convenience. Companies like Vodafone, National Grid and Compass have evolved from domestic into international businesses; and primarily domestic companies, such as EasyJet, M&S and Next, are increasing their overseas exposure.

Twenty years ago, the blue-chip index was dominated by mega-cap companies that had grown big through mergers in the late 1990s but were then stagnating in terms of business, earnings and share price. Now, those companies, much diminished in relative terms, are working hard to grow, improve profitability and reward shareholders. Even Glaxo and Vodafone have seen notable turnarounds recently, while Diageo reacted quickly to disappointing trading that had halved its share price.

UK-based companies are not expecting the government to do them any favours with regard to the economy, profitability or taxation; their attitude to investing and doing business in the UK is based on pragmatism. AstraZeneca has therefore responded to a withdrawal of government support by switching its attention to the US.

Global investors spot a bargain in UK stocks

UK-listed companies are attracting increasing attention from overseas investors, who are gradually eclipsing domestic ones. In the last couple of years, the chart of the FTSE 100 has accelerated upwards, while there have been “early signs of an earnings reacceleration”, says Chris Watling of Longview Economics.

The prime problem for the UK market has been the lack of participation by domestic investors, but this is likely to change. There have been heavy net outflows from equity funds, especially from UK funds (in 50 of the last 51 months). UK investors have shunned equities, deterred by risk warnings, economic gloom and regulatory hostility, and unaware that cash loses value over time in real terms. Over two-thirds of individual savings accounts (ISAs) are just in cash.

Yet the UK savings rate is over 10%, double the historic average. Interest rates and hence deposit rates are likely to fall further, and equity markets have been rising for three years. Savers will wake up to the reality that they are missing out and, in 2026, should start to discount a change to a more business- and investment-friendly government. Finally, the attention drawn to the FTSE 100 breaking through 10,000 should galvanise investors.

Admittedly, the tenfold appreciation since launch at the start of 1984 is not that impressive in annual terms. Adding back an average dividend yield of 3%, the annualised return has been 8.5% or 5.6% in real terms. The return until 2000 was much better than subsequently, but at its millennium peak of nearly 7,000, the FTSE 100 was severely overvalued and set to fall in half. Taking this into account by estimating a trend level of 4,500 still shows a marked slowdown in annual returns from 10% in real terms before 2000 to only 3.3% subsequently.

Arguably, the change of trend coincided with the deceleration of economic growth in 2008, but it is likely that an unsustainable boom in financial services disguised a more gradual slowdown in the preceding years. In any case, the claim that Britain’s economic problems date back to the Brexit vote in 2016 are a myth, just as was the claim in the 1960s and early 1970s that Britain’s pedestrian economic performance was attributable to being outside the EEC.

Ultimately, sustained outperformance by the UK stock market will require a strong, lower-tax economy to encourage the creation of growth businesses, their access to domestic capital and their listing in London. The market needs to go up because demand for equities exceeds and pulls up supply, not because markets are shrinking (through takeovers and buybacks) faster than investors are taking their money out.

As economist Arthur Laffer points out, “every time we have raised taxes on the rich, three things have happened: the economy underperformed, the share of tax revenues from the rich fell and the poor got hammered. When we cut taxes, the reverse happened.”

Even the prime minister has said that “the UK cannot tax its way to growth”, though his chancellor and most of his party appear to disagree. “If you want to help the poor, create growth,” says Laffer, who quotes John F. Kennedy: “The best form of welfare is a good, well-paid job.”

Better economic news for the UK may be a change of government away, but the good news for investors, whether in the UK or via UK-listed funds, is here already.

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Chancellor Rachel Reeves announced a package of tax rises worth around £26 billion in the Autumn Budget on Wednesday, 26 November.

The biggest revenue-raiser will be an extended freeze on income tax thresholds until 2031, bringing in around £8 billion.

A crackdown on salary sacrifice for pension contributions, a hike on tax from property, savings, and dividend income, and a new ‘mansion tax’ are among the other levies announced.

How closely were you following the Budget? Test yourself with our Budget quiz.

How much of Rachel Reeves’s second Autumn Budget did you remember? Share your results on social media.

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• Rachel Reeves’s Autumn Budget: what was announced?
• Autumn Budget winners and losers
• Rachel Reeves confirms cash ISA allowance changes

The government’s extended freeze on income tax thresholds could leave you £1,300 worse-off, according to new analysis.

In the 2025 Autumn Budget, chancellor Rachel Reeves confirmed the freeze on income tax thresholds will be extended by three years from 2028 to 2031. The chancellor, whose government pledged not to raise income tax rates in their 2024 election manifesto, said she knew it would affect working people and wouldn’t “pretend otherwise”.

The extension will mean taxpayers paying up to as much as £1,292 in extra tax over the three years compared to the freeze ending in 2028, based on calculations by investment platform AJ Bell.

Laura Suter, director of personal finance at AJ Bell, said: “The chancellor has doubled down on what was once the Conservatives’ brainchild: the income tax freeze is now firmly the ‘Reeves Freeze’, extended for another three years until 2031.

“The result is that every taxpayer in the country will see their wages quietly eroded by higher tax bills.”

How the freeze will chip away at your earnings

The freeze on income tax thresholds until 2031 will hit those with bigger pockets more.

Someone with a yearly income of £15,000 today faces an extra tax bill of £259 over the three years between 2028 and 2031, with the personal allowance frozen at £12,570.

Someone on £45,000 a year will take a hit of £683 over the same three years, while someone with an annual income of £47,000 now will have to fork out an extra £1,292.

Someone on £47,000 is likely to become a higher rate taxpayer between now and 2028 due to rising wages, according to AJ Bell, meaning they’ll be dragged into paying 40% tax on a portion of their income. In England, Wales and Northern Ireland, you pay the higher rate of income tax on taxable income between £50,271 and £125,140. The 45% additional rate applies on income over £125,140.

Over 8.3 million people have now paid higher or additional rate tax since 2021, when income tax thresholds were first frozen, with more set to be dragged into this net between 2028 and 2031.

The extension announced in the Budget will rake in £12 billion in extra revenue, according to the Office for Budget Responsibility (OBR).

If there had been no freeze since 2021, the OBR estimates the personal allowance would have been £17,470 by 2031, and the higher rate threshold £70,370 – more than £20,000 higher.

Suter added: “Nothing can make up for the lost years where income tax bands have seen no inflationary uplift.

“The cumulative cost is staggering: the OBR estimates it will cost taxpayers £56 billion a year by 2029-30, around £1,330 per taxpayer on average.”

Source: AJ Bell

How to protect yourself from frozen income tax thresholds

There are steps you can take to mitigate the effects of frozen thresholds eroding your hard-earned cash.

James Norton, head of retirement and investment at Vanguard Europe, suggested optimising your ISA and pension allowances, like the annual allowance, which shelter your investments from income, dividend and capital gains tax.

“For those in retirement, consider the best way to draw your income. Most people will be best served by taking money out of cash savings and general investment accounts first. This means you can leave money to grow tax free for longer within ISAs and pensions,” said Norton.

Andrew Prosser, head of investments at investment platform InvestEngine, said increasing pension contributions can reduce your tax bill and means you’ll benefit from pension tax relief.

“For higher-rate taxpayers, a £20,000 contribution can effectively cost just £12,000 once government and personal tax relief are applied, making careful planning more important than ever.”

Taxation on electric vehicles will be brought closer in line with petrol and diesel cars, as drivers will be forced to pay 3p per mile driven under a new levy.

Drivers of electric vehicles (EVs) will become subject to a new tax for every mile they drive, chancellor Rachel Reeves has confirmed in her Autumn Budget.

Taking effect in April 2028, EV drivers will have to pay a new levy of up to 3p per mile, as the chancellor brings the taxation of EVs closer in line with that of petrol and diesel cars.

Fully electric battery vehicles will be subject to the full 3p per mile tax, while plug-in hybrid vehicles will have to pay a reduced rate of 1.5p per mile. These rates will increase each year in line with inflation, as measured by the consumer prices index (CPI).

The new levy was designed to provide a rough equivalent to fuel duty, which is paid by drivers of petrol and diesel vehicles on each litre of fuel. The 3p per mile charge is around half the equivalent cost of fuel duty per mile.

The average driver of a fully electric car, travelling 8,500 miles a year, can expect to be charged around £255 in the 2028/29 tax year under the new regime.

The government is in the process of consulting on the policy, but anticipates that mileage will be self-reported, possibly during an annual MOT, with “no requirement to report where and when miles are driven or install trackers in cars".

The Office for Budget Responsibility (OBR), the UK’s fiscal watchdog, says the measure will raise around £1.1 billion in the 2028-29 tax year, rising to £1.9 billion in 2030-31.

However, the OBR has also warned that the new measure is “likely to reduce demand for electric cars as it increases their lifetime cost,” expecting 440,000 fewer electric car sales by 2030/31.

Meanwhile, to soften the blow, the chancellor also announced that the UK’s new electric vehicle grant, worth between £3,500 and £7,500 depending on the model, will be extended until at least 2030.

And, despite rumours she would axe the scheme, electric cars can still be bought using salary sacrifice.

New pay-per-mile tax on EVs is a “confused” policy

EV policies announced in the Budget have received a mixed reception from industry leaders.

Melanie Lane, chief executive of EV charging provider Pod, said the decisions “have further complicated the outlook for motorists and manufacturers that are looking for clarity on their commitments to the EV sector”.

She welcomed the extension of the Electric Car Grant, but warned that introducing the new pay-per-mile levy “is at odds” with the Government’s messaging about “backing the switch”.

“This confused policy approach will shake consumer confidence and potentially jeopardise investment in the sector at a critical moment,” she added.

“We are already falling behind on the ZEV mandate that expects one in three cars sold to be zero-emissions next year and today’s confirmation of additional mileage costs from 2028 will penalise motorists and manufacturers who are fulfilling their end of the bargain.”

Meanwhile, Steve Walker, head of digital content at Auto Express, said the introduction of the new tax was inevitable considering the number of UK drivers who are moving away from petrol and diesel vehicles.

He said: “Petrol cars will be on the road for many years to come, but every EV sold is one fewer that’s visiting petrol stations and pumping money into Treasury coffers.”

Walker acknowledged that the new levy will “prove controversial”, especially since the government had sought to incentivise the purchase of more EVs when they introduced the new grant earlier this year.

“A major issue now will not only be a reduction in sales – even the OBR is suggesting it could reduce the number of EVs sold before 2030 by hundreds of thousands – but how the system is implemented.

“Early suggestions that drivers might need to declare mileage ahead of time raise genuine concerns; if motorists end up being charged for miles clocked outside the UK, that would clearly be unfair and a major flaw that must be addressed before any scheme goes live.

“Getting these details right will be critical to public acceptance.”

Following months of speculation, various leaks, and U-turns, this was perhaps the most chaotic Budget I have seen. Made worse when the Office for Budget Responsibility leaked its budget report almost half an hour before chancellor Rachel Reeves’s major announcement.

While the leak may have made Reeves’ Autumn Budget speech seem inconsequential, the impact it will have on your bank balance certainly won’t. Especially if you own a property valued at £2 million or more, drive an electric vehicle, are a saver, and use salary sacrifice for your pensions.

Oh, and if you are a nervous investor, then the reduced amount you can put into your cash ISA may be giving you anxiety as you are forced to choose between testing out the stock market or handing over some extra cash to the tax man. You choose!

You could even take advantage of money market funds as an alternative to cash, meaning you max out the full ISA allowance - see our article on cash ISA alternatives.

Like any budget, there are winners and losers. The fact is, the chancellor's job is to find extra cash, reduce government debt and balance the books - and someone has to suck up the costs. Those who can pay will pay.

Reeves has done a fair job when it comes to the most vulnerable, putting a stop to further increases that impact everyday living costs like freezing rail fares for the first time in 30 years and keeping prescription costs to £9.90. And today, she confirmed that the two child benefit cap will be lifted, reducing the risk of child poverty.

I think Reeves has done right here and it was clear to me that this was high on her list of priorities.

Pension cuts

Now for the whinging. Firstly, she has capped salary sacrifice pensions to £2,000.

Pensions are tax-efficient savings vehicles, so I feel taking this sway has perhaps left a bitter taste in the mouths of diligent pension savers.

Reeves has capped salary sacrifice pensions to £2,000 a year from 2029, the amount that can be paid into a pension before National Insurance Contributions (NICs) are payable. Salary sacrifice saves you around 8% on NIC costs and according to Brewin Dolphin, the savings are bigger for employers at 15%.

Taking away from pensions saving to me didn’t feel right, and could deter people from saving into pensions. To me, that is the wrong message - especially as people are barely contributing enough to their pension pots as it is, so will this ultimately lead to the government having to one day bail undersavers out? And will employers reduce other benefits to compensate?

ISA changes

The ISA changes were also a bit disappointing. I do support the need to funnel people into investing where it is right for them.

But Reeves has totally ignored the point that savers are not driven by incentives, and are in fact held back by their lack of understanding.

Limiting cash ISAs to £12,000 for tax year 2027/28 has caused uproar, but let’s remember, the average amount in a cash ISA is around £7,000 HMRC data shows.. So, this is a policy that hasn’t bothered me much.

What does bother me is that this adds another layer of complexity to ISAs and pensions, and is off-putting for would-be investors.

Financial planning

The changes Reeves has announced in today's budget will not hit your pay slip for some years, so now is the time to really think about financial planning.

What impact will the pension changes have on your take home pay and how can you make up for any shortfall?

For cash ISA savers, if you do not invest, now is a good time to understand how it works and consider whether this is right for you.

Chancellor Rachel Reeves is slashing the amount millions of savers can put into a cash ISA each tax year. From April 2027, under-65s can put no more than £12,000 into a cash ISA each tax year, down from the current £20,000 cap.

Reeves hopes the move will encourage savers to invest more of their cash.

“The UK has some of the lowest levels of retail investment in the G7, and that is not only bad for business, who need that investment to grow; it is bad for savers, too,” she said during today’s Budget speech.

“Someone who had invested £1,000 a year in an average stocks and shares individual savings account [ISA] every year since 1999 would be £50,000 better off today than if they had put the same money into a cash ISA.”

However, the limit was branded “a sucker punch for savers and deeply disappointing for lenders” by Harriet Guevera, chief saving officer at Nottingham Building Society.

She added: “We support the Government’s aim to boost an investing culture in the UK, but restricting choice is not the way to do it.”

Carol Knight, chief executive of The Investing and Saving Alliance (TISA), a not-for-profit membership organisation, said: "The cash ISA has been an incredibly effective tool in encouraging saving, and there is no clear evidence that reducing the cash ISA limit will encourage more people to invest.”

Some welcomed the decision though. James Carter, head of platform policy at Fidelity International, said: "Today’s announcement marks an important step towards  supporting consumers to achieve better long-term financial outcomes  by  creating a better balance of incentive between cash and equities – fostering a culture of retail investment.”

How will the cash ISA limit change?

From 6 April 2027, the annual cash ISA limit will be set at £12,000. This is within an overall £20,000 annual ISA allowance.

The new cash ISA cap will only affect under-65s.

There is not currently a specific cash ISA allowance. You can put a maximum of £20,000 a year into ISAs. This can be put into one type of ISA, or split across different types.

For instance, you could put some money into a cash ISA, some into a stocks and shares ISA, some into an innovative finance ISA, and, if eligible, some into a Lifetime ISA. There is a separate £4,000 per year Lifetime ISA cap.

If you put the maximum £12,000 into a cash ISA in one tax year, you would only have £8,000 of the allowance left to put into the other types of ISA.

On the other hand, if you put £12,000 into a stocks and shares ISA, you could only put a total of £8,000 into the other types of ISA that tax year.

Over-65s are exempt from the changes and can continue putting up to £20,000 into cash ISAs each year, if they wish to.

What is an ISA?

An ISA is a tax-free savings vehicle – you don’t pay tax on savings interest or income or capital gains from investments in an ISA.

There are five types of adult ISA:

• Cash ISAs
• Stocks and shares ISAs
• Innovative finance ISAs
• Lifetime ISAs
• Help to Buy ISAs (you can no longer open a Help to Buy ISA)

The annual ISA allowance is £20,000 for adults. You can put up to £9,000 a year into a junior ISA, a tax-free account for children.

The annual allowances reset each tax year, which runs from 6 April to 5 April the following year.

You can put up to £4,000 into a Lifetime ISA each tax year, provided this doesn’t exceed the overall ISA annual allowance.

Why put savings in an ISA?

ISAs are becoming increasingly important as a way of shielding money from the taxman.

Savings and investments held in an ISA are tax-free.

Outside of an ISA, you can earn a certain amount of interest on your savings tax-free, thanks to the personal savings allowance. However, frozen tax thresholds and higher interest rates mean more savers are being dragged into paying tax on their savings.

In 2025/26, 2.64 million people are expected to pay tax on their savings – up from just 647,000 in 2021/22 – according to HMRC data obtained via an FOI by AJ Bell.

In the Autumn Budget, Reeves also announced the tax rate on savings income will be hiked by two percentage points across all bands from April 2027 – meaning savers face paying even more in tax on their savings interest.

“There’s no doubt that cash ISA use will explode in the next couple of years,” Laura Suter, director of personal finance at AJ Bell said.

“As more people have faced tax on their savings we’ve seen ISAs become more popular, but the double-pronged effect of higher savings tax rates and a looming plan for cash ISAs to be restricted means savers are facing an attack on two fronts.”

Read more: How to earn over 4% on your cash… using a stocks and shares ISA

Will Lifetime ISAs be reformed?

The government addressed possible Lifetime ISA reform in the 2025 Budget document.

A consultation on the implementation of a new, “simpler” ISA product to support first-time buyers in buying a home will be published in early 2026.

Once the new product becomes available, it will be offered in place of the Lifetime ISA, the government said.

Lifetime ISA savers can put £4,000 a year into this account and get a 25% government bonus – worth up to £1,000 a year.

If you want to use the money to buy a first home, the property must cost £450,000 or less, which critics argue is too stringent.

Savers who don’t meet the withdrawal criteria face a 25% unauthorised withdrawal charge.

The government has confirmed it will introduce a £2,000 per year cap on the amount workers and their bosses can add into pensions via salary sacrifice before being hit with National Insurance (NI).

The chancellor Rachel Reeves announced the new cap will come into effect from 2029 as part of her second Budget speech in the House of Commons.

Employee and employer NICs will be charged in the usual way on the amount above £2,000. Budget documents suggest just 26% of basic rate taxpayers and their employers currently using salary sacrifice will be impacted by the £2,000 cap.

But the cost of salary sacrifice into pension schemes is forecast to almost treble between 2016/17 and 2030/31, according to the government, rising from £2.8 billion to £8 billion.

Capping NI relief on salary sacrifice to the first £2,000 could reportedly save the Treasury up to £2 billion a year.

It would mean employees wanting to add more into their workplace pensions would see their take home pay lowered.

Jamie Jenkins, director of policy at pensions and investment company Royal London, said the cap could affect employers the most.

“The bigger story may be the effective rise in employer costs, where the savings made on NI were being used for other purposes,” said Jenkins.

However, he added limiting NI relief on salary sacrifice contributions was “perhaps the least worst outcome for pensions”, with the 25% tax-free pension lump sum left untouched.

Rebecca Williams, from wealth and investment manager Rathbones, said the cap risked doing “more harm than good”.

“It would strip away a key incentive for employers to boost pension contributions, undermine efforts to tackle the retirement savings gap, and pile extra costs on businesses already under pressure.”

What else has been announced?

Nestled in the Budget documents put out by the Treasury were some other key pension and retirement-related announcements.

Class 2 voluntary insurance contributions for expats to be abolished

From 6 April 2026 the government will abolish people living abroad from making class 2 voluntary insurance contributions (VNICs) to top up their state pension.

It will also extend the initial residency or contributions requirement to pay VNICs outside of the UK to 10 years, up from three at present.

Budget documents said: “The government is closing loopholes in current voluntary national insurance contributions (VNICs) rules that allow those with a limited connection to the UK to build UK state pension entitlement at a cheaper rate whilst overseas.”

Ministers will also launch a wider review of VNICS, with a call for evidence to be published in 2026.

State pension to rise

Rachel Reeves confirmed the government will increase the state pension for millions of pensioners by 4.8% from next April, under the triple lock system.

The hike means those on a full new state pension will see their weekly payments go up from £230.25 currently to £241.30 from next spring.

The full basic state pension weekly amount will increase from £176.45 per week to £184.91 a week.

State pensioners set for income tax to be protected

Due to the rising state pension and frozen personal allowance (£12,570), those on solely the full new state pension are expected to start paying income tax within two years.

However, Budget documents have revealed that those whose entire income comes via the state pension and goes over the personal allowance will be exempt from “small amounts” of tax from 2027/28.

Further details are not yet available on how this will be implemented but more information will be laid out “next year”.

Defined-benefit pension schemes to pay out surpluses to members

The government will let DB pension schemes pay surplus funds to members from April 2027, should specific scheme rules and trustees allow it.

The government said earlier this year the majority of DB schemes are now running at a surplus, meaning the value of their assets is more than that promised to members.

Owners of high-value homes will be hit with a yearly mansion tax charge from April 2028, Rachel Reeves confirmed in today's Autumn Budget.

Reeves used her Autumn Budget to reveal details of a much-anticipated mansion tax on homes in England worth £2 million or more. The money will be collected through council tax and is expected to raise £400 million for the Treasury.

Reeves claimed that the charge will make the tax system fairer. “A typical family home in England pays more council tax than a £10 million Westminster mansion, so the Budget also introduces a High Value Council Tax Surcharge on homes worth more than £2 million, while protecting those on low incomes," she said in her speech.

But there are warnings that the charge could stall activity at the top-end of the market and unfairly targets homes in London and the south east of England.

How will the mansion tax work?

Under Treasury proposals, owners of homes in England worth £2 million or more will have to pay an extra High Value Council Tax Surcharge from April 2028.

This is on top of the council tax already paid by homeowners.

The money will be collected by local authorities and will be used to support funding for local government services.

A public consultation on details will be held in early 2026.

The Valuation Office will then conduct a targeted valuation exercise to identify properties worth above £2 million. Revaluations will be conducted every five years.

Eligible homes will then be placed in four price bands, from £2,500 for a property valued in the lowest £2 million to £2.5 million band to £7,500 for a property valued in the highest band of £5 million or more, all uprated by CPI inflation each year.

The government said it will setup a support scheme for those who may struggle to pay the charge and will consult on a full set of reliefs and exemptions, as well as proposed rules for more complex ownership structures including companies, funds, trusts and partnerships.

The consultation will also cover treatment of those who are required to live in a property as a condition of their job.

Who will be affected by the mansion tax?

The Treasury estimates that fewer than 1% of properties in England are expected to be above the £2 million threshold.

But that may not be much help for owners of high-value homes based mainly around the south of England and in London, which could have an impact on house prices.

Data from property website Rightmove shows sales agreed for £2 million-plus homes are already down 13% year-on-year.

Dominic Agace, chief executive of estate agency brand Winkworth, said: “In London, this is a terrace tax, not a mansion tax. Many £2m plus properties are likely to be terraced family homes.

“There is a danger that more uncertainty will be the result of this move, with delays on the revaluations inevitable. Many people living in London in £2m plus homes are those who are leveraged with large mortgages or those with their property as their only asset and living on a small retirement income.

"A double whammy of extra council taxes for second home owners, particularly in London, is another move by the Government that will keep international buyers away from the capital and for those already here to sell up. If the chancellor is looking for quick wins, then I am afraid this is not going to deliver.”

Colleen Babcock, Rightmove’s property expert said this tax would disproportionately affect London and the south of England markets, which are still recovering from April’s stamp duty increase.

She said: “The property market needs less taxation not more, to encourage and enable movement. Today’s announcement could lead to some distortion at the top end of the market, particularly as the implementation date draws closer. It may also have an impact across the rest of the market.”

What the mansion tax means for you

Homeowners of prime properties will need to await the outcome of valuations, which could freeze the top end of the market and even force some to sell to avoid the charge. The question is who would want to purchase a £2 million house.

Nick Leeming, chairman of estate agent Jackson-Stops, suggested we are likely to see values for homes just above the threshold adjust, impacting prime market demand, and making government valuations at those levels even harder if short-term fluctuations occur.

He added: “In the long-term, having a wider lens and a level head will be key to regaining pricing stability in the coming months.”

Even if some wealthier buyers are unfazed by an additional cost, Babcock warned that there could be fall-throughs as others in this price bracket reconsider the long-term implication of their purchase.

She said: “Sellers of homes priced very close to the £2 million mark may need to ask for £1.99 million to avoid putting off potential buyers. And retired homeowners who benefitted from house price inflation may face the difficult decision of whether they can afford the annual upkeep of a £2 million home.

“Importantly, while this likely very complex tax aims to target the £2 million and £5 million price sectors, there is an inevitable trickle-down effect for the rest of the market. Even though our data shows that less than 0.5% of sales would be directly affected, a slower market can affect all types of movers, from first-time buyers to key workers and families.”

Paula Higgins, chief executive of the HomeOwners Alliance, warned that a mass revaluation of bands F to H will inevitably trigger large numbers of appeals.

She said: “Without clear valuation rules, adequate resourcing, and a straightforward process people can trust, this risks becoming chaotic, slow, and deeply contentious.”

“Until the revaluations take place, Tom Bill, head of UK residential research at Knight Frank, said buyers and sellers face years of uncertainty, especially around the £2 million threshold.

He said: “Even once completed, new valuations can be challenged, which would prolong the limbo.

“The policy may also raise less than expected, especially because it is deferrable. If opposition parties say they would scrap it, many homeowners will look at the opinion polls and wait it out. When you factor in the cost of carrying out the valuation and the potential lost stamp duty revenue from a stickier market, the sums raised could look like a rounding error for the Treasury.”

Another key concern for homeowners is whether thresholds will be reviewed as house price rise.

Bill said: “More properties will inevitably get dragged into the mansion tax net, which means the proportion of terraced houses, flats and semi-detached homes will grow over the years, particularly in the capital. The term ‘mansion tax’ will increasingly feel like a misnomer.

Higgins added: “This mansion tax could quickly become relevant for more homeowners than the Chancellor anticipates.

“We expect these arbitrary thresholds of a mansion tax will distort the market, which Office for Budget Responsibility has recognised will cause bunching of sales just below the thresholds.

“We need to remember that people living in high-value homes aren’t always cash-rich. Many are stretched, still paying big mortgages, and have simply ridden a wave of rising prices. A mansion tax would freeze investment in homes over £1million overnight, as owners hold back on improvements to avoid being pushed over a threshold the government will almost certainly freeze.”

Summary

• Chancellor Rachel Reeves delivered her Autumn Budget speech in the House of Commons on Wednesday, 26 November
• The OBR’s forecast was accidentally leaked in a “technical error” prior to the Budget’s announcement, which Reeves said was “deeply disappointing”
• A range of tax hikes were announced as Reeves attempts to balance the books
• The chancellor cut the cash ISA limit from £20,000 to £12,000 per year for under 65s, from April 2027
• She also confirmed a £2,000 cap on National Insurance contributions relief for pension contributions made through salary sacrifice

What was announced in the Autumn Budget? | Autumn Budget winners and losers

Good afternoon and welcome to MoneyWeek’s Autumn Budget live report. Chancellor Rachel Reeves is due to announce her 2025 Autumn Budget at lunchtime tomorrow, Wednesday 26 November. We will be covering the announcements as they happen, as well as bringing you reaction and analysis.

What has Rachel Reeves said about the Budget – and what could be announced?

Chancellor Rachel Reeves gave a rare pre-Budget speech on 4 November, during which she pledged to cut NHS waiting lists, cut the national debt and cut the cost of living.

She promised a Budget “for growth with fairness at its heart… and a Budget that supports businesses – to create jobs and to innovate”.

However, it’s widely expected that a slew of tax hikes will be announced tomorrow.

In the 2024 Labour Party manifesto, the party promised not to raise National Insurance, the basic, higher, or additional rates of income tax, or VAT, so the chancellor will likely need to look elsewhere.

This could mean extending the ongoing freeze on income tax thresholds, from 2028 to 2030.

Another way the chancellor could boost Treasury coffers is a clampdown on salary sacrifice, or targeting dividend tax or capital gains tax.

There could also be a shake-up to property taxes, inheritance tax, and/or business taxes.

It was rumoured Reeves was considering raising income tax rates by 2p, and cutting National Insurance by the same amount, in a move which could raise £6 billion, according to think tank the Resolution Foundation.

However, the chancellor has reportedly since backed away from this idea.

Read more on potential tax hikes in our guide.

What time is the Autumn Budget?

Rachel Reeves will deliver the Autumn Budget in the House of Commons on Wednesday (26 November) at around 12:30pm, after Prime Minister’s Questions.

Most budget speeches usually last around an hour, but they could be shorter or longer depending on the content. It took Reeves roughly 80 minutes to deliver her first Budget in 2024.

Once Reeves finishes speaking, the shadow chancellor, currently Conservative MP Mel Stride, is expected to give a rebuttal that will last around 20 minutes. The debate then begins in earnest, likely dominating House business for the week ahead.

Daniel Hilton, junior writer

Will the cash ISA limit be cut?

Reeves is set to cut the annual cash ISA limit to £12,000 in the Autumn Budget, the Financial Times reports.

There is currently an overall £20,000 annual allowance for ISAs – this can be split across different types of ISA. For example, you could put £5,000 into a cash ISA and £15,000 into a stocks and shares ISA in a tax year, or you could use the whole annual allowance by putting £20,000 into a cash ISA if you wanted.

It's been suggested such a move could incentivise savers to put their money into a stocks and shares ISA instead, potentially boosting the British stock market.

In March, Reeves said she was seeking to “get the balance right between cash and equities to earn better returns for savers” and “boost the culture of retail investment” in the UK.

However, critics warn against the idea. The Building Societies Association, which represents 43 UK building societies and six credit unions, said building societies use cash ISA deposits to fund mortgages, so cutting the limit could make lending more expensive.

Meanwhile, Dame Meg Hillier, chair of the Treasury Select Committee, said now isn’t the right time to cut the cash ISA allowance. She added: “Instead, the Treasury should focus on ensuring that people are equipped with the necessary information and confidence to make informed investment decisions.”

What would a cash ISA allowance cut mean for savers?

The average amount saved into a cash ISA in 2023/24 was less than £7,000 per person, HMRC figures show, suggesting a £12,000 limit might not have a dramatic impact on most people.

However, it does "risk sending a confusing message to savers", says Adam French, head of news at Moneyfactscompare.co.uk.

“For many families, young professionals and pensioners, the full £20,000 allowance may be out of reach, but the principle that they can build a risk-free cash buffer against a volatile world without worrying about future tax changes still matters.”

The ongoing freeze on income tax thresholds mean more Britons face being dragged into higher tax bands. Combined with higher interest rates, savers will find more of their savings interest becomes liable for income tax, making the tax-free ISA wrapper increasingly important.

“Taken together, this feels less like a coherent plan to boost long-term investment and more like a quiet raid on those who are trying to do the right thing,” French said.

“By leaning on frozen thresholds and a lower cash ISA limit, the government is quietly raising revenue off the back of diligent savers, when it should be encouraging responsible financial decisions and a healthier savings and investment culture.”

Read more: 'I've used my annual ISA allowance. How can I shield my savings from tax?'

The best and worst case scenarios for the financial markets

What’s the best and worst we can realistically hope for in the Budget, and how might the markets respond?

“Arguably the best case scenario for financial markets would be the unveiling of more rosier than expected projections for both UK growth and productivity, and a smaller fiscal gap than previously feared,” says Matthew Ryan, head of market strategy at global financial services firm Ebury.

That would reduce the size of the fiscal deficit, enabling Reeves to maintain credibility by plugging it with narrower, more targeted tax hikes and avoiding the need to breach any of its manifesto pledges.

But the chances of things panning out this way don’t seem strong.

“We are bracing for some curveballs,” says Ryan. “Investors will be on high alert for any unexpected tax increases, and the risk of both higher borrowing forecasts and further above-inflation spending hikes.”

A tax-heavy Budget could see sterling sell off, and given the anticipated negative impact on growth, could lead to faster rate cuts from the Bank of England.

“A more growth friendly budget would have the opposite effect, as easing bets in favour of MPC cuts would amplify upside in the pound,” says Ryan.

Dan McEvoy, senior writer

Help to Save scheme set to be expanded

The chancellor is expected to make the Help to Save scheme permanent from 2028. It had been due to end in 2027.

It is also set to be opened up to parents and carers on Universal Credit from 2028.

Help to Save offers a 50% boost on savings in the scheme – giving eligible savers a potential government bonus of £1,200 over four years.

Soft drink levy extended

The soft drinks industry levy will be expanded to include sugary milk-based drinks, Health Secretary Wes Streeting announced today.

The changes will affect pre-packaged milk-based and milk-alternative drinks with added sugar, such as supermarket milkshakes, flavoured milks, sweetened yoghurt drinks, chocolate milk drinks, and ready-to-drink coffees.

This does not include plain, unsweetened milk and milk-alternative drinks.

The government will also reduce the threshold from 5 grams to 4.5 grams of sugar per 100ml.

Businesses will have until 1 January 2028 to reduce sugar in their drinks, or face the levy.

Health and Social Care Secretary Wes Streeting said: "The levy has already shown that when industry cuts sugar levels, children’s health improves. So, we’re going further.

“A healthier nation will mean less pressure on our NHS, a healthier economy, and a happier society.”

The government expects the changes to raise £40 million to £45 million per year in extra tax receipts, once introduced on 1 January 2028.

What do we know about the Budget so far?

While a lot is still under wraps, the Treasury has confirmed a number of policies in recent days.

Reeves is extending the freeze on NHS prescription charges next year, saving patients in England around £12 million, the government said.

A single prescription will remain at £9.90 and three-month and annual prescriptions prepayment certificates will also be held at the current level for 2026/27.

On Sunday, the Treasury announced all regulated rail fares would be frozen next year, for the first time in 30 years.

The chancellor is also set to confirm the state pension will rise by 4.8% during tomorrow’s speech, affecting 13 million pensioners.

Find out what we know so far about Rachel Reeves’s 2025 Autumn Budget in our guide.

National Living Wage and National Minimum Wage to rise

Chancellor Rachel Reeves has unveiled another sweetener this evening ahead of the Autumn Budget by announcing an increase to the National Living Wage (NLW) and also the National Minimum Wage (NMW).

From 1 April 2026, the NLW will rise by 4.1% to £12.71 per hour for eligible workers aged 21 and over.

This will increase the gross annual earnings of a full-time worker on the NLW by £900, benefiting around 2.4 million low-paid workers, the Treasury said.

The NMW rate for 18 to 20-year-olds will also increase by 8.5% to £10.85 per hour.

This will mean an annual earnings increase of £1,500 for a full-time worker, and marks further progress towards the government’s goal of phasing out 18-20 wage bands and establishing a single adult rate.

The NMW for 16 to 17-year-olds and those on apprenticeships will increase by 6% to £8 per hour.

It is good news for employees but employers may worry about the extra costs after already being hit with National Insurance hikes in the previous Budget.

The benefits of the pay rise may also be offset though by other rumoured policies such as a clampdown on salary sacrifice for pension contributions and an extension of frozen income tax thresholds, putting more people at risk of fiscal drag.

Marc Shoffman, contributing editor

MoneyWeek’s Budget wishlist

That’s all from us this evening – we will be back tomorrow morning for live coverage of Budget Day.

Before we sign off, the MoneyWeek team has shared what they’d like to see in the Budget.

Thank you for joining us for our 2025 Autumn Budget preview. Please join us again tomorrow morning as we prepare to hear what the chancellor will announce.

How do you feel about the Autumn Budget?

Good morning and happy Autumn Budget Day! There are just hours to go until Rachel Reeves delivers her speech in the House of Commons. Tax rises and/or spending cuts are almost certainly on the cards, but it remains to be seen just what the chancellor will announce.

We want to hear from you – how are you feeling about today’s Budget? Vote in our poll below.

What will be in the 2025 Autumn Budget?

Reeves will deliver the Budget speech today at around 12.30pm, after Prime Minister’s Questions.

Some details have already been announced – such as an increase to the national living wage and national minimum wage next year, and an extension of the freeze to NHS prescription charges.

Reeves: 'Britain won’t return to austerity’

Ahead of her Budget speech today, the chancellor has said she will take "the fair and necessary choices" to deliver on the Government’s mandate for change.

In a video, Reeves said: “I’m not going to return Britain back to austerity. Nor will I lose control of public spending, more reckless borrowing.”

She added: “I will take action to help families with the cost of living…cut hospital waiting lists…cut the national debt."

Farmers protesting in Westminster ahead of Autumn Budget

Tractors are assembling outside the Houses of Parliament this morning ahead of the Autumn Budget, in protest against a move that Reeves brought in last year to remove inheritance tax relief above £1 million for farms and rural businesses.

“Whilst much of the focus has been on the anticipated new policies being announced today, tractors in Downing Street again this morning illustrate the impact that is still being felt in rural communities around the changes announced last year to Agricultural Property Relief,” said Hannah Wallbridge, senior associate at regional law firm Gardner Leader.

The changes, which critics argue will force the breakup of smaller, family-owned farms, will take effect in April 2026.

“Unless further changes are announced today, the clock continues to run for those farming families to seek estate planning advice,” said Wallbridge.

Dan McEvoy, senior writer

Could we see exemptions to stamp duty on shares in the Autumn Budget?

One of Reeves’s many headaches in the Autumn Budget today is finding a way to reinvigorate London’s long-suffering stock market.

The London Stock Exchange (LSE) has seen some of the UK’s biggest companies, such as AstraZeneca and Wise, seek new listings overseas this year. There is a not-unjustified perception that UK-listed companies suffer from low valuations, especially in comparison to US-listed counterparts.

Yesterday, Bloomberg reported that Reeves is considering a stamp duty holiday for companies that list on the LSE. If it comes about, it would see companies exempted from the 0.5% stamp duty tax that currently applies to UK-listed shares for three years after their IPO.

“If this Budget rumour proves accurate, it may be the carrot British businesses need to plump for a domestic listing,” said Emma Wall, chief investment strategist at Hargreaves Lansdown.

Reeves is also expected to announce other measures aimed at encouraging Brits to start investing, including a potential cut to the annual cash ISA allowance in order to encourage investments into stocks and shares ISA.

Dan McEvoy, senior writer

When were the longest and the shortest Budget speeches?

Sitting through upwards of an hour of dense talk on the public finances can be somewhat of a slog, even for the most passionate among us.

Spare a thought, then, for some of Parliament’s honourable Victorian members who listened to the longest uninterrupted Budget speech in history in 1853.

The marathon address was given by then chancellor William Ewart Gladstone, who spoke for around four hours and 45 minutes. Such lengthy speeches were characteristic of the four-time Liberal prime minister – he was notable for often giving speeches of up to five hours without a break when he campaigned in Midlothian.

Gladstone’s opposite in almost every sense was the Conservative politician Benjamin Disraeli, Gladstone’s political arch-rival with whom he traded the premiership of the UK across decades.

It is perhaps fitting that Disraeli holds the opposite Budget record, delivering the shortest Budget in history in 1867, lasting just 45 minutes.

That is not to say that Disraeli was not susceptible to speaking at length. When including Budgets with interruptions, Disraeli holds the record for the longest speech, lasting five hours, though this included a break.

Daniel Hilton, junior writer

The lost art of a budgetary tipple

Drinking on the job is probably not allowed in your workplace and, despite the many bars nestled within the Palace of Westminster, is usually forbidden in the House of Commons for politicians – that is, apart from in one circumstance.

The chancellor is the only politician permitted to drink alcohol in the chamber, according to parliamentary tradition, and can only do so when delivering the Budget.

Previous chancellors have made the most of this. William Ewart Gladstone, who first became chancellor in 1852 and later became the prime minister, drank a bizarre mixture of sherry and beaten egg, while his opposite number, Conservative politician Benjamin Disraeli, drank brandy and water.

It is not just chancellors far in the past who embraced the tradition. More recent examples include Geoffrey Howe (gin and tonic), Nigel Lawson (spritzer), Hugh Gaitskell (rum and orange), Hugh Dalton (rum and milk), Winston Churchill (brandy), and Kenneth Clarke (whisky).

These days, the tradition seems to be dead. Every chancellor since Gordon Brown has had plain water while delivering the budget.

Daniel Hilton, junior writer

Balancing the books in the Autumn Budget

The Autumn Budget is, first and foremost, an exercise in balancing the national books. Rachel Reeves has an added challenge on this front as, during last year’s election campaign, the Labour party pledged to not raise any of the “big three” taxes on working people (income tax, (employees’) national insurance and VAT).

Labour’s fiscal rules also commit the government to fund day-to-day spending entirely through revenue as opposed to borrowing by the 2029/30 tax year.

“Chancellor Reeves will want to show a materially higher fiscal consolidation in the Autumn Budget of close to £30 billion, likely extending the headroom against the fiscal rules closer to £15 billion,” said Reto Cueni, chief economist at private bank Syz Group.

Achieving this will require tax increases, and Reeves will likely target ‘non-inflationary’ areas such as tax threshold freezes or reducing capital gains tax exemptions.

“Further tax hikes are a foregone conclusion. Some, including another freeze to the income tax thresholds, are as good as fully priced in by markets,” said Matthew Ryan, head of market strategy at Ebury.

“It will be key for the government to show that over the next two years the budget deficit will be reduced and the UK’s debt burden will finally move down,” said Cueni. “By reducing the fiscal deficit over the next two years, the government can regain fiscal credibility and assure investors that the UK’s government is keeping control of the debt situation.

“This would relax tensions in the gilts market and let yields grind lower,” Cueni added.

Dan McEvoy, senior writer

Reeves leaves Downing Street

Chancellor Rachel Reeves has left Number 11 Downing Street to deliver the 2025 Autumn Budget. She will make the long-awaited speech at around 12.30pm in the House of Commons, after Prime Minister's Questions.

FTSE 100 on the rise ahead of Autumn Budget

Not many people are feeling happy about the Autumn Budget, as speculation over tax rises continue to heat up.

But for the FTSE 100 and bonds market, it’s been more of a joyous morning as stocks and bonds rise with the budget set to draw a line under months of speculation and uncertainty for businesses.

Ten-year UK gilt yields – in effect, the return the government promises to pay buyers of its debt – opened higher this morning at around 4.52%, but have since fallen back to around 4.5%. Bond yields move in the opposite direction to prices.

The FTSE also opened 10.09 points (0.1%) higher at 9,619.62.

The chancellor has been drip feeding some of her policies all week, in particular around the costs of living measures.

But with mounting pressures to reduce debt, some of the hard hitting measures are most likely to be announced this afternoon. Brace!

Kalpana Fitzpatrick, editor

Will the two-child benefit cap be lifted?

The chancellor could look at lifting the two-child benefit cap today – a move which charities say would lift hundreds of thousands of children out of poverty.

The cap limits the extra amount of Universal Credit families can receive to two children and was introduced by the Conservative government in the 2015 Budget.

Households on Universal Credit with a third or more children born from 6 April 2017 do not receive extra amounts under the cap.

There are exceptions to the two-child limit, for example for parents that have had multiple births, like twins or triplets.

Sam Walker, writer

What economic circumstances is Rachel Reeves contending with?

It is no secret that today’s budget will be delivered under some difficult economic circumstances.

The UK economy grew by a paltry 0.1% in the three months to September, the latest official data shows, including a month-on-month contraction of -0.1% in September.

At the same time, unemployment is at the highest level since 2021, climbing to 5% in September. Inflation has also remained much higher than the 2% target, for most of the year. The latest figures show price growth was 3.6% in the year to October.

Amid these dreary figures, the chancellor reportedly faces a £22 billion black hole in the public finances, according to estimates by the Institute for Fiscal Studies (IFS), an influential think tank.

It means the chancellor must find an extra £22 billion just to stick to previous commitments for government spending, while keeping her fiscal headroom at £10 billion.

As the chancellor’s rules stop her from increasing borrowing to meet day-to-day government spending, this budget shortfall will need to be filled by either cutting expenditure or raising taxes.

Daniel Hilton, junior writer

BREAKING: OBR forecast released early

The Office for Budget Responsibility has reportedly published its forecast early. Usually, the forecast is released after the Budget is announced.

There is speculation that the apparent early release may have been an accident. More news to follow.

What are the chancellor’s fiscal rules?

You may hear a lot of references to ‘fiscal rules’ in the chancellor’s speech and the surrounding commentary today.

These are a set of three principles governing the public finances that Rachel Reeves has committed to sticking to as a way to keep the trust of the markets and the public.

They are entirely self-imposed, but the Office for Budget Responsibility (OBR), the UK’s official budget watchdog, calculates whether the government will meet them or not.

Rule 1: “The current budget should be on course to be in balance or surplus by 2029/30” (‘stability rule’).

This rule requires the government to ensure that the day-to-day costs of running the country are met by revenues by the 2029/30 tax year, the final one of the current parliament.

The rule was tweaked in 2024 to mean that borrowing is allowed for the purposes of investment, but still means that day-to-day spending (like of running the NHS) cannot be funded through borrowing.

Rule 2. “Net financial debt should fall as a share of the economy in 2029/30” (‘investment rule’)

This rule requires public debt to be forecast by the OBR to be lower in 2029/30 than 2028/29 in terms of GDP.

Public debt is defined as public sector net financial liabilities, or ‘net financial debt’.

Rule 3. “Some types of welfare spending must remain below a pre-specified level” (the ‘welfare cap’)

This rule adds constraints on roughly half of government welfare spending. It requires total annual welfare spending in this parliament to be at a maximum level of £194.5 billion by 2029/30.

The margin for overspend is 5%. Pension payments and welfare that are ‘most sensitive to the economic cycle’ (like Jobseekers’ Allowance) are excluded from the cap.

Daniel Hilton, junior writer

Prime Minister’s Questions is underway in the House of Commons. Prime minister Keir Starmer will answer questions from MPs for around half an hour. Chancellor Rachel Reeves should then take to the dispatch box soon after, to deliver the 2025 Autumn Budget speech.

Kemi Badenoch, the leader of the opposition, is expected to deliver her response immediately afterwards.

Mansion tax to be introduced on £2 million homes

The Office for Budget Responsibility appears to have confirmed plans for a mansion tax on homes worth £2 million and above.

The plans are set to be revealed by chancellor Rachel Reeves but seem to have been confirmed by BBC News, which has reportedly obtained an early copy of the OBR forecasts when it was published in error.

There was speculation about the new levy in the build-up to the Budget, which is effectively a wealth tax.

But critics will likely label it a levy on London and the South East, where most £2 million homes are situated.

A mansion tax could also cause a freeze at the top-end of the property market. Rightmove data shows sales agreed for £2 million-plus homes are already down 13% year-on-year.

Marc Shoffman, contributing editor

Reeves extends ‘stealth tax’ until 2030, breaking previous commitment

The freeze on income tax thresholds has been extended until 2030, according to the BBC. The organisation has reportedly obtained an early copy of the OBR’s budget report seemingly in error.

MoneyWeek has approached the OBR for confirmation that the forecast has been leaked early, and apparently by accident. As yet, we have not received a reply.

New tax to be levied on electric vehicle drivers

Electric vehicle (EV) drivers are set to pay a new tax for each mile they drive, according to the OBR’s leaked report, as reported by the BBC.

The complete details have not yet been confirmed, but the report says the new mileage-based charge will be “around half the fuel duty rate paid by drivers of petrol cars (raising £1.4 billion)".

Drivers of petrol and diesel vehicles have to pay fuel duty when they fill up, charged at around 53p per litre. The new EV tax is designed to bring their taxation closer in line with typical vehicles.

Household energy bills to be cut

Households gas and electricity costs will be lowered through cuts to green levies on energy bills, the BBC reports.

It will cost around £2.3 billion, according to the OBR.

Two-child benefit cap lifted

The two-child benefit cap, which limits the amount of Universal Credit families can receive, will be lifted, according to the BBC. The OBR has reportedly estimated this will cost £3 billion by 2029/30.

Estimates from the Child Poverty Action Group have suggested lifting the cap would lift 350,000 children out of poverty and mean 700,000 are in less deep poverty.

Government fiscal headroom will grow to £22 billion

The early release of the OBR’s report suggests the chancellor will increase the government’s ‘fiscal headroom’ to £22 billion, up from its current level of £10 billion, the BBC reports.

OBR: Inflation to be higher than expected in 2025 and 2026.

Inflation is set to be 3.5% in 2025, according to the BBC, based on the OBR’s early leaked report.

The new forecast is higher than their previous expectation of 3.2%, which the OBR made in March.

Inflation is also expected to be higher in 2026, reaching a level of 2.5% according to the OBR. This is above their previous expectation of 2.5%.

The OBR maintains its forecast that inflation will be 2% in 2027.

OBR downgrades growth predictions

The Office for Budget Responsibility (OBR), the UK’s independent budget watchdog, has degraded its GDP growth forecast, according to the BBC.

The watchdog now expects GDP to grow by 1.5% on average over the five year forecast period, ending in the 2029/30 tax year, 0.3 percentage points slower than they anticipated in March.

Fuel duty frozen until September 2026

Fuel duty will be frozen at its current rate until September 2026, the BBC reports the OBR says.

The headline rate on standard petrol and diesel is currently 52.95p per litre.

Sam Walker, writer

OBR apologises for leaking forecast early

The OBR has apologised for leaking its forecast ahead of Rachel Reeves’s Autumn Budget announcement.

A statement on the OBR’s website reads:

“A link to our Economic and fiscal outlook document went live on our website too early this morning. It has been removed.

“We apologise for this technical error and have initiated an investigation into how this happened.

“We will be reporting to our Oversight Board, the Treasury, and the Commons Treasury Committee on how this happened, and we will make sure this does not happen again.

“Our Economic and fiscal outlook and supporting documents will be released when the Chancellor has finished her speech.”

Should we have had Budget leaks?

I am seriously thinking of getting my ears checked – at 12:05 I heard the Prime Minister Keir Starmer say details will be released “in 25 minutes” yet a few minutes soon after he said that it seems like the Office for Budget Responsibility then leaked its report to various media outlets, including the BBC.

This report is usually released AFTER the chancellor makes her speech - such a leak has not happened before. Some reports of what Rachel Reeves is about to say are now out - but Reeves has yet to speak.

The OBR has since apologised - but this has clearly been a Budget of leaks, causing anxiety and uncertainty. Are such leaks ever acceptable?

Kalpana Fitzpatrick, digital editor

Pension savers to be hit with salary sacrifice cap

Rachel Reeves is set to announce a cap on salary sacrifice schemes in a new blow for pension savers.

An Office for Budget Responsibility forecast, published in error and seen by BBC News, suggests the Autumn Budget will introduce a £2,000 cap on the amount of earnings that can be exchanged for pension contributions that benefit from a National Insurance exemption. This will come in from April 2029, according to the OBR.

Marc Shoffman, contributing editor

Reeves begins 2025 Budget speech

Reeves has begun her Budget speech. Much of the chancellor’s Budget has been reported ahead of this speech, after the OBR report was published in error earlier today. Reeves called it a “serious error” on the OBR’s part.

Leaked OBR report ‘deeply disappointing’ and a ‘serious error’, says Reeves

Rachel Reeves has slammed the OBR for releasing their Budget report early in error.

She said: “This is deeply disappointing and a serious error on their part. The Office of Budget Responsibility have already made a statement taking full responsibility for their mistake.”

Cash ISA limit cut to £12,000 – but not for over 65s

The annual cash ISA allowance will be reduced from £20,000 to £12,000 from April 2027 as the chancellor bids to push savers towards the stock market. However, over 65s will retain the full cash ISA allowance.

The overall allowance of £20,000 per year isn’t changing, so savers will still be able to spread their money across multiple ISA accounts up this limit.

However, Reeves may still have to convince members of the public to take a more investment-heavy approach with their savings.

Recent research polling by Paragon Bank of 1,400 cash ISA savers, found the majority would not invest in stocks and shares and would switch to regular savings accounts instead, despite this potentially driving up their income tax bill.

Sam Walker, writer

Stamp duty holiday for London IPOs

In a bid to use her Autumn Budget to boost the UK’s beleaguered stock market, Reeves has announced a three-year exemption from stamp duty for companies listing on the London Stock Exchange (LSE).

The LSE has struggled to attract high-profile companies to list on the exchange even when they are based in the UK. Unilever’s anticipated spin-off of its ice cream business will see Amsterdam land the primary listing, while neobank Revolut – Europe’s most valuable private company following a funding round that valued it at $75 billion – appears to favour listing in the US over the UK.

Investors currently have to pay 0.5% stamp duty whenever they buy UK-listed shares, but Reeves has waived this for newly-listed companies.

“This would make buying British more enticing for investors and help redress some businesses’ concerns about demand for UK shares,” said Emma Wall, chief investment strategist at Hargreaves Lansdown. “London has been losing out to New York in recent years, as businesses favour the funding and regulatory environment of the New York Stock Exchange.”

Dan McEvoy, senior writer

OBR downgrades productivity growth forecast

The OBR has downgraded their forecasts for productivity growth. The downgrade will cost the economy £16 billion.

The chancellor said the blame for this lies at the feet of the Conservatives, and promises to defy the forecast.

Chancellor announces multi-million playground makeover

Local communities are set to receive an £18 million funding package to help revamp their playgrounds.

The funding will target 200 children’s play parks across England in a bid to “breathe new life into play areas across England, creating safe, exciting spaces for thousands of children”.

The government says the funding will help ensure every child can enjoy the benefits of playing outdoors as research shows poorer children spend much less time outside than richer ones.

Daniel Hilton, junior writer

Chancellor’s £5 million books boost for secondary schools

Millions of pounds in new funding will become available to secondary schools in England to help them revitalise their school libraries.

The chancellor announced a £5 million funding package that will allow all secondary schools across the country to spend around £1,400 each on books, incentivising children to get off their phones and read instead.

The funding comes at a time when reading for pleasure is in sharp decline among young people, with the number of 8 to 18 year olds saying they enjoy reading in their spare time falling by a third since 2019.

Daniel Hilton, junior writer

Gilt yields swing following pre-Budget leak

Gilt yields – in effect, the interest paid on UK Government debt – initially fell following the leak of the OBR’s report.

Yields on 10-year gilts fell from around 4.50% to 4.43% at approximately 11.45am.

But they have since risen back to above their level before the leak – now standing at 4.52% as of 12.44pm.

Lower yields indicate greater bond market confidence in the UK government as a borrower, and vice versa.

The initial dip perhaps reflects optimism based on the policies announced in the Budget, but the reversion likely implies pessimism over the longer term outlook for productivity.

Overall, though, gilt yields are little changed from before the OBR forecast’s release.

“We’ve seen a relatively orderly reaction in gilts and the pound to the details of the budget so far,” said Matthew Ryan, head of market strategy at Ebury. “Market participants will be breathing a sigh of relief that the chancellor appears to have learnt from past mistakes, and will instead be affording herself a larger fiscal headroom in excess of £20 billion, as opposed to the razor-thin one we saw last year.”

Carrot and stick approach to ISAs

Cash ISAs will be limited to £12,000, and if you want to take advantage of the full £20,000 allowance then you will need to invest the rest.

This isn’t quite as bad as the ‘cut’ we anticipated, and it still leaves savers with a choice.

But this will still require some convincing and education. I’ll also be interested in knowing how this would work in practice, and will we see new ISA products launched? Possibly, yes.

Kalpana Fitzpatrick, digital editor

250 new Neighbourhood Health Centres to be built

The government is set to open 250 new ‘Neighbourhood Health Centres’ in the country to help improve healthcare access.

The centres, which will bring together GPs, nurses, dentists and pharmacists under one roof, will be first built in the most deprived areas of the country.

The government hopes that opening the new centres will cut NHS waiting lists and “bring an end to the postcode lottery of healthcare access”.

Daniel Hilton, online writer

Reeves extends income tax threshold freeze

Chancellor Rachel Reeves has extended the freeze on income tax thresholds from 2028 to 2031.

The move means workers will pay more tax when their salaries increase, as more of their pay is dragged into higher tax bands, leading some to label it a ‘stealth tax’.

She said: “The previous Conservative government froze personal tax thresholds from 2021 to 2028 and today I will maintain all income tax and equivalent National Insurance thresholds at their current level for a further three years from 2028.

“I know that maintaining these thresholds is a decision that will affect working people. I said that last year, and I won't pretend otherwise. Now, [...] I'm asking everyone to make a contribution.”

It means tax bands in England, Wales and Northern Ireland will remain at the following levels until the end of the 2029/30 tax year:

Source: HMRC

Income tax bands are different in Scotland.

Tax thresholds have historically risen with inflation, meaning workers paid tax on the same proportion of their earnings in real terms each year.

However, since the 2022 tax year, thresholds have been frozen at their 2021/22 levels. This raises tax receipts through a phenomenon known as ‘fiscal drag’.

The government had previously stated this freeze would end after the 2027/28 tax year, but today’s announcement means fiscal drag will continue for longer than expected.

Figures from HMRC recently showed that in the last year alone, more than a million Brits were dragged into higher tax bands because of the threshold freeze.

Daniel Hilton, writer

Class 2 National Insurance contributions abolished for people living abroad

The government is removing access to the cheapest Class 2 Voluntary National Insurance contributions (VNICs) for individuals living abroad and increasing the initial residency or contributions requirement for VNICs to 10 years.

Tax hike for property, dividend, and savings income to rise

The chancellor has confirmed rumours that tax on income from property, dividends and savings interest will be increased, rising by two percentage points.

The change will affect all taxpayers with income from these sources, on both the basic and higher rate of income tax.

Reeves said the measure will narrow the gap between the tax on income from assets and income from work.

“Even after these reforms, 90% of taxpayers will still pay no tax at all on their savings,” she added.

Daniel Hilton, writer

Mansion tax confirmed for £2 million homes

Rachel Reeves has confirmed details of a new mansion tax for homes worth £2 million and above.

From April 2028, owners of properties identified as being valued at over £2million by the Valuation Office (in 2026 prices) will have to pay a recurring annual charge on top of their current council tax.

There will be four price bands with the High Value Council Tax Surcharge rising from £2,500 for a property valued in the lowest £2 million to £2.5 million band to £7,500 for a property valued in the highest band of £5 million or more, all uprated by CPI inflation each year. This measure is estimated to raise £0.4 billion in 2029-30.

The levy is likely to cause blockages at the higher end of the property market though.

Tom Bill, head of UK residential research at Knight Frank, said: “Until the revaluations take place, buyers and sellers face years of uncertainty, especially around the £2 million threshold. Even once completed, new valuations can be challenged, which would prolong the limbo.

“The policy may also raise less than expected, especially because it is deferrable. If opposition parties say they would scrap it, many homeowners will look at the opinion polls and wait it out. When you factor in the cost of carrying out the valuation and the potential lost stamp duty revenue from a stickier market, the sums raised could look like a rounding error for the Treasury.

“More properties will inevitably get dragged into the mansion tax net, which means the proportion of terraced houses, flats and semi-detached homes will grow over the years, particularly in the capital. The term ‘mansion tax’ will increasingly feel like a misnomer.

“Overall, it feels like politics has trumped economics. One the one hand, the policy is designed to keep backbenchers happy and ensure the near-term survival of the chancellor and prime minister. On the other hand, it throws a spanner into the works of the housing market for not much money in return, which is important in the context of a Budget where spending is front-loaded. The UK already pays the highest percentage of property taxes among OECD countries.”

Marc Shoffman, contributing editor

£2,000 salary sacrifice cap confirmed

Chancellor Rachel Reeves has confirmed plans to introduce a £2,000 cap on the amount of earnings that can be exchanged for pension contributions that benefit from a National Insurance exemption.

It will be introduced from April 2029.

Introducing the cap could reportedly raise up to £2 billion a year but it will have an impact on the amount employees can save into a pension from their post tax income, ultimately affecting their take-home pay if they want to continue putting money into their workplace scheme.

Contributions above the cap will be taxed in the same way as other contributions.

Employers may also have less incentive to offer benefits, plus this could raise fears of other salary sacrifice schemes being targeted in the future such as bike to work and company car benefits.

AJ Bell has previously warned that the pensions of higher earners could be £50,000 smaller due to the salary sacrifice changes.

Steve Hitchiner, chair of the tax Group at the Society of Pensions Professionals (SPP) said: “Restricting salary sacrifice for pensions will affect the take home pay of millions of employees – especially basic rate taxpayers – and is a tax on working people, in spirit if not in name. It is also another sizeable cost to employers and, perhaps most importantly its restriction will reduce pension saving.”

Marc Shoffman, contributing editor

Cash ISA cuts – pros and cons

Cuts to the annual cash ISA allowance was shaping up to be one of the most divisive policies ahead of the Autumn Budget. Reeves appears to have struck something of a compromise by cutting the annual allowance to £12,000, but exempting over-65s who, understandably, may want to take fewer short-term risks with their money.

“This is a carefully considered solution that promotes the benefits of investing in the stock market for the long term, whilst addressing concerns of older savers who prioritise financial certainty,” said Richard Stone, CEO, Association of Investment Companies.

But Harriet Guevara, chief savings officer at Nottingham Building Society, calls the cut to the cash ISA limit “a deeply disappointing outcome for both savers and lenders”.

“We support the government’s aim to boost an investing culture in the UK,” she added, “but restricting choice is not the way to do it.”

Dan McEvoy, senior writer

EVs to be subject to new 3p per mile tax

Drivers of electric vehicles will now have to pay a flat tax of 3p per mile, bringing taxation of EVs more in line with typical vehicles.

Fully electric vehicles will be subject to the 3p per mile tax, while plug-in hybrid vehicles will have to pay 1.5p per mile.

It is estimated that the new tax will cost the average driver of a fully electric car approximately an extra £250 a year.

Daniel Hilton, writer

Electric vehicle grant extended

After announcing the new set of EV taxes, the chancellor eased the pain slightly by extending the UK’s new electric car grant until 2030.

The grant currently subsidises the price of a new EV by between £1,500 and £3,750 depending on the model.

Daniel Hilton, writer

Reeves confirms no change to income tax

It was widely trailed before the Budget but Reeves has now confirmed herself that income tax – as well as the other two ‘big three’ taxes – won’t be raised (beyond the extension to the income tax threshold freeze).

“I can confirm that I will not be increasing National Insurance, the basic higher or additional rates of income tax or VAT,” said Reeves.

“I have kept everyone's contribution as low as possible through reforms to make our tax systems stronger, closing loopholes, ensuring that the wealthiest pay their share, and building a tax system that is fairer,” she added.

Dan McEvoy, senior writer

Rail fares to be frozen for the first time in 30 years

Rail fares will be frozen at current levels for the first time in 30 years, meaning all regulated rail tickets, including season tickets, peak returns, and off–peak returns, will remain the same price next year.

The Treasury says the freeze could save commuters on more expensive routes upwards of £300 a year, assuming they commute to the office three times a week.

Without a freeze, rail fares were set to increase by 5.8% in 2026.

Daniel Hilton, junior writer

Two-child benefit cap to be lifted

The government has confirmed the two-child benefit cap will be lifted, which charities have said could lift hundreds of thousands of children out of poverty.

The cap limits the amount of extra Universal Credit families with children can receive. The cap was first introduced by the then Conservative government in 2015.

Helen Barnard, director of policy at charity Trussell, said: "This move will protect hundreds of thousands of children from growing up facing hunger and hardship.

"It shows that the chancellor has listened to families and food banks across the UK who have been imploring her to act."

Sam Walker, writer

State pension to increase by 4.8%

Thirteen million pensioners will receive a pay rise next April after the chancellor confirmed the state pension will rise by 4.8%.

Those on the full new state pension will see their weekly payments go up from £230.25 to £241.30 (£12,547 a year) under the triple lock mechanism – a rise of more than £550 per year.

The full basic state pension weekly amount will go up from £176.45 to £184.91 (£9,615 a year) – an increase of just under £440 a year.

Because the new tax year starts on 6 April 2026, you won’t get the new rate until your first pay date after this date.

Sam Walker, writer

Fuel duty frozen until September 2026

The chancellor confirmed the freeze to fuel duty will be kept in place until September 2026.

The freeze has been in place since 2011/12, meaning the headline rate on standard petrol and diesel is 52.95p per litre.

Sam Walker, writer

Reeves to cut energy bills by £150 by ending green levies

The chancellor has announced that the average annual energy bill will be cut by £150 from April 2026 onwards.

This will be done by removing the “Eco scheme”, a green levy added to energy bills, first introduced by the Conservatives.

Daniel Hilton, writer

Kemi Badenoch: Budget is a “total humiliation” and Reeves should resign

Kemi Badenoch, the Leader of the Opposition and leader of the Conservatives, will now respond to the Budget.

She opened her speech by calling the Budget a “total humiliation” and slammed the chancellor for “coming back for more” taxes.

She said: “Last year, she put up taxes by £40 billion, the biggest tax raid in British history. She promised that she wouldn't be back for more. She swore it was a one-off. She told everyone that from now on, it would be stability, and she would pay for everything with growth. Today, she has broken every single [promise].

“If she had any decency, she would resign,” she added.

Daniel Hilton, writer

Deutsche Bank: ‘Cost of living’ Autumn Budget increases headroom and reduces borrowing

Zooming out, today’s Autumn Budget – despite seeing the third-largest amount of tax increases since 2010 – appears to achieve three things, according to Sanjay Raja, chief UK economist at Deutsche Bank.

Firstly, it should keep government borrowing on a downward trajectory. “The UK’s budget deficit is expected to drop from 4.5% of GDP to 3.5% next fiscal year,” says Raja. “It is expected to drop to just under 2% of GDP by the end of the decade.”

Secondly, it has surprisingly doubled the chancellor’s fiscal headroom from £10 billion to just under £22 billion.

Thirdly, Raja expects the Budget to be disinflationary. “Budget policies are projected to reduce CPI by 0.4 percentage points in 2026/27,” says Raja. “This is reflected by a partial extension of the fuel duty freeze, reducing green levies, and a one-year freeze to rail fares.”

Dan McEvoy - senior writer

Administrative burden for pensioners on just state pension to be eased

Retirees whose sole income is the state pension will be spared the burden of having to pay very small amounts of income tax from April 2027 if the state pension exceeds the personal allowance, the chancellor announced.

It comes as the state pension is set to breach the tax-free personal allowance in 2027, according to the OBR. Without the policy, retirees whose only income is the state pension face having to pay income tax for the first time, via simple assessment.

No concrete method for implementing this has been confirmed yet, but the government says it is “exploring the best way to achieve this and will set out more detail next year”.

Daniel Hilton, writer

Benefits fraud: Plans to save over £1 billion on benefit fraud and error

Budget documents confirmed the government will extend a taskforce cracking down on fraudulent Universal Credit claims.

The Targeted Case Review scheme, first set up in 2022, will now close in 2031.

Fraudulent benefit claims cost the government £6.5 billion in the 2024/25 financial year, with £5.2 billion made up of fraudulent Universal Credit claims.

It comes as the DWP aims to keep a lid on the ballooning welfare bill, with forecasts predicting health and disability benefits will cost the government £70 billion by the end of the decade.

Sam Walker, writer

Hundreds more planners to get Britain building

The government will pump £48 million of additional funding into recruiting an extra 350 planners in England.

The planners will reportedly be brought in across both graduate and experienced roles.

Reeves is also said to be planning to unveil plans for a new Planning Careers Hub to retain planners and draw more people into these types of roles.

Sam Walker, writer

Care leavers guaranteed up to £13,500 in student loan support

All care leavers, young people who have left the care system, will be guaranteed the full student maintenance loan amount of £13,500 per academic year.

Just 14% of care leavers go to university, compared to 50% for the wider population, and they are much more likely to drop out.

The government says this is often due to financial barriers – the new loan guarantee will seek to address this issue.

Daniel Hilton, junior writer

Autumn Budget summary

Well there you have it. No rabbit in the hat though. The Autumn Budget started in an unusual way as the Office for Budget responsibility leaked its report a whole 20 minutes before the chancellor’s speech.

While this was certainly a Budget that protected vulnerable households, shielding them from the increasing cost of living. But, for everyone else, taxes are up and those with more wealth will pay more.

Here’s a quick summary:

• Cash ISA reforms. For cash savers, savings will be limited to £12,000. To take advantage of the full £20,000 allowance, you will have to invest the rest. Over 65s will see no change and keep the full £20,000 allowance.
• Salary Sacrifice pensions capped. There will be a £2,000 salary sacrifice cap confirmed - the amount of earnings that can be exchanged for pension contributions that benefit from a National Insurance exemption.
• Mansion Tax. Owners of properties worth over £2 million will have to pay a recurring annual charge on top of their current council tax. There will be four price bands with the new ‘High Value Council Tax Surcharge’ rising from £2,500 for a property valued in the lowest £2 million to £2.5 million band to £7,500 for a property valued in the highest band of £5 million or more, all uprated by CPI inflation each year.
• Tax hike on income from property, dividend, and savings by two percentage points. The change will affect all taxpayers. But she claimed 90% of taxpayers will still pay no tax at all on their savings.
• Income tax threshold freeze extended, from 2028 to 2031.
• People based abroad will no longer be able to make Class 2 National Insurance contributions.
• Two-child benefit cap to be lifted, which Reeves said will help tackle child poverty
• Electric vehicle (EV) grant extended to 2030, but EVs will be subject to new 3p per mile tax.
• Energy bills to drop by £150 from April 2026 as green levies cut.

Kalpana Fitzpatrick, digital editor

Lifetime ISA reform?

Budget documents have revealed the government will publish a consultation in early 2026 on the roll out of a new, "simpler", ISA product to help first-time buyers get a home.

Once launched, this new ISA product will be offered in place of Lifetime ISAs.

Currently, savers can add £4,000 per year into a LISA and get a 25% bonus on top from the government, up to a maximum of £1,000 a year. Any savings must be used to put down a deposit for a house that costs £450,000 or less or for retirement, otherwise you pay a 25% penalty.

However, the savings product has its critics, with some arguing the £450,000 limit for a house is not high enough for people buying in areas where property prices are above the UK average, such as London.

The £450,000 limit has also been frozen since the LISA was launched in 2017, despite house prices growing significantly since then.

Sam Walker, writer

A twist in the cash ISA limit shake-up

How much did the Budget raise taxes by?

The full Budget has now been delivered by Rachel Reeves, and the supporting documents from the Treasury and Office for Budget Responsibility (OBR) have been published.

Thanks to a slew of tax hikes, the chancellor will now have £26 billion more in tax revenue in 2029/30, according to the OBR, bringing the tax take to an all-time high of 38% of GDP in 2030/31.

The biggest chunk of this comes from the extension of the freeze on income tax thresholds until 2031, raising £8.3 billion in 2029/30.

The charging of National Insurance on salary sacrificed pension contributions is estimated to bring in around £4.7 billion in 2029/30. Increases to income tax rates on property, savings, and dividends will bring in a further £2.1 billion in 2029/30.

The rest of the revenue will be raised by the other measures announced in the Budget.

Daniel Hilton, writer

What do you think about Reeves’s Budget?

Over to you – what do you think about the announcements today? Have your say by voting in our poll below.

Recap: the Autumn Budget headlines

Here’s a quick recap of some of the major headlines that have come out of today’s Autumn Budget announcement:

• Mansion tax to apply to properties valued at over £2 million
• Cash ISA limit cut to £12,000
• Salary sacrifice on pension contributions limited to £2,000 before National Insurance payments kick in
• Higher tax rates on income from property, savings and dividends.

Of course, there are plenty of holes to pick in the specific measures that Reeves has taken. Not everyone is going to be happy when an extra £26 billion in taxes are announced.

As MoneyWeek’s digital editor Kalpana Fitzpatrick says, when considering the Budget’s winners and losers Reeves seems to have taken pains to ensure that the most financially vulnerable are shielded, and those that can pay will pay.

And the markets seem encouraged. The extra fiscal headroom has seen government borrowing costs fall markedly through today, while the FTSE 250 has gained nearly 1%.

Thank you for joining us

So, there we have it. Rachel Reeves has unveiled the 2025 Autumn Budget, increasing taxes by around £26 billion, according to the Office for Budget Responsibility (OBR).

From the new mansion tax to the tax hikes on property, savings, and dividend income, MoneyWeek writer Daniel Hilton covers the key takeaways from the Budget in a separate piece.

Thank you for joining us for our 2025 Autumn Budget coverage today.

Keep following MoneyWeek for further analysis and reaction to the Budget. You can get our top stories delivered directly to your inbox by signing up for the MoneyWeek newsletter.

Good morning and welcome back to MoneyWeek’s 2025 Autumn Budget coverage.

Chancellor Rachel Reeves delivered a wealth of tax hikes in yesterday’s speech.

As well as targeting wealthy homeowners with a new mansion tax (effective from April 2028), the chancellor extended the freeze on income tax thresholds by three years. She also capped National Insurance contributions relief on salary sacrifice into pension schemes to £2,000. The latter measure will come in from 2029.

Stick with MoneyWeek as we bring you more reaction and analysis today.

Rachel Reeves defends extension to tax threshold freeze

Rachel Reeves has addressed her decision to freeze income tax thresholds by three years. The Conservative government had frozen the thresholds until 2028, but the Labour chancellor extended the measure until 2031 in the Autumn Budget yesterday.

“I recognise that freezing thresholds does mean that we are asking ordinary people to contribute a bit more,” Reeves told BBC News today.

The chancellor said she had “kept the contribution to a minimum by changes elsewhere” and acknowledged that continuing the threshold freezes would impact working people.

“I’m not seeking to deny that," she added, "but I believe I made the fair and necessary choices yesterday to ensure we can cut the cost of living, cut NHS waiting lists and also reduce our debt and borrowing and hopefully give space to the Bank of England to cut interest rates further.”

Inheritance tax thresholds frozen until 2031

The inheritance tax (IHT) nil-rate bands will be frozen for a further year until April 2031, from April 2030, Budget documents reveal.

The IHT nil-rate band has been frozen at £325,000 and the residence nil-rate band is held at £175,000. It means families risk paying more IHT in the future as the value of assets rises.

Recent polling by Hargreaves Lansdown found 7% of people were most concerned about changes to IHT being announced in the Budget.

Sarah Coles, head of personal finance at the investing platform, said yesterday: "Nobody likes the idea of the taxman dipping into your pockets after you’ve died, so today’s news won’t be welcome."

Sam Walker, writer

Savers at risk of paying more tax as cash ISA cut and savings tax rate to be hiked

Millions of savers may face paying more tax on their savings in coming years, due to the chancellor’s cut to the cash ISA allowance.

From April 2027, under 65s will only be able to put £12,000 a year into a cash ISA, rather than the current £20,000 per year limit.

7.1 million people put money in a cash ISA in 2022/23, with just over two million (28%) putting more than £12,000 into this type of account, analysis by InvestEngine shows.

These two million savers could now face paying tax on savings interest once they exceed their personal savings allowance, if they continue saving above the new £12,000 cash ISA limit.

Savers who are 65 or older can continue putting up to £20,000 – the overall ISA allowance – into a cash ISA, if they wish to.

The personal savings allowance lets basic rate taxpayers earn £1,000 in savings interest outside of an ISA. The allowance is cut to £500 for higher rate taxpayers. Additional rate taxpayers don’t get a personal savings allowance.

The tax rate on savings income will rise by two percentage points across all bands from April 2027, meaning basic rate taxpayers will need to pay a 22% levy on savings interest above the personal savings allowance – unless the money is in a tax-free savings vehicle, such as an ISA or Premium Bonds.

The top easy access savings account currently pays an interest rate of around 4.5%.

If a basic rate taxpayer put £12,000 in a cash ISA, and held £8,000 – the difference between £20,000 and the new £12,000 limit – in a top non-ISA savings account, they would face having paid hundreds of pounds in tax after five years, analysis suggests.

Figures by InvestEngine and MoneyWeek compare how much tax on savings interest would be due in five years based on the previous savings tax rate and the hiked rate after April 2027.

Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, the online investment platform, said: “For committed savers, that want to continue saving more than £12,000 into a cash ISA, investing their money in the financial markets is one solution, provided they don’t need access to their money in the short term.”

The overall ISA allowance remains at £20,000, meaning if you maximise the cash ISA allowance, you could still put £8,000 into a stocks and shares ISA in the same tax year.

Haine added: “Equities have historically delivered higher real returns – that beat inflation – than cash over the long term.”

A time horizon of at least five years is recommended for investing in equities via a stocks and shares ISA.

Jessica Sheldon, deputy digital editor

OBR: New per mile EV tax will significantly slow sales

The government’s new 3p per mile tax on fully electric vehicles will mean hundreds of thousands fewer electric cars will be on UK streets by 2030/31 than expected, according to analysis by the Office for Budget Responsibility (OBR).

The new levy, which will come into effect in April 2028, will mean average drivers of fully electric cars could pay an extra £225 a year to the taxman. A reduced rate of 1.5p per mile will be paid by those with plug-in hybrid cars.

The UK’s fiscal watchdog said they expect the tax to raise around £1.1 billion in the 2028-29 tax year, and £1.9 billion in the following tax year.

However, they added that the measure is “likely to reduce demand for electric cars” as it increases the average lifetime cost of running an EV.

This will lead to a significant slowdown in sales, with the OBR expecting 440,000 fewer electric car sales by 2030/31.

Melanie Lane, chief executive of EV charging provider Pod, said the policy “will shake consumer confidence and potentially jeopardise investment in the sector at a critical moment”.

The chancellor announced the electric car grant will be extended until at least 2030, potentially further complicating government incentives to switch to zero-emissions vehicles.

Lane added: “We are already falling behind on the ZEV mandate that expects one in three cars sold to be zero-emissions next year and confirmation of additional mileage costs from 2028 will penalise motorists and manufacturers who are fulfilling their end of the bargain.”

Details of how the policy will be policed are yet to be published, but the government has started a consultation. They say they expect mileage to be self-reported, possibly at a car’s annual MOT.

Daniel Hilton, writer

Has the Budget cleared the path for UK stocks?

UK-listed stocks gained yesterday in the wake of the Budget and the OBR forecast. The FTSE 100 gained nearly 0.9% and the FTSE 250 – which is more exposed to the UK economy as it contains more small, domestically-focused companies compared to the large multinationals of the FTSE 100 – gained 1.2%.

“Expectations running into the budget were very low, sentiment very weak, and valuations of especially domestic and smaller companies in the UK [were] very suppressed,” said Richard Knight, portfolio manager at Merchants Trust.

There were a number of key wins the Budget was able to score as far as UK stocks were concerned. Increased fiscal headroom ought to alleviate some of the concerns about future tax rises. The Budget is also thought to be disinflationary on balance, which should encourage future interest rate cuts from the Bank of England.

Rate cuts would be “a significant positive stimulus for the UK economy and stock market” according to Knight. “We are seeing great opportunities in midcaps in particular, as they are over-sold, and sensitive to the pessimism around the UK, a great degree of which is priced-in to market valuations,” he added.

See our explainer on what the Budget means for the UK stock market for more information.

Freeze on income tax thresholds could cost taxpayers £1,300

The government's extension to a freeze on income tax thresholds could add an extra £1,292 to someone's tax bill by 2031.

Someone with a yearly income of £15,000 today faces stumping up an extra £259 over the three years between 2028 and 2031, according to analysis by AJ Bell.

Someone on £45,000 a year will take a hit of £683, while a taxpayer with an annual income of £47,000 will have to fork out an extra £1,292.

Laura Suter, head of personal finance at AJ Bell, said: "While it’s a nifty way for the government to raise money, the cumulative effect of the freeze means people are seeing their tax bills rise dramatically when compared to a system in which thresholds had increased by inflation each year."

Test your Autumn Budget knowledge

As taxpayers digest what the announcements will mean for them, Rachel Reeves and Keir Starmer have been defending the tax-raising Autumn Budget.

Starmer told Sky News today: “We kept to our manifesto in terms of what we promised but I accept the challenge that we've asked everybody to contribute."

The prime minister said the Budget measures would help protect the NHS, put money into schools and bear down on the cost of living.

From tax threshold freezes to a cut to up-front tax relief on VCT investments, how closely were you following the headlines?

Test your knowledge by taking part in our Autumn Budget quiz.

That concludes our live coverage of the Budget – one of the most eventful we can remember. We will continue unpacking what the Budget will mean for you, so keep a close eye on the MoneyWeek website. Sign up to the MoneyWeek newsletter to get the top stories delivered directly to your inbox.

Thank you for joining us.

Speculating about what will be in this year’s Budget is fairly pointless, not least because the plans clearly change every few days. But the persistent chatter that the chancellor would like to coerce or persuade private investors to hold a minimum level of UK stocks in their individual savings accounts (ISAs) is worth a brief thought. To declare my bias, I think this idea is daft and not just because of the headache of deciding what’s British enough. International miner Anglo American after it moves its headquarters to Canada? An investment trust with half its assets in Asia? An exchange traded fund that tracks the S&P 500? The ISA rules are already full of nonsense – we don’t need any more.

The idea that ISA tax relief should be a quid pro quo for investing in British stocks misses the point. ISA and pension tax relief exists to get people to put aside money for their retirement and other needs. That money should be invested according to the balance of risk and reward for each investor. If that means no UK stocks, that is still the right outcome. If the government wants to save the UK market, it should work out why firms don’t want to list and investors don’t want to invest voluntarily, and fix that. Coercion is never going to be a better option than solving the underlying problems.

ISA investors are already heavily invested in the UK stock market

Yet it still raises a good question. What is a neutral level of investment in British stocks? Well, the UK is about 3.5% of the MSCI World index of developed markets. That’s a starting point. However, these indices have their own skews: they are affected by the high valuation of US markets (America is now 73% of the MSCI World) and by restrictions such as free float. For a different perspective, look at equal weight indices, where valuations and free float don’t matter: instead, they broadly reflect the number of stocks in each market and so the number of opportunities available for investment. The MSCI World Equal Weighted index has about 5.5% in the UK (the US is about 41%).

So one way of looking at this is that neutral exposure to the UK is somewhere around 5%. It would be less if we factor in emerging markets, but we get into some complications over access restrictions, so let’s keep this simple.

How much does a typical ISA investor hold? You’d think this would be easy to answer, but it’s not. While HM Revenue & Customs asks ISA managers to report how much is held in different investments, the categories it asks for are a baffling, outdated and overlapping hotchpotch that at no point simply says “UK shares”. However, ISA investors have 23% of their total holdings in UK equities and by inference about a third of their equity holdings in the UK, according to data compiled by the Investment Association and provided to Bloomberg. You can find other figures, but the story is consistent: ISA investors are already overweight the UK. Maybe that makes sense – the UK has held its own against the world ex USA in recent years. But we don’t need to be forced to hold more.

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The 2025 Autumn Budget increased taxes by around £26 billion, according to analysis by the Office for Budget Responsibility (OBR), bringing the tax take to an all-time high of 38% of GDP in 2030/31.

Chancellor Rachel Reeves announced a slew of tax hikes and other measures, impacting taxpayers in the country.

We look at some of the major announcements in the 2025 Autumn Budget.

What taxes were raised in the Budget?

The Budget will mean that a lot of Brits will pay more tax to the government as the years go on, largely thanks to the extension of the freeze to income tax thresholds.

But that’s not the only way that the chancellor is hoping to find cash.

Tax threshold freeze

The chancellor has extended the freeze on income tax thresholds by three years, meaning they will not increase in line with inflation until at least 2031.

This means that as workers’ earnings increase, more of their money will be dragged into higher income tax bands, leading to a higher tax bill.

This process is called fiscal drag and is expected to raise around £8.3 billion in 2029/30 according to the OBR.

Thresholds were already frozen by the previous Conservative government until the 2027/28 tax year, Reeves’s extension will mean workers won’t see tax bands increase with inflation until at least April 2031.

Crackdown on salary sacrificed pension contributions

Pension savers using salary sacrifice to boost their retirement pots will need to pay National Insurance on contributions above £2,000 from April 2029 onwards, the chancellor revealed.

It means all salary-sacrificed pension contributions over £2,000 will be treated in the same way as ordinary employee pension contributions, becoming subject to both employer and employee National Insurance contributions.

The policy is forecast to raise £4.7 billion in 2029/30 and £2.6 billion in 2030/31.

Tax hike for property, savings, and dividend income

Brits who earn an income from their savings interest, dividends, or property will become subject to a two percentage point tax hike from April 2026 onwards.

From 2026-27, tax on dividends will rise to 10.75% for basic rate taxpayers, and 35.75% for higher rate taxpayers. The tax on additional rate taxpayers will not change – remaining at 39.35%. The OBR estimates this to raise £1.2 billion a year on average from 2027-28.

From April 2027, the amount you are taxed on your savings interest income will increase to 22% for basic rate taxpayers, 42% for higher rate payers, and 47% for additional rate payers. This is estimated to bring in £0.5 billion a year on average from 2028-29.

Finally, people who earn property income will also see a two percentage point increase in how much they are taxed, rising to 22% for basic rate taxpayers, 42% for higher rate payers, and 47% for additional rate payers. This is estimated to yield £0.5 billion a year on average from 2028-29.

New per mile electric vehicle tax

Drivers of electric vehicles (EVs) will be subject to a new tax from April 2028 onwards, bringing their tax burden closer in line with that of petrol and diesel vehicle drivers.

EV drivers will have to pay a new charge of 3p per mile driven for fully electric vehicles, and 1.5p for plug-in hybrid vehicles. The rate will increase annually in line with inflation, as measured by the consumer price index (CPI).

The average driver of a battery car, driving 8,500 miles can expect to be charged around £255 a year. This is roughly half the rate of fuel duty paid per mile for petrol and diesel vehicles.

The OBR estimates the new levy will raise £1.1 billion in 2028-29, rising to £1.9 billion in 2030-31.

‘Mansion tax’

A new council tax surcharge that targets properties valued over £2 million was announced in the Budget, costing homeowners between £2,500 and £7,500 a year depending on the value of their home.

Dubbed a ‘mansion tax’, the measure is expected to raise £0.4 billion in 2029-30 and will be in force from April 2028.

Cash ISA cut

While not technically a tax hike, the chancellor announced she will cut the amount under-65s can save in a cash ISA each year.

From April 2027, the cash ISA limit will be £12,000 per tax year. To take advantage of the full £20,000 allowance, savers will have to put the rest into stocks and shares.

Older savers will be spared this new restriction, however. Over 65s will see no change and keep the full £20,000 cash allowance.

Fuel duty to be frozen until September, then increase

Fuel duty will be frozen again for the 16th year in a row, until April 2026.

From April 2026 onwards, the 5p cut to fuel duty introduced by Rishi Sunak in 2022 will be reversed through a staggered approach. From April 2027, fuel duty rates will then be increased annually in line with RPI.

Gambling tax reform

The government is set to raise £1.1 billion by 2029/30 through several changes to gambling duties.

From April 2026 the remote gambling duty will rise from 21% to 40% and from April 2027 a new rate for general betting duty for remote betting will be introduced at 25%. Casino gaming duty bands will also be frozen in 2026/27.

What other policies were announced?

Two-child benefit cap scrapped

The two-child benefit cap was removed in the Budget, at an expected cost of around £3 billion, according to the OBR.

Removing the policy, which means parents can only claim Universal Credit or tax credits for their first two children, is forecast by the IFS to take 630,000 children out of absolute poverty immediately.

Energy bills to be cut by £150

Energy bills will be cut by an average of £150 from April 2026 onwards, the chancellor has said.

The savings will be made by removing the previous government’s “Eco scheme”, a levy placed on energy bills to fund green initiatives.

Electric vehicle grant extension

Offsetting some of the pain caused by the new 3p per mile levy on electric vehicles, the UK’s electric car grant is set to be extended until 2030.

The grant currently subsidises the price of a new EV by between £1,500 and £3,750 depending on the model.

Minimum wage to rise

The minimum wage has been increased, boosting the paychecks of around 2.4 million low-paid workers.

From April 2026, the national living wage will rise by 4.1% to £12.71 per hour for workers over 21.

The national minimum wage will rise by 8.5% to £10.85 per hour for workers between 18 and 20, and by 6% to £8 per hour for apprentices aged between 16 and 17.

Rail fare freeze

The government has confirmed all regulated rail fares, including season tickets, peak returns, and off–peak returns, will remain at their current level.

The Treasury estimates a rail fare freeze will save commuters on more expensive routes over £300 a year, assuming they commute three days a week. Without a freeze, rail fares were set to increase by 5.8% in 2026.

State pension set to rise

Retirees on the full new state pension are set to receive an extra £550 a year, £120 more than if it had been uprated by inflation.

The uplift comes thanks to the triple lock which guarantees the state pension will rise by the highest of three metrics: inflation, earnings growth, or 2.5%.

Class 2 National Insurance contributions abolished for people living abroad

The government is removing access to the cheapest Class 2 Voluntary National Insurance contributions (VNICs) for individuals living abroad and increasing the initial residency or contributions requirement for VNICs to 10 years.

It means that people who lived in the UK for just a brief period of time will no longer be able to effectively buy themselves a UK state pension.

Prescriptions will be kept under £10

The chancellor announced the freeze on NHS prescription charges in England will continue into 2026, meaning the cost of a single prescription will be kept at £9.90.

The Treasury says the policy will save patients around £12 million next year.

Help to Save to be made permanent

The Help to Save scheme, which boosts the savings of 4.5 million low earners by 50%, will be made permanent from 2028.

The scheme allows eligible savers to get a £1,200 government bonus – a 50% boost on the maximum amount they can save – over four years, helping those on low incomes build a financial buffer. It was supposed to end in 2027.

Student loan support for care leavers

All care leavers will be entitled to student maintenance loans of up to £13,500 each academic year, the maximum loan amount available, no matter their financial situation.

New neighbourhood health centres

The government will open 250 new ‘Neighbourhood Health Centres’, local buildings that bring together GPs, nurses, dentists and pharmacists together under one roof.

New centres will be first built in the most deprived areas in a bid to improve healthcare access and drive down NHS waiting lists.

NHS technology upgrades

The chancellor announced £300 million of new capital investment that will go into supporting and developing NHS technology.

The government hopes the investment will boost productivity and lower the amount of time NHS workers spend on administrative tasks.

Playground makeovers

200 playgrounds across England will receive a combined £18 million for government-funded makeovers to encourage children to play outside and boost their health and wellbeing.

Boost to school libraries

All secondary schools in England will receive around £1,400 to refresh their libraries, at a total cost to the Treasury of £5 million. It’s hoped the move will incentivise children to read books instead of looking at their phones.

Hundreds more planners to be hired

The government is set to employ 350 more planners (at a cost of £48 million) to help support the government’s commitment to build 1.5 million homes before the next parliament. Savills currently estimates the government will fall short of the building target.

Benefit fraud crackdown

The chancellor expects to claw back £1.2 billion from incorrect Universal Credit (UC) payments by extending the government’s Targeted Case Review, which roots out inaccuracies in UC claims.

The expected savings from the scheme are forecast by the Treasury to be £9.6 billion by 2031.

Longstanding gifting rules used as a way to avoid inheritance tax could be under threat in next week’s Budget. Those at risk of leaving their loved ones an inheritance tax bill are being encouraged to review their finances and consider giving money away now where it makes sense for them.

More than one in every 10 retired people (15%) said changes to inheritance tax is their biggest Budget fear, according to a survey of 2,000 people for wealth firm Hargreaves Lansdown in October.

Since the summer, rumours have been swirling that inheritance tax (IHT) could once again be a target. One way chancellor Rachel Reeves could potentially increase IHT receipts is by raising the taxes on giving money away – known as gifting – it has been speculated.

However it is unlikely any Budget tax rises, if they do happen, would be put into practice before the new tax year in April 2026, so those considering making gifts likely still have time to look over their finances, review their options and potentially reduce their inheritance tax bill.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Sensible gifts can help support younger family members at a time when you’re still around to see them make the most of the money. It also gives you more control over how gifts are given – as well as cutting a potential inheritance tax bill.

“However, you need to consider it carefully. Giving away too much, too soon, can end up doing more harm than good if you don’t have enough money to fall back on later in retirement.”

How could inheritance tax gifting rules change in the Budget?

Lifetime gifts

At the moment, you can give gifts of any size and, as long as you live for seven years after making the gift, it falls out of your estate for inheritance tax purposes – known as the seven year rule. But the government is said to have been looking at limiting the total value of these one-off gifts people can make during their lifetime.

Taper relief

Taper relief, which applies if you give away more than the inheritance tax threshold of £325,000 – also known as your nil rate band – before you die, but die within seven years, could also be curtailed. Taper relief means the rate of inheritance tax your loved ones pay on the gift you give them gradually falls between three and seven years after giving the gift, cutting your tax bill.

Extending the seven year rule

Increasing the period you have to live after making a gift in order for it to leave your estate is another option open to the government. If it rose to ten years it would make tax planning more difficult, and drag more people back into paying inheritance tax.

Changing gifts from surplus income rules

The government could revisit annual allowances as well as rules that mean regular gifts can be made from income. However, the fact the annual gift allowance – £3,000 per gift, per recipient – has remained frozen for decades means allowances aren’t as generous as they once were, which would limit how much extra revenue this would bring in.

How can I use gifting rules to avoid IHT now?

When done properly, gifting can allow you to make payments to family or friends without those payments being subject to inheritance tax.

David Lunn, partner in the private client team at TWM Solicitors, said: “Taking professional advice when considering gifting can yield significant benefits, particularly where larger sums are involved. You may be able to gift more than you initially thought and make savings.

“On the other hand, rushing through without planning is a dangerous game which is not recommended.”

As the chancellor is reducing the value of inheritance exemptions under Agricultural Property Relief and Business Property Relief from next April, gifting has become increasingly important as a way of reducing IHT.

TWM Solicitors, a private wealth and family law firm, highlights five things about gifting to consider before the Budget on 26 November.

1. Keep good records of gifts

Keep detailed records of any gifts you give, as this will greatly help the executor of a will. Executors often have to pore over years of bank statements to prove to HMRC that the gifting was done properly, so a failure to keep adequate records could lead to a lot of additional administration and detective work, causing delays. Good record keeping can save time, money and tax.

2. Do not give away too much…

People need to think carefully about how much money they will need towards the end of their lives. If you have too much, it will be subject to IHT. On the other hand, giving away too much comes with risks.

For example, if you need significant social care in the future and are unable to fund it from what you retain, your local authority might determine that you intentionally gave away your assets to avoid paying care fees. If so, it will treat you as if you still had said assets. This would place the burden on those who received the gifts or your heirs and, if they do not pay up, it could leave you needing care with nobody able and willing to pay for it.

3. …But don’t ‘under gift’ either

In TWM’s experience, the people who are likely to get caught out by inheritance tax, out of caution, keep too much money in their estate. By retaining more money than they need, they will leave heirs with a bigger IHT bill than necessary.

For example people often overestimate how much they will have to pay for a care home and their likely longevity. People also often forget that the cost of a care home need not be funded entirely out of capital – if you have a healthy income, this can go a long way towards meeting care fees. That being the case, TWM said individuals should consider gifting money to their loved ones earlier in life.

There are several different tax-free gift allowances that people are failing to make maximum use of:

• These include the £3,000 annual exemption, which, if you do not use it in a given year, can be rolled over once to the following year to make £6,000.
• Others include making wedding gifts of £5,000 per child, £2,000 per grandchild and £1,000 for anyone else.
• You are also allowed to make an unlimited number of small gifts of up to £250 per person annually, provided you have not used one of your other gift allowances for that person.

4. Use surplus income wisely

IHT will be applied to lifetime gifts given from your savings or other assets, unless you live for seven years after giving them, or your total chargeable estate is under the IHT threshold. If the money you are gifting is from income you do not need, there is no limit if it is done correctly.

However, this exemption is subject to various rules and procedures, and advice should be taken before proceeding. You may need to prove that the money was surplus to your requirements.

5. Be careful under a power of attorney

If you are acting under a power of attorney on behalf of someone else, your ability to give gifts on their behalf is extremely limited. Beyond that, you must obtain permission from the Court of Protection if you wish to make further gifts. Failing to do so puts you at risk of the court making you take back the gift or your power of attorney being revoked. HMRC may judge your gifts to be invalid and chargeable to IHT.

Bond and equity investors are fundamentally in opposition. A bondholder cares only about receiving their interest and capital; anything that puts that in danger is bad. The ideal borrower might be one that takes your cash, parks it in ultra-safe assets to protect the principal and makes paying the coupons the only priority for its cash flow. There is no upside if the borrower takes risks. In fact, there is not even much value in long-term survival: the borrower can fail due to a lack of investment and the bondholder is still happy if they have been repaid in full.

On the other hand, equity – “the fine sliver of hope between assets and liabilities”, as Russell Napier calls it – hopes to profit from growth in earnings or assets. Shareholders want the company to take some kind of risk because they benefit if that risk pays off. If that might increase the chance that loans aren’t repaid, so be it.

This is well understood by markets. Nobody expects bondholders and shareholders to speak in each others’ interests. Yet when it comes to the public finances, that gets completely lost.

All about the bonds

Today, we hear endless talk about why the chancellor needs to cut spending, raise taxes or both. Look at this through the bond-equity framework, and we can see that this is framed in bondholders’ terms: it’s all about making them feel more secure. The discussion rarely touches on whether borrowing is rising because of current expenditure or long-term investment.

Bond investors could make a very valuable intervention by signalling that borrowing to invest in the infrastructure that Britain needs (with a well-costed plan) would be seen very differently from borrowing to fund profligate current expenditure. Yet most talking points simply boil down to “large deficit = bad”.

This reasoning gets stretched into some bizarre pretzel logic. Raising taxes will slow growth since disposable income will be reduced, we are told approvingly. That may curb inflation and allow interest rates to be lowered, which is good for bonds. Yet the idea that anybody else would want weaker growth in an economy that is clearly not overheating is frankly unhinged.

Equity holders in this scenario are everybody who benefits from a stronger economy and more investment. And this is where long-term consequences of the current mindset look so worrying. Consider the visible deterioration in physical and social infrastructure in Britain. Failure to fix this because the government is cowed by the self-important bond vigilantes will open the door further to populist parties.

At present, UK 10-year gilts yield 4.4%. This is not high by past standards: it only feels high because of 15 years of ultra-low rate policy. True, it is high enough that rising interest costs puts even more strain on public finances, which makes the challenge even greater. But what compensation does it offer for, say, the inflationary risk of a future government in five years’ time with a populist mandate to spend and willingness to be radical? Very little.

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The M&S boss, Stuart Machin, has already called it. Presenting his company’s results last week, he warned that his affluent, but hardly mega-rich, customers were already worrying about the tax rises chancellor Rachel Reeves has made clear will have to be imposed in the Budget later this month and are already cutting back on spending.

We don’t know how much the rise will be yet. But it seems clear that Reeves is going to break her manifesto pledge and raise income tax in the Budget late this month. In a very odd address from Downing Street last week, she prepared the ground for that by blaming the mess she inherited for the deteriorating state of the public finances. Leaks from the Treasury suggest the decision has already been made. Reeves will be the first chancellor since Denis Healey in the 1970s to put up the basic rate, and that will hit all the UK’s 34 million employees.

We can all debate whether that is politically viable, or whether the choice to raise income tax is better than the alternatives (my view is that, while it would be preferable to control spending, if the government can’t do that, then raising income tax will do less damage to the economy than lots more levies on business and “the rich”). But there is a far more significant question. What impact will a rise of, say, 2% in the basic rate of income tax have on the wider economy?

Unfortunately, it is not going to be good. First, and most obviously, it will hit demand. People will have less take-home pay every month, and that will inevitably mean they will have to cut back on their spending. Demand is already very weak, and while retail sales managed a 0.5% rise this month, footfall on the high street has been falling for six months. After a tax rise, it will fall even further. Even worse, everyone will expect taxes to rise in the next Budget as well, and the one after that. Consumers will have to save more and spend less to protect themselves from rising taxes, and that means that demand will keep on falling and the economy will start to shrink.

Income tax is a tax on working

Next, it will damage incentives to work. Britain already has a huge problem with the number of people who have simply given up on work. There are currently more than nine million people of working age who don’t have any form of employment. Of those, a few are students, and some have taken early retirement, but 7.4 million are on disability benefits. There are another 1.7 million people who are unemployed, taking the total close to 11 million. The welfare bill is already more than $300 billion a year, putting a huge strain on the public finances. One of the government’s major challenges will be getting many of those people back to work.

And yet, if people face higher marginal rates of tax as soon as they take a job, that will inevitably be more difficult. Indeed, plenty more people might decide sickness benefits are a better option. Higher up the income scale, if the top rates rise to 42% and 47%, as they almost certainly will, we should expect more people to opt for early retirement, or to scale back on their hours if they are self-employed. After all, income tax is a tax on working, and the more we tax it, the less we can expect.

Finally, it will damage investment as companies anticipate weaker sales. If overall demand is falling, and looks like it will remain subdued as taxes carry on rising, and if labour is scarce as more and more people decide to leave the labour market, then there is very little incentive to open up new shops, cafes, warehouses or factories. It does not hit business as directly as a rise in corporation tax, or as last year’s increase in the rate of national insurance that businesses are charged on everyone they employ. But that does not mean there is no impact. It makes the UK an even less attractive place to invest than it already is.

The only real fix for the UK’s economic stagnation is to reduce the size of the state and make what remains more efficient. Raising income tax might keep the bond markets happy. But it won’t do anything for longer-term stability, nor will it restore confidence. The economy is already flat – a tax rise will push it into recession.

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The Autumn Budget is fast approaching, and speculation is building over which taxes chancellor Rachel Reeves will target to raise revenue and fill the estimated £22 billion government shortfall.

Speculation had been rife that Reeves could break a key election pledge and raise income tax. Plans to do so appear to have been scrapped, ostensibly following estimates that the fiscal black hole is £10 billion smaller than previously thought.

The U-turn shifts the Treasury’s focus towards other measures such as scrapping pension salary sacrifice, cutting pensions tax-free cash, or overhauling property taxes.

Budget day – 26 November – is just days away and will reveal more about specific tax rises.

“It’s reasonable to think that there’s going to be tweaks on things like capital gains tax (CGT) and on property taxes,” said Ken Wotton, lead manager of Strategic Equity Capital.

But what impact will the Budget could have on inflation and interest rates - and what does it mean for your portfolio?

How could the Autumn Budget affect UK inflation?

There’s speculation the chancellor could scrap VAT on energy bills, which would give households struggling with the cost of living some breathing space. It would also have the twin advantage of bringing down inflation, which fell to 3.6% in the year to October.

Ruth Gregory, deputy chief UK economist at the consultancy Capital Economics, comments: “We think the Budget is more likely to lower inflation than raise it. The chancellor has suggested she will avoid raising taxes that directly boost inflation. Scrapping VAT on utilities would subtract 0.2 percentage points from CPI inflation for 12 months.

“And by weakening the economy, the fiscal tightening will pull down on inflation in the medium term.”

John Wyn-Evans, head of market analysis at the wealth manager Rathbones, agrees that removing VAT from energy bills would ease inflationary pressures.

He adds: “Any offsetting tax rises - such as higher income taxes or further freezes to tax thresholds - could dampen household spending power, indirectly supporting the inflation downtrend. Overall, the Budget is unlikely to reignite inflation and may even help bring it down further if fiscal tightening outweighs any stimulative measures.”

Thomas Pugh, chief economist at tax and consulting firm RSM UK, comments: “It seems like the chancellor wants to avoid a repeat of last year’s policy-induced inflation. To do that she will have to focus on taxes like on income and property, and stay away from big increases in duties, employers’ National Insurance contributions (NICs) and VAT.”

How could the Autumn Budget affect UK interest rates?

Many people, especially first-time buyers and those remortgaging, will be hoping that the Bank of England will cut interest rates soon, and that mortgage rates will follow suit.

On 6 November, the Bank held rates at 4%, as widely expected. But, rates could be cut soon, depending on the contents of the Autumn Budget.

Wyn-Evans tells MoneyWeek: “With inflation cooling, the Bank of England will have more room to consider interest rate cuts. If the Budget is perceived as fiscally responsible - focusing on tax rises or spending restraint rather than giveaways - it could reinforce expectations of lower rates.

“However, any signs of fiscal slippage or overly optimistic growth assumptions could have the opposite effect, pushing up borrowing costs.”

Pugh notes that if the budget is as deflationary as the chancellor has hinted at, “it does raise the chances of a rate cut in December”.

Check out the next dates for Bank of England base rate meetings.

Robert Salter, director of the accountancy firm Blick Rothenberg, says it’s not clear the Budget will lead to any drop in the base rate in the short term.

He tells MoneyWeek: “If Reeves were to raise any of the ‘sales-based taxes’ – particularly VAT, but also fuel duty or alcohol and tobacco duties - significantly in the Budget, those changes would actually feed through into inflation and potentially make it more difficult for the Bank of England’s monetary committee to reduce interest rates in the coming months.”

How could the Autumn Budget affect the UK economy?

Capital Economics is expecting a bumper Autumn Budget full of tax hikes worth about £38 billion, “which will trim GDP growth”.

Gregory says: “Such tax rises would be almost as big as Reeves’ first Budget when taxes rose by £41.5 billion. These two Budgets would be the biggest tax haul at successive major fiscal events since Denis Healey’s Budgets in 1974-1976.”

So, what does this mean for economic growth? Capital Economics suggests that the net fiscal tightening could reduce its GDP forecast by 0.3% in total, with 0.2% of that hit occurring in 2026.

“That’s unlikely to trigger a recession, but it might mean that instead of growing by 1.2% next year, GDP rises by 1%. The damage would be bigger if consumer confidence plunges, the policies hit households all at once, or if many minor taxes are raised rather than a few big ones,” explains Gregory.

The Office for Budget Responsibility is expected to downgrade long-term growth forecasts at the Budget due to weak productivity. The forecasts could fall from between 1.7% and 1.9% for annual GDP growth between 2026 and 2029 to a range of 1.2% to 1.4%, according to Capital Economics.

Salter points out a couple of ways the Budget could potentially affect economic growth.

He says the rumours in the long lead-up to the Budget are causing some companies to postpone business investment decisions and hiring additional staff. “Hopefully, however, these are only temporary blips and these decisions can come back ‘online’ once the Budget has been announced and employers actually have a clearer understanding of the government’s plans for both taxes and the wider economy.”

This, in turn, could boost UK growth.

On the flipside, the possible introduction of an “exit tax” – whereby wealthier taxpayers could be liable to a UK tax charge on unrealised capital assets if they become non-UK tax resident – has encouraged some wealthier taxpayers to leave the UK prior to the Budget in an attempt to avoid any such possible charge, says Salter.

“Those individuals who are doing this are often quite wealthy entrepreneurs and business owners. Hence, there is a real risk that if they do emigrate, they cease to continue investing in their UK business operations. Needless to say, any such developments would undermine the UK economy and the government’s stated goal of ‘going for growth’ from an economic perspective,” he points out.

What could the Autumn Budget mean for investors?

So, the Autumn Budget could potentially open the door to interest rate cuts, but may also act as a headwind for growth.

But, what does it mean for financial markets and for investors?

Wyn-Evans points out that the FTSE 100 is less sensitive to domestic policy, given its global earnings base, so may not be particularly impacted by the Budget.

“However, the pound, government bonds, and smaller UK-focused companies will react more directly. A credible Budget that reassures investors about the UK’s fiscal path could be a ‘clearing event’ for sentiment, potentially supporting equities and gilts,” he says.

Wotton also thinks that UK equities could see a relief rally if the Budget turns out to be better than expected.

“Sentiment around what’s coming [in the Budget] is really very negative,” he said. “The temperature checking with company management teams that I talk to is extremely negative, particularly people in consumer-facing sectors… the expectations are very low.

“So actually, if things don’t come in any worse, and maybe if there is a sprinkling of positive measures to support the stock market or investing… that might prove to be a positive catalyst for the stock market.”

Gregory predicts that gilt yields and the pound are more likely to fall rather than rise after the Budget for three reasons.

“First, if the Budget weighs on GDP and inflation as we expect, that could reduce market interest rate expectations and weigh on gilt yields and sterling. Second, a bigger amount of headroom and a smaller budget deficit would be viewed positively by investors," she says.

“Third, immediate tax hikes would be more credible than spending cuts that look politically unachievable or are so far in the future that they are unlikely to materialise.”

Of all types of investment, Wotton believes that property is the most potentially exposed to the impact of the Budget.

“You’ve got potentially a higher cost of [property] ownership,” he says. The housing market has already stalled in anticipation of the Budget, so property tax increases could further dampen this momentum.

Higher earners could be left with pension pots £50,000 or more smaller under plans believed to be under consideration by Chancellor Rachel Reeves in her upcoming Budget, according to analysis.

Reform of salary sacrifice pension schemes is being heavily tipped as one way Reeves will seek to boost the public finances in the Budget on 26 November.

Salary sacrifice for pensions – also known as salary exchange – is where an employee gives up a portion of their salary in return for their employer paying an equivalent amount into their pension. There is a National Insurance Contribution (NIC) saving to both employees and employers from this arrangement, which costs the Treasury around £4 billion a year.

Around a third of private sector employees make use of salary sacrifice arrangements, and almost 10% of public sector workers do so too, according to government figures.

Initially an all-out ban on using salary sacrifice was thought to be under consideration by the chancellor. However recent rumours have suggested a preferred option on the table is a £2,000 cap on the amount of earnings that can be exchanged for pension contributions that benefit from a National Insurance exemption.

Charlene Young, senior pensions and savings expert at AJ Bell, said: “Introducing the cap could reportedly raise up to £2 billion a year, but it also runs the risk of savers having less in their pension pots when they reach retirement.”

AJ Bell’s analysis showed that someone aged 35 earning £50,000 a year could face a hole in their pension of £22,060 by age 65 under plans to cap salary sacrifice. This assumes they already have a pension fund of £30,000 and save an overall contribution of 5% personally, with another 3% coming from their employer.

The black hole rises to over £37,000 or even nearly £50,000 if they are already a higher earner on £75,000 or £100,000 respectively, based on the same assumptions.

“Although clamping down on salary sacrifice isn’t an explicit tax rise, many employees will see less in their pay packets and ultimately their pension pots too,” said Young.

“A £2,000 cap means someone earning £40,000 now and making the 5% employee minimum contribution across all their earnings would be caught. And those diligently saving more than the current minimum would see more of their pension contributions subject to NI deductions, including some lower earners,” she added.

Employers faced with the added admin of policing a cap versus the current system might even decide to close their salary sacrifice schemes completely as a result of such a policy.

“In those circumstances, the dent in the pension pots of employees could be even higher than predicted – not an ideal message for a government supposedly committed to improving pensions adequacy and boosting the long-term saving prospects of the nation,” Young said.

How likely are changes to salary sacrifice pensions?

Earlier this year, research into salary sacrifice commissioned by HMRC led to some speculation the government may seek to make savings by abolishing or reforming salary sacrifice for pension contributions, with an announcement potentially in the Budget.

But the removal or closure of these schemes to save the Treasury money would “cause confusion, reduce benefits to employees, and disincentivise pension savings”, the Society of Pension Professionals (SPP) has said in a letter to all 650 MPs – including chancellor Rachel Reeves.

Changing salary sacrifice arrangements would lead to a reduction in take home pay for any employees currently making use of these arrangements – unless they reduced their pension contributions too, the Society of Pension Professionals has said.

Steve Hitchiner, chair of SPP’s tax group, said: “Changing salary sacrifice arrangements would lead to a reduction in take home pay for millions of employees who are saving into a workplace pension.”

“It would also represent another sizeable cost to employers, despite the chancellor’s public commitment against this, and would undermine the critical role that employers play in supporting and promoting good quality pension saving vehicles.”

How does salary sacrifice work?

Salary sacrifice for pensions works by an employee exchanging some of their salary in return for their employer paying the same amount into their pension.

While funded by the employee, these contributions are treated as employer pension contributions for income tax and National Insurance purposes. This means pension salary sacrifice normally leads to savings in both the employee and employer NICs.

This is because NICs are not due on employer pension contributions, whereas employee pension contributions are made after the deduction of National Insurance.

AJ Bell gave the example of Sally who earns £55,000 and wants to make higher personal contributions to her workplace pension of 10% a year. Her employer has offered her salary sacrifice as an option. The table shows the impact with and without salary sacrifice.

“As well as Sally’s own savings, her employer also saves employer NI on the £5,500 pay sacrificed, an extra £825 for the year,” Young pointed out.

However, many employers share their NIC savings with their employees, meaning more is added to their pension, and salary sacrifice also allows employees to pay higher pension contributions for the same net pay.

While salary sacrifice helps workers save up to 8% employee National Insurance (NI) on the cost of their pension contributions, the savings on offer are bigger for employers – as employer NI of 15% would’ve been payable on the amount of pay that is sacrificed.

The Society of Pension Professionals pointed out that while there is a £4 billion cost to the government in providing salary sacrifice arrangements – £1.2 billion for employees and £2.9 billion for employers – there is also “widespread recognition that this is a positive investment that incentivises pension saving”.

Martin Willis, partner at pension firm Barnett Waddingham, said: “Rumours are again circling about changes to, or the scrapping of, salary sacrifice. While this could help the government recover National Insurance revenue, in practice it would be highly disruptive, complex, and introduce additional cost pressures for employers.

“Previous suggestions of a cap on salary sacrifice may help protect middle earners, but in reality this could add complexity while still squeezing employer costs and contribution rates. Alternatively, removing salary sacrifice entirely would hit average earners the hardest, particularly those relying on it to boost their pension savings.

“Policymakers should think very carefully before pursuing reforms that make it harder for ordinary workers to save for retirement.”

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.

“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”.

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.”

Amid all the speculation about how big the “black hole” in the public finances might be, and which taxes will have to go up to fill it, one point is easily missed about the Budget set for next month: that it is likely to be the last one Rachel Reeves delivers. With the economy stagnating, unemployment rising, and the government dropping to 20% or less in many of the opinion polls, and to only 11% in the Caerphilly by-election last week, her position is looking more and more untenable. If prime minister Keir Starmer is ousted, then she will surely go as well. If he survives, Reeves is an easy scapegoat, and she can be reshuffled out of office the next time the government needs a refresh. Either way, Reeves looks finished. Indeed, it is possible she is only still in office so she can deliver deeply unpopular tax rises and will then be replaced soon afterwards.

If she does not have much time left, she should try to secure a legacy. She does not have any money to play with, so she can’t embark on any major spending projects. But there is still plenty she could do. First, announce a cross-party Royal Commission on tax simplification. We can all argue about whether tax should be going up or down. But there is one point everyone can surely agree on. The tax system has become an incoherent mess that is buckling under the weight of its own absurd complexity.

Over the last quarter of a century, the size of the UK’s tax laws has more than tripled, and now runs to a combined 21,000 pages, and more than ten million words. Green levies and sin taxes designed to reward anything the government happens to approve of and punish anything it doesn’t like mean it keeps on getting bigger and bigger. A Royal Commission could redesign the system from the bottom up, with the aim of raising the same amount of total revenue, but doing so in the simplest way possible. If all the major parties contributed to it, it might even have a chance of sticking, and that could be a major improvement.

Rachel Reeves should scrap the maximum wage

Next, fix the 60% tax trap. Of all the anomalies in the UK’s tax system, it is by far the worst. Given that the personal allowance is gradually withdrawn on incomes between £100,0000 and £125,000 a year, it means that as soon as someone goes into a six-figure salary, their marginal tax rate goes up to 60%. If you add in student-loan repayments, which are effectively a tax, it can go up to 70%.

Nearly 700,000 people are already paying that rate, and it has doubled over the last six years. With frozen thresholds, it will go even higher. You don’t have to be a fully signed-up believer in the Laffer curve to agree that a 60% marginal tax rate is a major disincentive. The UK has come close to imposing a maximum wage of £100,000 a year, with many of the brightest, hardest-working people deciding not to bother going above that level. It is crazy. Reeves should set out plans to fix it. She would probably find it raised more money.

Finally, as the first female chancellor, Reeves should do something for women. The one major reform she could make would be to make childcare fully tax-deductible, as it is in many other countries. The soaring costs of getting someone to look after the children mean that many young parents can’t afford to carry on working, and one or other of them has to stay at home instead. In the real world, that is usually the mother. The result? After the break, their careers never catch up. By allowing the cost to be set against tax, it would be far easier for women to stay in work and start a family at the same time.

By any measure, Reeves has been a dreadful chancellor. In opposition, she lectured everyone on her expertise in economics and promised bold reforms that would unlock investment, boost growth and make the UK far more prosperous. Instead, and even with a huge majority, she has squandered the opportunity she was given. It is hard to see her remaining in office for another whole year, especially if inflation stays above 4%, and growth is nonexistent. Even so, she could at least depart with some dignity – by making the long-term reforms that would secure her a meaningful legacy.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

A tax rise that would hit employees, pensioners, landlords and savers could be coming in the Budget after prime minister Keir Starmer seemed hesitant to rule out an income tax hike.

Putting just a penny on the basic rate of income tax in the Autumn Budget would cost more than £1 a day for higher earners, according to analysis by investment platform AJ Bell – equating to up to £377 a year in extra tax, with anyone earning £50,270 or more facing the maximum hit.

It could also raise almost £7 billion next year for the Treasury, according to HMRC estimates.

Laura Suter, director of personal finance at AJ Bell, said: “If the government wanted to change income tax, the most straightforward option would be to add 1p to the basic rate of tax, increasing it from 20% to 21%.”

Asked at Prime Minister’s Questions yesterday if the government would stick to its election manifesto pledge not to raise National Insurance, VAT or income tax, Starmer refused to rule the idea out. He said the government’s plans would be laid out at the Autumn Budget on 26 November.

Starmer’s reluctance to repeat the pledge – which in the summer he had confirmed would remain in place – has given rise to speculation an income tax rise could be on its way.

Will income tax rise in the Budget?

The government is faced with the issue of having a fiscal hole to fill and needing to raise money to do so. With an estimated shortfall ranging from £50 billion (according to independent think tank the National Institute of Economic and Social Research) and £27 billion according to analysts at KPMG, it’s not going to be an easy gap to plug.

“While tinkering with other taxes may raise small amounts here and there, an increase to income tax raises a big chunk of money in one move – approximately £7 billion by the government’s own estimates,” said Suter.

While Starmer’s seeming reluctance to stand by his party’s pledge not to raise tax on ‘working people’ has given rise to the latest rumours about hikes, reports elsewhere have suggested the government is seeking to use a new definition of working people to get around the pledge.

According to Sky News, the broadcaster has obtained an internal description of ‘working people’ used by the Treasury, in which officials have reportedly been tasked with protecting the income of the lower two-thirds of working people.

While this means people earning more than around £46,000 could potentially be targeted for tax rises in the Budget, this is likely to rule out increases to the basic rate of income tax and National Insurance, since people earning less than that would pay more tax.

The Treasury declined to comment on the speculation. But a Treasury spokesperson told MoneyWeek: “The chancellor has been clear that in the Budget she will strike the right balance between making sure we have enough money to fund our public services and ensuring we can bring growth and investment to businesses.”

How much would a 1p rise in income tax cost?

Adding 1p to the basic rate of income tax would cost someone on an average income of £35,000 another £224 a year. Taxpayers with an income of £50,270 would incur the maximum £377 increase.

Source: AJ Bell. Annual income tax bill based on income taxpayers with the standard personal allowance. Rounded to the nearest £1. Those with earnings over £100,000 would be hit by the additional cost of the loss of personal allowance.

While hiking the basic rate of income tax would hit every income taxpayer in the UK, a more nuclear option would be to add one percentage point onto all income tax rates, also taking the higher rate up to 41% and the additional rate to 46%.

“While it’s possible income tax rates could be hiked across the board, higher and additional rate taxpayers already account for a disproportionate share of the income tax take,” pointed out Suter. “An increase to the basic rate is easier to position as a shared burden since it affects almost all workers, as well as pensioners and some savers.”

Increasing the basic rate to 21% would raise £6.9 billion in the next tax year and £23.4 billion over the next three years, based on HMRC figures. In comparison, hiking the higher rate to 41% would raise £1.6 billion next year and increasing the additional rate to 46% would raise a relatively paltry £145 million in extra tax revenue.

Is there an alternative to raising income tax?

One option put forward by the Resolution Foundation, a think tank, is raising income tax but offsetting the impact on employees with an equivalent cut to National Insurance.

“That would raise overall tax rates for pensioners, landlords, savers and perhaps those with dividend income too, while offsetting the impact on workers,” said Suter.

Given the manifesto pledge focused on workers – a definition the government is struggling itself trying to pin-down – the chancellor may be able to argue this policy raises taxes without breaking the spirit of the pre-election promise.

Chancellor Rachel Reeves is no longer considering cutting the amount of tax-free cash retirees can take from their pension pots, according to reports.

Speculation that pension tax-free cash would be a target in the Budget has been swirling for some months. The Treasury had refused to be drawn on the issue, leaving pension savers nearing retirement worried they may miss out if they didn’t withdraw their 25% before the chancellor stands at the dispatch box on 26 November.

It was thought Reeves had been considering reducing the amount of tax-free cash pensioners can take at retirement to £100,000, following a recommendation by a Labour-aligned group, of which she is a member.

But the chancellor is now no longer entertaining the idea of further limiting the level of tax-free cash retirees can take from their pension, according to a report in the Telegraph citing confirmation from unnamed officials. Moneyweek has contacted the Treasury for comment.

Jamie Jenkins, director of policy at Royal London said: "Royal London has been among many across the industry calling for clarity on tax-free cash, so this is good news. This is undoubtedly one of the most popular and best understood features of pensions, and it was becoming a great source of anxiety among savers."

Most retirees can take 25% of their pension pot tax-free from age 55. But there is a limit – £268,275.

Pension tax rules have been described as currently “too generous and clearly unfair”, in a Fabian Society report which put forward the proposal to lower the limit on pension tax-free cash to £100,000. It said reforms are needed “to address the systematic under-taxing of pensions”, including tax relief.

Cutting tax-free pension cash is a “progressive” policy “that would raise revenue from wealthy older people who have pensions that were historically under-taxed”, the report said.

But its author Andrew Harrop, a former Fabian Society general secretary, admitted the move was unlikely to appear in the Budget due to pushback from critics.

“The chancellor knows the media backlash she could expect. Rich savers nearing retirement would argue that their big untaxed lump sum was part of the pension ‘deal’ on which they had based their plans,” the report said.

Pension tax-free cash withdrawals surged 61% last year in a Budget-related frenzy as over-55s started making a dash for their tax-free cash. However pension experts have been warning retirees not to rush in this time around only to regret their decision later, with wealth firm AJ Bell calculating a retiree could miss out on more than £63,000 in investment returns by taking the tax-free cash too soon. Worse still you could face a 55% tax charge for breaching pension ‘recycling’ rules.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “People may rush to take the money now in the belief that they can reinvest it back into their pension if the change does not happen. However, they risk falling foul of pension recycling rules that will land them with a nasty tax charge.”

What are pension recycling rules?

Some people will have a plan for their tax-free cash – for instance to pay off a mortgage or carry out home renovations. But there will be others who are taking it as a knee-jerk reaction to Budget speculation, and this comes with risks.

HMRC recently clarified that people would not be able to put in a request for their tax-free cash and then cancel it should an announcement not be made in the Budget.

Some people may think they can take the tax-free cash now and then if the change doesn’t happen, just reinvest it back into their pension.

“However, doing this could put you at risk of breaching pension recycling rules which could see you clobbered with a hefty fine of up to 55%,” said Morrissey.

Pension recycling is deemed to have happened when someone has taken their tax-free cash and recycled it into their pension for the purposes of receiving artificially high tax relief.

For pension recycling to have happened, all of the following conditions need to have been met:

• The individual receives tax-free cash from their pension.
• Because of this, the amount of contributions paid into the pension scheme is significantly greater than it otherwise would be. HMRC will look at contributions in the tax year the tax-free cash is taken and the two tax years either side to determine this.
• The additional contributions are made by the individual or by someone else, such as an employer.
• The recycling was pre-planned. This is something that HMRC needs to establish, and it can prove very tricky. This planning must have happened either before or at the time the tax-free cash was taken, not after.
• The amount of tax-free cash, taken together with any other such lump sums taken in the previous 12-month period, exceeds £7,500.
• The cumulative amount of the additional contributions exceeds 30% of the tax-free cash.

The pre-planning condition is the area that causes the most confusion, said Morrissey. “It has to be proven that you planned to use your tax-free cash either directly or indirectly to boost your pension contribution to get extra tax relief.”

An example here could be taking out a loan to pay the increased contribution and then using your tax-free cash to repay it. HMRC says that each case is to be decided on its own merits so it’s difficult to outline cases that would definitely result in HMRC saying pre-planning hadn’t taken place.

In theory people can continue funding their pension without needing to worry about falling foul of the recycling rules provided not all of the above conditions are met.

However, it’s extremely complex. “People should consider speaking to a financial adviser if they wish to continue contributing to their pension to make sure they don’t inadvertently break the rules,” said Morrissey.

When Beauty Tech Group made its debut on the stock exchange earlier this month, it was a welcome boost for the UK market, which has struggled to attract new issues in recent times. The £300 million listing was also a big win for venture-capital trusts (VCTs) – three VCTs run by Mercia Fund Management were among the first investors to recognise Beauty Tech’s potential, taking stakes in the company in 2018 when it had annual sales of less than £1 million and was still losing money. Beauty Tech follows in the footsteps of other VCT success stories, including Zoopla, Gousto and Virgin Wines.

VCTs were launched 30 years ago this year by the then chancellor Ken Clarke with a mandate to encourage investment in early-stage British businesses. Clarke’s view was that investors needed encouragement to risk their money in these small and immature companies, where the danger of failure is a very real one. He therefore legislated for the launch of VCTs – collective funds that build portfolios of such companies, but offer a series of generous tax reliefs to compensate for the additional risk, providing some downside protection in the event of losses. Successive chancellors have fiddled with the reliefs along the way, but the basic premise has been maintained. Today, investors who buy new VCT shares get 30% upfront income tax relief – so a £10,000 investment, say, costs only £7,000 – and enjoy tax-free dividends with no capital-gains tax to pay on profits. In addition, you can put up to £200,000 a year into VCT shares – far more than you’re allowed to invest in other tax-efficient wrappers, such as private pensions and individual savings accounts (ISAs).

The critical phrase is “new VCT shares”. While shares in VCTs are listed on the stock market, providing useful liquidity for investors who need to sell, it’s only subscriptions for new shares that attract the 30% income-tax break; investors must also hold on to the shares for at least five years, or face demands to repay the relief. In practice, this means that VCT managers offer new shares each tax year – either by launching new funds, or through additional fund-raisings for existing vehicles. This tax year about 20 VCTs have launched new share issues, or signalled that fund-raisings are imminent – and Alex Davies, the founder of investment platform Wealth Club, thinks this is just the beginning. “With the launch of the big name VCTs, such as Northern and British Smaller Companies, VCT season has only just begun,” Davies says. “So far, demand looks robust, with these VCTs respectively raising £12 million and £18 million in their first days of opening. With signs of life in the initial public offering (IPO) markets, which should be good for VCT exits, and further tax rises likely in the Budget, this year should see another year of healthy demand for VCTs.”

The Budget reference is a significant one. In recent years, VCTs have captured investors’ attention in an environment where other tax-advantageous savings schemes have been squeezed. Reduced private-pension contribution allowances for wealthier savers, for example, appear to have boosted the sector. The move to make unused pension assets subject to inheritance tax is also piquing interest in VCTs; although they offer no inheritance-tax benefits of their own, the funds are subject to fewer withdrawal restrictions than pension products and are hence useful for financial planning. Demand has boomed accordingly. “Despite a difficult economic background, the 2024/2025 tax year was the third-best year for VCT fundraising,” says Annabel Brodie-Smith, communications director of the Association of Investment Companies. “In the current environment, dominated by daily headlines about the need to raise taxes, it’s not surprising that VCTs remain a favoured investment for those who want to back growing UK companies while reducing their tax bill.”

Are VCTs right for you?

Last year’s VCT fund-raisings totalled £845 million, some way behind the £1.13 billion and £1.08 billion achieved by the sector in 2021-2022 and 2022-2023 respectively. Nonetheless, Chris Lewis, chair of the VCT Association, says the scale of the figure reflects widespread support for the sector. “More than ever, we see entrepreneurs, investors and policymakers aligned on the need to support the high-growth, high-potential firms backed by VCTs.” Clearly, this year’s VCT managers spy an opportunity given speculation about more tax rises to come in next month’s Budget. Several are even offering discounted fees to early birds. But while it’s true that the most popular VCTs tend to sell out relatively quickly – funds limit the amount they raise so that managers aren’t left scrambling to find enough attractive small businesses in which to invest – advisers urge investors to be cautious. VCTs aren’t suitable for everyone. They’re generally a better fit for those who have already made good use of private pension and ISA reliefs – and you’ll need to be comfortable with risk and volatility.

Even if you’re relaxed about risk, a question mark remains. The average fund has delivered a 53% total share-price return over the past decade. While the effective value of that return is boosted by the upfront tax relief, it’s worth putting it into context. The average investment trust investing in UK-listed companies rose 112% over the same period; the average investment trust with exposure to global shares delivered 280%. Choosing the right vehicle is critical. Over those 10 years, shareholders in the best-performing VCT enjoyed total share-price returns of 168%; those in the worst performer lost almost 80% of their money.

Many VCT managers are focused on income rather than capital gains. The average VCT yields 6.9%, with managers often structuring their funds so the proceeds from successful exits from portfolio companies can be used to pay dividends. That 6.9%, remember, is tax-free, making the yield look even more attractive given current low interest rates. Still, Ben Yearsley, director of adviser Fairview Investing, worries VCTs may have become victims of their own success. “Too much money has been raised in the past few years and it is chasing too few high-quality companies,” he warns. “I think investors will need to get used to returns in the region of 5% each year and not the 7%-8% seen previously. Is this enough for the risk? You’ll need to make your own mind up, but without the tax breaks, the answer would definitely be no.”

Yearsley also points out that the challenges – and risks – involved with managing VCTs have grown due to recent tweaks in the rules. Most significantly, the funds are usually now banned from investing in any business that has been trading for more than seven years – limiting them to less-mature enterprises at an earlier stage of growth. That’s in addition to restrictions such as investee companies having to be worth less than £15 million and with fewer than 250 employees. VCTs must also invest 80% of funds raised in qualifying assets within three years.

“I’m still not convinced that VCT managers have transitioned totally successfully to the new, more restrictive rules that mean only younger high-growth companies can receive investment,” Yearsley adds. Brodie-Smith is more optimistic. “In a challenging landscape, VCTs are helping to get ambitious businesses off the ground, and many of these will go on to fuel growth in the UK economy,” she argues.

VCT options

It’s also worth pointing out that VCTs come in several different shapes and sizes, with different risk profiles in each case. The largest section of the market is accounted for by generalist VCTs that invest in privately owned qualifying companies in a wide range of sectors, providing some diversification benefits. There are also specialist VCTs, which focus on one sector of the market – technology or healthcare, for example – and are therefore more exposed to the fortunes of a narrow band of businesses. In the third category, Aim VCTs invest in shares issues by companies listed on the junior market. Although Aim constituents are listed companies, rather than privately owned businesses, some still qualify as VCT investments because of their size and age. These Aim VCTs have performed less well, on average, than other VCTs, delivering only 20% over the past 10 years – but with much less variability.

These variations on the theme at least present investors with plenty of options – and the potential to build a portfolio of VCTs over time. It’s a good idea to begin with a base of generalist VCTs, only adding exposure to more specialist vehicles later on. The key is to do plenty of homework first – or to consult an independent financial adviser with expertise in this area. As Budget speculation continues and some VCTs start to fill up, it may be tempting to rush into a decision for fear of losing out at the hands of the chancellor or other investors. But don’t part with your money unless you can build an investment case for doing so that makes sense in the context of your existing portfolio, your financial goals and your attitude to risk. Tax incentives alone aren’t a good enough reason, in isolation, to embrace VCTs.

Three VCTs to consider now

For investors ready to take the plunge into the VCT market, choosing the right vehicle from the 20 or so funds raising money is vital. We asked Alex Davies of Wealth Club to pick his favoured funds for 2025-2026. Here are his three top picks.

Northern VCTs: “These long-standing VCTs [manager Mercia is raising money for Northern Venture Trust, Northern 2 VCT and Northern 3 VCT] target more established companies with growth potential. Mercia’s sweet spot is regional businesses – more than half the portfolio is outside London and the southeast – in the healthcare and technology sectors. This is an area where Mercia is getting success after success. The latest example is beauty technology firm Beauty Tech Group, which floated at the start of October at a £300 million valuation.”

British Smaller Companies VCTs: “The British Smaller Companies VCTs [British Smaller Companies VCT and British Smaller Companies VCT 2] target business-services companies – a pretty large pond to fish in. The current catch includes some cracking companies, such as financial adviser review platform Unbiased, which is expanding rapidly in the US, and digital special-effects studio Outpost VFX, which has worked on Captain America and Rings of Power.”

Triple Point Venture VCT: “Triple Point aims to invest earlier in a company’s life than many VCTs. At this stage there’s less competition, resulting in lower valuations and potentially higher returns. It is also higher risk, but the VCT mitigates that by making lots of smaller bets before doubling down on the winners. We think this VCT offers investors a distinctive, well thought out approach – with a manager who is starting to develop an appealing record.”

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Rachel Reeves is reportedly mulling a cut to the cash ISA annual allowance in a bid to encourage savers to put more of their money into the stock market.

The chancellor will deliver the Autumn Budget in the House of Commons on 26 November as she attempts to get the economy back on track.

Among some of the options she’s said to be looking at is a cutting of the cash ISA annual allowance. Currently, the overall ISA allowance is £20,000.

Earlier rumours suggested it could be cut to as low as £4,000 but more recent leaks indicate the limit may be reduced to a more generous £12,000.

However, recent polling revealed a reduction in the allowance would be an unpopular move among Brits.

Cash ISAs are the most widely used type of ISA. In the 2023/24 tax year, 66% of all ISA contributions were to cash ISAs, bringing total cash ISA holdings to £360 billion, according to government figures.

Separate Bank of England data reveals £28.75 billion was deposited into cash ISAs between April and September, up from £28.59 billion over the same six months in 2024.

A recent report put forward at the Treasury Select Committee warned Reeves that not only would cutting the cash ISA allowance discourage more of an investment culture in the UK, it would hurt Brits in other ways.

“Building societies depend on cash ISA savings as a critical funding source for their mortgage lending. If this was reduced, it would mean a less competitive market for financial products and consequently higher prices for consumers,” the report said.

Dame Meg Hillier, chair of the Treasury Select Committee, said: “This is not the right time to cut the cash ISA limit. Instead, the Treasury should focus on ensuring that people are equipped with the necessary information and confidence to make informed investment decisions. Without this, I fear that the chancellor’s attempts to transform the UK’s investment culture simply will not deliver the change she seeks, instead hitting savers and mortgage borrowers.”

The Treasury also highlighted the government’s Leeds Reforms, announced in July, under which banks will send investment opportunities to savers with cash sitting in low-interest accounts for the first time in a bid to highlight the opportunities of investing for consumers who are able to do so.

Under current trends, moving £2,000 from these accounts to stocks and shares could make millions of people over £9,000 better off in 20 years’ time, the government said.

The latest cash ISA rumour is one of several potential reforms to ISAs that could be announced in the Budget.

Earlier this year, the chancellor was reportedly considering imposing a £4,000 or £5,000 annual limit for cash ISAs. Currently, you can save or invest a total of up to £20,000 per year across different ISAs, and you don’t have to pay tax on the interest or investment returns.

The chancellor told the BBC in May she is not looking at reducing the overall ISA limit of £20,000.

In March, Reeves said she was seeking to “get the balance right between cash and equities to earn better returns for savers” and “boost the culture of retail investment” in Britain.

The top cash ISA currently on the market pays 4.55% interest, but well-diversified investments have historically brought higher returns.

At a recent Investment Association dinner, City minister Lucy Rigby said: “Someone who put away £1,000 in a cash ISA every April since 1999 would now hold about £34,000. If they had instead invested in a stocks and shares ISA instead, they could now have around £83,000 – over twice as much.”

Revival of cash ISA limit plans “really disappointing”

Some critics have slammed the idea of cutting the cash ISA limit.

Andrew Gall, head of savings at the Building Societies Association (BSA), which represents 43 UK building societies and six credit unions, said it was “really disappointing that the chancellor seems only to be listening to the investment businesses who would benefit from the changes”.

Gall argued that cutting the cash ISA limit will undermine the “brilliant savings product”, make lending more expensive, and will make the ISA system more complex and expensive to administer.

"Starting to save is a crucial part of the journey to investing – undermining cash ISAs risks undermining the very investment culture that we should be trying to build on top of its strong foundations,” he said.

When rumours of a cash ISA limit first circulated earlier this year, the BSA warned building societies use cash ISA deposits to fund mortgages and said a reduction in how much can be saved in one could therefore make lending more expensive.

Kevin Mountford, co-founder of Raisin UK, believes a cut to the cash ISA limit would be a step in the wrong direction by the government.

He said: “At a time when more people than ever are paying tax on their savings interest, restricting access to tax-free cash savings could feel like a step backwards for ordinary households.”

In contrast, investing and trading platform IG said it supports a potential reduction in the cash ISA limit, arguing the product has “not only failed to improve people’s wealth but have steadily eroded it,” and adding that it is “completely incompatible with long-term wealth creation”.

Michael Healy, UK managing director at IG, said: “The chancellor is absolutely right to take aim at this outdated product – and she should go further by abolishing the cash ISA allowance altogether.

“We should not be incentivising or rewarding the hoarding of cash, particularly at a time when our stock market is teetering on the brink through lack of investment. Britain needs more people investing and more money directed towards growth, and abolishing the cash ISA is a sensible place to start.”

Just 12% of Brits are in favour of a reduction to the £20,000 cash ISA allowance, while 48% oppose the change, according to recent polling by AJ Bell.

Increases to income tax are also unpopular among Brits, with 48% saying they’re against rises.

Reeves had been reportedly weighing up raising income taxes but has now U-turned on the plans after receiving better-than-expected economic forecasts from the Office for Budget Responsibility (OBR).

Tom Selby, director of public policy, said: “With an increase to income tax rates now reportedly off the cards, voters will be wary of the raft of other potential tax-raising measures on the table ahead of the Budget.

“However, the fact a cash ISA cut comes in just as unpopular as a hike in income tax rates may give Reeves pause for thought on whether such a move is really a good idea.”

Reeves eyes stocks and shares ISA reform

On top of potential limits to the cash ISA allowance, the Financial Times reported the chancellor is also considering introducing a minimum UK shareholding requirement in the stocks and shares ISA.

If Reeves presses ahead with the proposal, British investors would effectively be forced to put a proportion of their investment portfolios into the UK stock market, eliminating the geographical freedom that is currently available in the stocks and shares ISA.

A requirement to invest a portion of ISA holdings in the UK would provide a boost to the UK stock market, and therefore help stimulate economic growth.

The plans are reminiscent of the previous Conservative government’s scrapped ‘Brit ISA’ plans, which would have allowed investment of an additional £5,000 annually in UK equities.

Reports indicate Reeves is also looking at other measures to direct more ISA holdings into the UK stock market, including a proposal to remove stamp duty from London-listed stocks held within ISAs.

When could a cash ISA limit be introduced?

As mentioned previously, if a reduction in the cash ISA limit is announced, it will likely be in the Autumn Budget.

The Budget is set to be delivered by Reeves in Parliament on 26 November at around 12:30pm. However, if a reform like this is pushed through, it's highly unlikely it will be implemented immediately.

Instead, the earliest a cash ISA limit is likely to be introduced is the start of the next tax year in April 2026.

Will I lose access to my cash already in an ISA?

It is extremely unlikely the government would make any changes to the ISA rules retrospectively. This means any cash savings you already have in an ISA are safe – the chancellor isn’t going to force you to move them into a stocks and shares ISA, or steal them away for the Treasury.

Any reforms to the ISA regime will likely come into play next April 2026 at the earliest, in line with the new tax year.

Over the last couple of weeks, there have been some faint signs that the initial public offering (IPO) market in London is finally coming back to life. The digital bank Shawbrook said on Monday it would list its shares in the UK at a value of around £2 billion. Last week, the food and drinks company Princess Group, which makes Branston’s pickle as well as tinned tuna, said it was considering a listing in London, with a valuation of around £1.5 billion. The Beauty Tech Group made its debut on the market last Friday. And yet, as welcome as that flurry of activity is, it should not distract anyone from the wider picture.

The London market remains in a dire state. A report last week found that it has slipped to 22nd place globally for new equity issues, behind even Mexico and Qatar. The amount of capital raised through IPOs has fallen to its lowest level in 35 years, while the total number of companies listed on the exchange has fallen from close to 2,500 a decade ago to only a little over 1,500 now. Plenty of companies have shifted their listing to the US, others have decided to accept a takeover, and many entrepreneurs building new companies have decided a quote in London is no longer worth either the expense or the hassle. It could get a lot worse. There are already ominous signs that drugs giant AstraZeneca may shift its listing to the US, and BP could easily be taken over by one of its rivals.

Chancellor Rachel Reeves may have realised that something needs to be done. According to leaks, in her Budget next month, alongside the blizzard of tax rises, we may get one modest tax cut. Stamp duty could be scrapped for newly listed firms, or they could be exempted from the levy for two or three years. Investors would be allowed to buy shares without giving 0.5% of their value to the Treasury. It would be great if Reeves had finally recognised that cutting taxes can boost growth and raising them often crushes it. Perhaps she might start applying the same logic elsewhere.

But Reeves needs to be a lot bolder. Stamp duty should be scrapped completely. A levy every time a share is bought or sold is a huge competitive disadvantage compared with other markets where people can trade equities freely without being forced to pay anything to the government. Sure, it raises slightly over £3 billion, and the Treasury is strapped for cash. But in the medium term, far more tax revenue will be lost if the City turns into an irrelevance on the global equity markets. The levy is a relic of the days when the London market was so important that it could afford to be taxed when others were not. Those days are long gone.

Rachel Reeves must slash the red tape

The mess of governance codes that have built up over the last 20 years need to be scrapped, too. Quoted companies have to comply with a whole list of regulation – from diversity on the board, to controls on executive pay, to environmental and social targets – that simply don’t exist for private companies, or which are far more lightly imposed on rival markets. These rules might be well intentioned, but they impose big costs. They also take up a huge amount of managements’ time for no discernible benefit. London could lead the world in switching back to a simpler system.

Finally, why not offer entrepreneurs a tax break for listing in London?

There could be an exemption from capital gains tax for any founder who decides to float their business in the City. That would be a huge incentive over selling it to a foreign buyer or private equity firm. Who knows, it might even persuade a few of them to stay in Britain instead of moving to Dubai or the US.

The London stock market is facing extinction. The City has plenty of other businesses, from insurance to fund management to issuing debt. But the blunt truth is that there is not a major financial centre anywhere in the world that does not also have a thriving equity market at the centre of its operations. In London, that is disappearing. The LSE needs radical help – a tiny tweak to stamp duty won’t be nearly enough to save it.

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The Budget rumour mill started early this year, and with the fiscal event not taking place until 26 November, we can expect nine more weeks of frenzied speculation. Pensions are often at the centre of the media storm.

The nervousness is unsurprising. Weak economic growth and high borrowing costs mean tax rises are likely, and the government may need to be creative given its promise not to touch the three main working taxes.

While reading up on possible changes can help you prepare your finances, rushing into irreversible decisions is often a bad idea.

Recent data shows pension tax-free cash withdrawals surged 61% last year in a Budget-related frenzy. While some savers would have had a plan for their cash, others were driven by fear that the tax-free allowance would be cut – a policy that never materialised.

“Concerns before the last Budget that tax-free cash could be cut have resurfaced this year, and savers who are worried about this are taking their pension commencement lump sum, or thinking of doing so,” said Philip Lewis, head of financial planning advice at Evelyn Partners, a wealth management firm.

“However, those who are accessing their pension fund without taking advice could be making some serious errors that leave them counting the cost later in retirement.”

1. Don’t take tax-free cash without a plan

When you withdraw money from your pension, you take it out of a tax-efficient environment and move it into one where a tax bill may be generated – for example on savings interest, or dividends and capital gains if you decide to reinvest the money outside an ISA.

Withdrawing your tax-free cash and sticking it in a savings account also means you miss out on the potential for future investment growth.

“Taking the tax-free lump sum is best done as part of a plan, with a picture of how your future years of retirement will be funded, and it’s hard to beat cash-flow modelling from a professional financial planner for that,” Lewis said.

“It also helps if there is a clear purpose for the sum, such as paying down the mortgage, gifting, or taking an income.”

There is no obligation to take your full tax-free lump sum in one go either. You can take it gradually in instalments as 25% of each withdrawal. That way, the tax-free portion of your pension pot continues to grow, provided your pension achieves decent investment growth.

2. Beware of pension recycling

Some might be under the misconception that they can withdraw their tax-free cash and then simply reinvest it if the allowance isn’t cut at the Budget, but they need to be careful.

“There’s every chance you could fall foul of strict pension recycling rules that could see you clobbered with a substantial tax charge,” warns Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, the investment platform.

Recycling rules are in place to prevent people reinvesting their tax-free cash to benefit from pension tax relief on the same money twice.

The penalty charge depends on how much money you recycle. If the money taken is less than 25% of the pension value, you will usually be slapped with a 40% charge. If the sum is larger than this, an additional 15% surcharge will typically apply.

3. Don’t unknowingly trigger the money purchase annual allowance

When you start taking taxable income from your pension, you trigger something called the money purchase annual allowance. From this point, your annual pension allowance drops from £60,000 to £10,000.

While you can still pay in more than these amounts, you won’t qualify for pension tax relief on the contributions. See our explainer for how pension tax relief works and why it is so valuable.

“FCA data suggests that at least 54% of those who accessed a pension for the first time in 2024/25 did so in a way that would trigger the money purchase annual allowance,” said Lewis.

This could be a problem if you are still working and want to continue paying into your pension. Some people go part time to ease into retirement, while others decide to return to work after a brief pause to bolster their pension savings.

4. Don’t be deterred from pension saving

Rumours about cuts to pension tax relief also tend to do the rounds before a Budget event. Currently, savers receive tax relief on pension contributions at their marginal rate – 20%, 40% or 45%.

Some argue that high earners shouldn’t be entitled to full tax relief. Proposals usually focus on getting rid of the higher rates (i.e. entitling all savers to just 20%), or introducing a flat rate for everyone (say, 30%).

Morrissey points out that rumours can be damaging, acting as a disincentive to save. “Pension investors need certainty over the tax system so they can plan for the future,” she said.

Most people underestimate how much they will need for a comfortable retirement, so don’t let rumoured changes put you off. If anything, most advisers recommend upping your contributions above the standard 8% pension rule, if you can afford it.

The run up to the Budget in November has already been dominated by headlines about a “meltdown” in the bond market and a yawning “£50 billion” black hole that will have to be filled by more tax increases. Some have even speculated that the UK is heading for another IMF bailout. Mercifully, the prospects may not be quite as dire as these reports suggest. But the recent increases in the cost of government borrowing are consistent with an emerging fiscal crisis. The chancellor is increasingly boxed in by her own fiscal rules – and there is no painless way out.

The problems are most apparent in the yields on 30-year UK government bonds, known as “gilts”, which have jumped to their highest level since 1998. This partly reflects a global shift upwards as investors become more jittery about increases in public debt worldwide. Similar headlines are being written in many other countries, notably France and Japan.

Nonetheless, the UK now consistently has the highest bond yields in the G7 group of advanced economies. The cost of new government borrowing for 10 years is currently around 4.6% in Britain, compared with 4.0% in the US, around 3.5% in France and Italy, 3.2% in Canada, 2.7% in Germany, and just 1.6% in Japan. This is all the more remarkable because UK public debt is not particularly high by international standards. In fact, the ratio of debt to national income in the UK, at around 100%, is lower than in Italy, at 135%, and much lower than in Japan, at 240%. Even Greece, with debt still over 150% of GDP, can borrow at 3.3%.

Why the UK seems stuck in a doom loop

Why has the UK become such an outlier? There are three main reasons.

First, many international investors are losing confidence in the Labour government’s willingness to take tough decisions to bring borrowing down, especially after the recent failures to curb welfare spending.

The prospect of more tax rises is simply reinforcing fears that the UK is stuck in a “doom loop” of sluggish growth and deteriorating public finances.

Second, the Bank of England has been actively selling its holdings of government bonds, reversing the previous policy known as “quantitative easing” (QE), and doing so more aggressively than other central banks.

The Bank itself has said that the new policy of “quantitative tightening” (QT) may have added as much as 0.25 percentage points to 10-year gilt yields. This additional selling is especially damaging at a time when there is less demand from defined-benefit pension funds, who traditionally have been big buyers of longer-dated government bonds. In turn, this helps to explain the relatively large rise in the yields on 30-year gilts.

Third, there are fears that higher inflation in the UK will keep official interest rates higher for longer too, while adding to the cost of inflation-index-linked borrowing (of which the UK has a relatively large amount). By contrast, yields in the euro area and Japan are anchored by relatively low inflation and the relatively low interest rates set by the European Central Bank and the Bank of Japan.

This does not mean that a full-blown debt crisis is imminent in the UK, or even inevitable. The increase in bond yields only affects the cost of new borrowing, not that of existing debt, which provides at least some breathing space. The average time remaining before each conventional gilt has to be refinanced is more than 13 years, with only 16% falling due in the next three years. The average left on index-linked bonds is even longer, at more than 17 years.

It is worth stressing, too, that the rise in government bond yields has been relatively orderly, with little contagion to other markets. Investors have been demanding higher returns to compensate for higher risks, but there has been no shortage of buyers at the lower prices. And when more cash is required, the government’s Debt Management Office is now selling more gilts with shorter maturities to avoid having to pay the higher interest rates on longer-dated bonds.

So far, this episode is therefore still different from the crisis in the wake of the mini-Budget in September 2022. The sell-off in gilts then was accompanied by a panic in the mortgage market, prompting residential lending to dry up. The sharp falls in the prices of gilts also caused immediate problems for some pension funds. The pound slumped too.

Is a 1970s-style debt crisis looming?

The UK is not yet on the cusp of an IMF bailout, either. Admittedly, an increasing number of commentators are warning of a “1970s-style debt crisis” unless the chancellor changes course.

These voices include three leading economists – Jagjit Chadha, Andrew Sentance and Willem Buiter – who are not the usual suspects and whose views should be taken seriously.

Chadha and others have also made the reasonable point that IMF involvement might enhance the credibility of the fiscal framework and restore some market confidence, thus attracting more private capital, which could dwarf the limited resources available to the IMF.

Nonetheless, the circumstances now are also different from the 1970s. The bailout from the IMF in 1976 was a US dollar loan. This was mainly used to pay back other countries that had lent foreign currencies to the UK government as it attempted to prop up the pound. That is not the problem now.

The UK is not facing a sterling crisis (at least, not yet) and the government would be right to let the pound fall if it were. Any IMF bailout would also come with such punitive conditions that it would be politically unacceptable, including big cuts in public spending.

Put another way, if the UK government were willing to take these tough decisions, we would not need the IMF in the first place. An IMF-imposed austerity programme would surely be the end for both Rachel Reeves and Keir Starmer, especially with the emerging threat from Jeremy Corbyn’s new far-left party. The markets would not necessarily be reassured.

More positively, the prospects for the UK are still better than in the 1970s – in some respects. The economy shrank by about 4% in total in 1974 and 1975, unemployment rose sharply (from a low of 3.7% in 1974 to a peak of 11.8% 10 years later), and both inflation (peaking at 24% in 1975) and interest rates (the Bank rate hit 15% in 1976) were much higher.

Averting a debt crisis: try the stop-gaps first

Finally, there are other things the authorities might try before calling in the IMF. In an emergency, the government could borrow short-term funds through an existing overdraft facility at the Bank of England, known as the “Ways and Means” (W&M).

There is a recent precedent; an agreement in April 2020 allowed for more use of the W&M during Covid, although this was never actually needed.

And if the bond markets did become disorderly, the Bank of England could step in to buy gilts again on a temporary basis – as it did (remarkably successfully) in September 2022.

But this is only partially reassuring. These stop-gaps could backfire if they are seen to underline just how big a mess the public finances are in, and if the government does not use the breathing space to tackle the underlying problems. Less positively, the public finances are now in a bigger mess than in the 1970s.

The annual budget deficit was similar (averaging 6% of GDP in 1974 and 1975), but the stock of debt was far lower (about 48% of GDP, compared with 96% now). Another new risk is that roughly a quarter of government debt is now linked directed to the rate of inflation.

In any event, the latest bond-market wobbles could hardly have come at a worse time. In a few weeks’ time, the Office for Budget Responsibility (OBR) will start to crunch the numbers for the Budget.

Importantly, the OBR’s forecasts will be based on whatever the markets are assuming about the path of interest rates over the next five years. These assumptions could therefore eat further into any remaining headroom against the government’s fiscal rules or, more likely, make the existing shortfall even larger.

In turn this could prompt Reeves to announce even larger increases in taxes, hitting consumer and business confidence hard and having an immediate impact on economic activity.

It is also still possible that the nervousness of bond investors will spill over into other markets, including equities. The property market already appears to have stalled again.

Sterling is especially vulnerable too if the loss of international confidence becomes a rout, which again could have an immediate impact on other asset prices, on inflation, and on the real economy.

At the moment, the risk of a sterling crisis is being minimised by the fact that other countries are in trouble, too. But that could easily change if the UK were seen as an even bigger outlier.

Time may be on the government's side

The main hope now is that conditions may improve before the Budget itself on 26 November. The relatively late timing has raised fears that a longer period of speculation and uncertainty will undermine confidence further. But there could be some advantages too.

Perhaps most obviously, the delay leaves more time for global bond markets to calm down, taking some of the pressure off borrowing costs in the UK.

This could also work in the opposite direction if there is more bad news from elsewhere, perhaps the US (for example, higher tariffs could finally feed through into consumer price inflation, exacerbating the tensions between Donald Trump and the Federal Reserve), or from France, or from half a dozen other countries where concerns about fiscal sustainability are also growing.

Fortunately, an improvement in global sentiment is not the only potential upside from having a late Budget. The second positive is that the UK government would have more time to find some new savings on the welfare bill to replace the £6 billion lost to the U-turns on working-age benefits and winter-fuel payments. These savings would still have to be acceptable to Labour MPs, but the government would have longer to get the politics right.

The government will also have extra time to persuade the OBR that the planned increases in public investment and supply-side reforms will boost the productive potential of the economy.

Indeed, the growth assumptions will be even more important than the assumptions about inflation and interest rates. The increase in gilt yields since the OBR’s forecast for the Spring Statement might add about £5 billion to the shortfall that has to be filled by spending cuts or tax increases. But this shortfall could swell to £50 billion if the OBR adopts the same pessimistic forecasts for productivity and growth as those used recently by the National Institute of Economic and Social Research (NIESR).

Fortunately, NIESR’s £50 billion is an outlier. It is still possible that the chancellor will be able to keep the fresh pain down to around £20 billion, with at least £5 billion of that coming from welfare savings rather than tax increases.

That might be the least bad outcome, and perhaps even a relief to some. But there can be little doubt that the UK is in the early stages of a crisis that could play out in many different ways – with or without the involvement of the IMF.

Julian Jessop is an independent economist.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

The countdown to the Autumn Budget is on, with chancellor Rachel Reeves set to deliver her statement on 26 November. Weak growth, high borrowing costs, and failed spending cuts will make it a tough task, with tax hikes widely anticipated.

Given that Reeves has ruled out increases to income tax, employee National Insurance (NI), and VAT – the three main sources of revenue – pensions could be a tempting area to consider.

Pension tax relief is a frequent area of speculation given it costs the government around £50 billion per year. However, former pensions minister Steve Webb warned that cutting this tax incentive could prove complex and politically dangerous.

“Raiding pension tax relief may look superficially attractive for a cash-strapped chancellor. But lying beneath the surface are multiple traps for the unwary, meaning that reforms might raise far less than expected, break manifesto promises to workers, or put additional burdens on employers who are already under pressure,” Webb said.

“The political backlash against such reforms could easily echo previous ‘Omnishambles’ Budgets where a U-turn was made within a matter of weeks,” he added.

Webb also highlights pension tax-free cash and salary sacrifice as two other tempting but politically-dangerous areas. It is worth noting that the Treasury has not confirmed anything and does not comment on Budget rumours, however both areas have garnered attention from industry experts.

We take a closer look at the possible measures and the dangers of each.

Cutting the higher rate of pension tax relief

To encourage people to save for retirement, HMRC gives tax relief on pension contributions up to an annual limit of £60,000. This is applied at your marginal rate – 20%, 40% or 45%. It means a £100 pension contribution only costs a basic-rate taxpayer £80 of post-tax income, £60 for a higher-rate taxpayer, and £55 for an additional-rate taxpayer.

While it is a valuable incentive, pension and NI tax relief cost the government £52.5 billion in 2023/24, according to HMRC figures published in July.

Some also argue high earners shouldn’t be entitled to full tax relief. Alternative proposals include getting rid of the higher rates of tax relief (i.e. entitling all taxpayers to just 20%), or introducing a flat rate for everyone (for example, 30%).

LCP warns against cutting pension tax relief, arguing that it would constitute a major structural change to the pension system, requiring complex updates to administrative and payroll systems. This could make it difficult to raise any revenue from the policy during this Parliament.

When the idea was rumoured in the lead-up to last year’s Autumn Budget, one expert told MoneyWeek the only way to claw the money back from some pension schemes would be to impose a separate tax charge. This is because ‘net pay’ schemes take your pension contribution from your pre-tax pay. This is different to ‘relief at source’ schemes, where the tax is claimed back at a later stage.

Commenting at the time, Tom Selby, director of public policy at AJ Bell, told MoneyWeek: “If, for example, the government decided to set flat-rate pension tax relief at 30%, anyone [in a net pay scheme] earning more than £50,270 (the higher-rate income tax threshold) would be hit with a tax charge to reduce their automatic tax relief from 40% to 30%.”

“If a higher-rate taxpayer had paid a £10,000 contribution to a net pay scheme in the tax year, they would presumably need to pay a £1,000 tax charge to reduce their tax relief to the required 30%,” he added.

The changes could also prove unpopular with public sector workers. “Although public sector workers make up a minority of the workforce, the generosity of their pension arrangements and the high level of pension membership in the public sector mean we expect they would be disproportionately affected by such changes,” LCP said.

Trimming pension tax-free cash

When you turn 55, you are entitled to take 25% of your pension pot as tax-free cash, up to a maximum of £268,275 – known as the lump sum allowance. It is a popular benefit and widely understood.

The Telegraph recently said Reeves was considering cutting the allowance in this year’s Budget as part of an extensive list of money-raising proposals. However, its report also cited a Whitehall official who called reforms “unlikely”, suggesting speculation should be taken with a pinch of salt.

Similar rumours last year prompted savers to rush into taking their tax-free cash, with withdrawals surging 61%. Taking it without a plan can have negative consequences, including missed opportunities for further investment growth.

Capping tax-free cash this time around would not be a straightforward policy, as those approaching retirement would almost certainly see it as moving the goalposts. “In our view extensive transitional protections would be needed, and these would mean that extra revenue from this measure could be negligible in this Parliament,” LCP said.

Scaling back tax relief on salary sacrifice

Under current rules, employees can give up a slice of their pay in exchange for a benefit, such as a pension contribution. It is a tax-efficient arrangement, because it means you pay less income tax, and both you and your employer pay less National Insurance.

In May, a HMRC report was published looking into the possible outcome of changing the rules. The report was commissioned by the previous government in 2023, but it has raised fears that existing tax reliefs could be scaled back.

LCP argues that such a change could undermine pension saving and confidence in the system.

While cutting the higher rates of pension tax relief and trimming the lump sum allowance would largely impact wealthier pension savers, salary sacrifice is something that is accessible to those with less wealth too, provided they are willing and able to divert a portion of their current pay.

“Millions of people on modest incomes benefit from various features of the tax relief system, including the ability to sacrifice salary and benefit from a reduced National Insurance bill,” said Tim Camfield, principal at LCP.

“If this measure was scrapped, employees paying basic-rate tax and trying to do the right thing by saving for their retirement could well be losers, as well as the employers who try to provide good pensions.”

What are wealth taxes?

Taxes that make you pay a levy based on your assets – typically your net wealth – rather than your income from work. Such taxes used to be far more common globally than they are now. Sweden charged an annual levy on net assets for the best part of a century, with a top marginal rate that peaked at 4% in 1984; it was abolished in 2007. France had a wealth tax (riddled with loopholes) that was scrapped in 2017. As late as 1990, 12 OECD nations (advanced economies) still had wealth taxes, though they raised a paltry 1.5% of all tax revenues, on average. Today, only three countries still levy a tax on net wealth, namely Switzerland, Norway and Spain. Several European countries – France, Italy, Belgium and the Netherlands – do still levy wealth taxes on selected assets, but not on an individual’s overall wealth.

What are typical rates?

In Switzerland, which first introduced a net wealth tax in 1840, the level varies by canton between about 0.3% and 1% of a taxpayer’s net worth above a threshold typically in the low six figures. In Norway, where the tax dates back to 1892, the government currently charges 1% on individuals’ wealth exceeding a threshold of NKr1.76 million (£130,500). So if you lived in Norway and you had £250,000 in investments and £500,000 equity in your house, you’d pay an extra £6,190 a year in taxes. Above NKr20.7 million, the rate ticks up fractionally to 1.1%.

Why did wealth taxes fall out of favour?

In part, because wealth taxes are hard to introduce and administer, and are inevitably accompanied by a thriving cottage industry to help the truly wealthy avoid them. The only time a UK government was elected promising to introduce one was Labour in 1974. But over the course of his five years as chancellor, wrote a rueful Denis Healey in his memoirs: “I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and political hassle.” The value of some assets is fairly easy to record, but for others – property equity, say – valuations are expensive, subjective and wide open to legal challenges. HMRC does not currently have an overview of the wealth of every citizen, and no way of doing so without a big investment of time and resources, and political will. All that makes wealth taxes a giant headache.

Why else are wealth taxes unpopular?

Bluntly, because wealth taxes don’t work. Calls for wealth taxes are readily understandable: governments everywhere – not least in the UK – are facing vast fiscal challenges in an era of low-growth and ageing populations. Meanwhile, in recent decades, the very wealthy have got much wealthier. In 2010, the combined wealth of the top 100 people on The Sunday Times Rich List was £172 billion. Last year, it was £594 billion. At the same time, the rich have remained as canny as ever about mitigating their tax liabilities (ie, paying as little as possible). The problem, though – even for fans of big government who think it’s fine for the state to tuck into individuals’ private assets – is that wealth taxes end up raising less than hoped and do so much collateral damage to the economy that they are self-defeating in fiscal terms. If that was true in Healey’s day, it’s even more so now.

Why’s that?

Because wealth, and the wealthy, are far more mobile. Dan Neidle, the Labour-supporting tax lawyer turned campaigner, recently published a 16,000-word essay “explaining why a wealth tax is a really stupid idea”, says Robert Colville in The Times. Executive summary: if you tax something, you get less of it, and wealth is no different. Neidle examines a model backed by campaigners and some Labour backbenchers, which posits that a 2% wealth tax on those with assets of more than £10 million would raise at least £24 billion a year. But he calculates that, under this system, 80% of the revenue would come from just 5,000 people and 15% from just 10. “So the entire thing could be scuppered if a dozen people got on a private jet.” Neidle favours, instead, a wholesale reform that scraps several existing taxes – including stamp duty, council tax and business rates – with a land value tax.

What are other arguments against wealth taxes?

Not only do wealth taxes not work, but they also distort the economy. Since debt is tax-deductible, wealth taxes tend to encourage the rich to avoid the tax by borrowing to invest in exempted asset classes (farmland or woodland, say), thus shrinking the tax base and distorting incentives. Alternatively, they might simply leave the country for a lower-tax jurisdiction, as did thousands of wealthy French citizens who set up in Belgium, or the thousands of the richest Norwegians who live abroad. Opponents argue that a wealth tax would only work if it were adopted globally – in practice, that means never. Another argument against wealth taxes is that rather than diminish billionaires’ political power, they would increase it by encouraging them to spend their money on nefarious political causes.

But we will get them anyway?

It’s unlikely, given that Rachel Reeves has ruled it out. But she may well be looking at more stealthy ways of taxing assets. Indeed, this summer has seen almost constant Treasury kite-flying in the press, with tales of various different property and inheritance taxes the government is said to be mulling over. There’s certainly significant wealth there, and it would be possible to tax it, says Neil Unmack on Breakingviews. Some £7 trillion of value is stored in British housing, making the full capital gains tax exemption for primary residences look tempting to target. Inheritance tax exemptions mean the average taxed estate pays 13%, not the 40% headline figure. The risk is that any such raids would add “affluent middle-class voters to the ranks of Reeves-haters". "Yet targeting them would make it politically easier for her to cut welfare spending. Especially if she does so with a degree of stealth.”

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The Treasury is considering targeting landlords in the Autumn Budget by applying National Insurance to rental income, according to the latest rumours.

The Times reports that officials are examining proposals to hike the taxes for buy-to-let landlords in the hope of raising £2 billion in chancellor Rachel Reeves’s upcoming Budget.

The speculation follows other reports of potential property tax hikes, suggesting the Treasury is looking closely at property tax reforms as a way to balance the books.

According to The Guardian, Reeves is considering replacing stamp duty with a national property tax on the sale of homes worth more than £500,000.

The chancellor is also said to be mulling over a mansion tax for homes by introducing a capital gains tax charge on properties that sell for more than £1.5 million.

The latest rumour of potentially hitting landlords with National Insurance is apparently an option on the table for the government as it tries to avoid breaking the “red lines” set by Reeves before the general election not to put up VAT, income tax or National Insurance.

Earnings from property, pensions and savings are largely exempt from National Insurance contributions, which are levied on employees’ wages at a rate of 8%.

Allies of Reeves told The Times that widening the scope of National Insurance so that it includes rental income would not break the red lines because it wouldn’t involve raising the rate. They likened it to putting VAT on private school fees.

How would the policy work in practice?

National Insurance is charged at 8% on employee contributions (6% for self-employed people), dropping to 2% for income and profits over £50,270.

There was £27 billion of net property income in 2022-23, according to the most recent official data. So, an extra levy of 8% on property income would have generated about £2.16 billion for the Treasury.

If the same National Insurance rates are applied to rental income, the fact that it falls to 2% on higher incomes means smaller landlords will be hit harder.

According to The Times, the most common property income bracket is £50,000 to £70,000, meaning thousands of landlords could be hit by an extra £1,057 bill per year if forced to pay National Insurance.

“Unlikely to lose the government votes – but will push more landlords to sell up”

Experts say that while a move like this may not be that unpopular – especially compared to the massive backlash the government has faced over things like the Winter Fuel Payment and inheritance tax changes – it will hit tenants as well as landlords.

Tom Bill, head of UK residential research at Knight Frank, comments: “Targeting landlords won’t lose the government many votes but such moves invariably end up hurting tenants.

“With landlords already selling up ahead of the Renters’ Rights Bill and tougher green regulations, another disincentive would reduce supply further and put upwards pressure on rents. Those that stay may pass on the extra costs in other ways. Governments need to fully appreciate that when you tax an activity, you get less of it.”

Shaun Moore, tax and financial planning expert at the wealth manager Quilter, agrees, saying that an additional tax burden “risks accelerating the exodus of landlords from the market”.

For landlords that continue to let out properties, the addition of National Insurance “would almost certainly be passed on to renters through higher rents”, according to Moore.

He adds: “We would also expect to see the increasingly popular practice of holding properties within a limited company structure skyrocket as landlords look for ways to mitigate the impact of these changes.

“Ironically, this could mean the government’s expected revenue boost is far smaller than anticipated.”

According to Marc von Grundherr, director at the estate agent Benham & Reeves, the rumoured policy “smacks of political point-scoring rather than sound housing policy”.

He comments: “Applying National Insurance to rental income threatens to undermine rental supply by squeezing small and medium-scale landlords, who may pull up stakes or restructure.”

What does the Treasury say?

The government does not comment on speculation around future changes to tax policy. This means there are often rumours flying about in the run-up to fiscal events like the Budget, which do not ever materialise and get announced.

The Treasury did not address the rumours about applying National Insurance to rental income when MoneyWeek contacted the department for comment, instead saying: “As set out in the Plan for Change, the best way to strengthen public finances is by growing the economy – which is our focus. Changes to tax and spend policy are not the only ways of doing this, as seen with our planning reforms, which are expected to grow the economy by £6.8 billion and cut borrowing by £3.4 billion.

“We are committed to keeping taxes for working people as low as possible, which is why at last Autumn’s Budget, we protected working people’s payslips and kept our promise not to raise the basic, higher or additional rates of income tax, employee National Insurance, or VAT.”

How has defence spending increased globally?

Total military spending by nation states reached $2.72 trillion in 2024, a rise of 9.4% in real terms on the year before, according to the Stockholm International Peace Research Institute. That’s the tenth consecutive year of increases, and the steepest year-on-year rise since at least 1988 – and takes spending on defence to about 2.5% of global GDP. The world’s biggest spenders are the US, China, Russia, Germany and India; together, these five account for about 60% of the total. Last year, spending increased in every region of the world – with especially strong growth in Europe and the Middle East – as geopolitical tensions grew. Average military spending as a proportion of overall government expenditure rose to 7.1%, while world military spending per person was the highest since 1990, at $334.

Which countries saw big jumps in defence spending?

Israel’s spending surged 65% to $46.5 billion – the steepest annual rise since the Six-Day War of 1967 – taking its total to 8.8% of GDP, the second highest in the world (after Ukraine’s 34%). Lebanon’s spending rose by 58% to $635 million; Iran’s fell 10% in real terms. The Middle East’s biggest spender is Saudi Arabia, with an estimated $80.3 billion. But it saw a modest rise of 1.5% and real spending is 20% lower than a decade ago, when the country’s oil revenues peaked. The biggest jump in spending in Asia was in Myanmar, where it rose 66% to an estimated $5 billion. Japan’s outlay is up 21% to $55.3 billion in 2024, the largest annual rise since 1952. Mexico’s spending rose by 39% to $16.7 billion, as part of the government’s militarised response to organised crime. In Europe, Sweden increased its spending by 34% to $12 billion (2% of GDP) in its first year of Nato membership – a direct response to the increased threat from Russia.

What about the rest of Nato?

Germany’s expenditure rose by 28% to reach $88.5 billion, making it the biggest spender in Europe (not counting Russia, where spending grew 38% to an estimated $149 billion – twice the level of 2015 and 7.1% of GDP). Poland’s spending grew by 31% to $38.0 billion in 2024, or 4.2% of GDP. Total spending by Nato members totalled $1,506 billion ($1.5 trillion), or 55% of the global spend. Easily the world’s biggest spender remains the US, where the total rose 5.7% to $997 billion – that’s 66% of the Nato total, and 37% of the world’s. China, the second-biggest spender, upped spending by 7% to a $314 billion, marking three decades of consecutive growth.

What about defence spending in the UK?

It raised defence spending by 2.8% to reach $81.8 billion, making it the sixth biggest spender worldwide (France, with $64.7 billion, is ninth). The UK currently spends 2.3% of GDP on defence, but last month – under intense pressure from the US – joined the rest of Nato (except Spain) in promising to raise spending to 3.5% of GDP by 2035, and 5% once further security-related spending is taken into account. If they achieve that target, Nato members will be spending $800 billion more every year, in real terms, than they did before Russia invaded Ukraine.

Will defence spending drive economic growth?

That’s what politicians are telling voters. Keir Starmer says defence will offer “the next generation of good, secure, well-paid jobs”. The European Commission says it will bring “benefits for all countries”. In reality, such hopes are likely to prove forlorn, says The Economist. Rather, the “most obvious economic consequence of bigger defence budgets will be to strain public finances”, meaning higher deficits and probably higher interest rates – none of which will aid growth.

Historically, military spending is “not a major growth booster”, agrees Pierre Briançon on Breakingviews. A recent paper by the Kiel Institute for the World Economy found the “fiscal multiplier” is often lower than one – meaning that a rise of 1% of GDP in military spending triggers an overall rise in GDP of less than 1% in the short term. Similar analysis by Goldman Sachs estimates that the multiplier in Europe is even lower, at 0.5, meaning that for every extra €100 spent on defence, the region’s GDP rises by just €50.

So defence spending is nothing to get excited about?

Any long-term economic effects will depend on where the extra money comes from and how it is spent. According to Ethan Ilzetzki, professor at the London School of Economics and the author of the Kiel Institute report, any growth boost will be greater if governments choose to fund it through borrowing instead of higher taxes, which would have a negative impact on growth. This will be much easier for low-debt Germany than for higher-debt Britain and France. Moreover, simply setting targets risks wasteful spending on low-value projects. For the economic impact to be significant, it is crucial to focus the spending on research and development, given that “publicly funded innovation often has the effect of spurring private innovation”, says The Economist. Currently, for the EU, expenditure on research and development is a paltry 4.5% of defence spending, compared with 16% in the US.

What else will help?

Greater pan-European co-operation and integration – importantly, including the UK – and a shift away from buying American. Europe’s most pressing need is to create its own “strategic enablers” independently from the US, says Hugo Dixon, also on Breakingviews. That’s military-speak for projects such as satellite-based intelligence, air-defence shields, and a joint command and control system. Such things are expensive and technologically complex, and it makes sense to create them collectively. To get the biggest bang for their buck – militarily and economically – Europe needs to favour its domestic industry. Imports currently account for more than 80% of Europe’s defence procurement, of which three-quarters comes from the US. “To manufacture more weapons at home, national capitals would have to agree common strategic needs, pool resources and keep restructuring the defence sector.”

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Summary

• Chancellor Rachel Reeves delivered her Spring Statement to the House of Commons on Wednesday, 26 March.
• Reeves said she was proud of what the government had achieved "in just nine months”, but added that the task now was to “secure Britain’s future in a world that is changing before our eyes”.
• The global economy has become “more uncertain”, the chancellor said, with more “unstable trading patterns”. She added that borrowing costs have risen for most major economies.
• The Office for Budget Responsibility (OBR) published its latest economic forecast alongside Reeves's statement. The growth forecast for 2025 has been slashed in half, but upgraded for the rest of the forecast period.
• Reeves said she has restored her fiscal headroom, and that she is on track to meet the "stability rule" and the "investment rule" (her two fiscal rules) two years early.
• A series of cuts have facilitated this, including a £4.8 billion cut to the welfare budget, and a commitment to reduce Civil Service running costs by 15% by the end of the decade.

Live reporting from the team at MoneyWeek as it happened, starting with preview analysis.

Good afternoon and welcome to our live blog. Chancellor Rachel Reeves will deliver her Spring Statement to Parliament this Wednesday, 26 March. Reeves has said it will not be a “tax and spend” event, but spending cuts are widely expected.

Over the past two weeks, the government has already made several major announcements:

• NHS England: On 13 March, the government announced that NHS England would be abolished to “reduce bureaucracy” and “drive efficiency”. Government sources cited by the BBC believe this will save £500 million per year.
• Health-related benefits: On 18 March, work and pensions secretary Liz Kendall unveiled a series of cuts to health-related benefits, intended to save £5 billion by 2030.
• Civil Service: Over the weekend, Reeves confirmed that Civil Service running costs would be cut by 15% by the end of the decade. She told the BBC that savings would be made from back office and administrative roles.

These followed February’s announcement that the international aid budget would be slashed to fund increased defence spending. Prime minister Keir Starmer said the aid budget would be reduced from 0.5% of gross national income to 0.3% in 2027. Defence spending will increase to 2.5%.

Could further cuts be announced on Wednesday?

One major fiscal event each year

Rachel Reeves has previously committed to just one major fiscal event each year "to give families and businesses stability and certainty on upcoming tax and spending changes". However, a lot has changed since the Autumn Budget last October, when tax hikes of £40 billion and spending policies of £70 billion were announced.

High borrowing costs and low economic growth have already wiped out the government’s £9.9 billion “fiscal headroom”, according to reports from Bloomberg last month.

When MoneyWeek asked the Treasury to comment on whether Reeves's statement would involve major policy announcements, they neither confirmed nor denied, simply stating: “The government’s commitment to fiscal rules and sound public finances is non-negotiable. As previously announced, the OBR's next forecast will be presented to parliament on 26 March alongside a statement from the chancellor”.

What are the fiscal rules?

Reeves has been clear that she will stick to her self-imposed fiscal rules, which were voted into law by the House of Commons in January. There are two main parts:

• Stability rule: Day-to-day spending needs to be matched by tax revenues, not funded through borrowing.
• Investment rule: Debt needs to be falling as a share of the economy by 2029/30.

Chancellor left with "few avenues to choose from"

"The government wants to spend more; on defence, and on building the UK’s green infrastructure to power growth for generations to come. But with such geopolitical uncertainty, fiscal rules are important and breaking them would be costly," said Danni Hewson, head of financial analysis at investment platform AJ Bell.

"Not breaking them leaves the chancellor with few avenues to choose from, especially with her fiscal headroom almost certainly evaporated, and probably in deficit," she added.

Figures published last week showed that government borrowing came in higher than forecast in February, at £10.7 billion. Borrowing for the current financial year (ending March 2025) has already exceeded the OBR's full-year forecast, at £132.2 billion versus a forecast of £127.5 billion.

"Promises not to increase taxes will mean even fewer choices, more cuts to public spending and the increased likelihood that the unpopular fiscal drag of frozen tax thresholds will remain with us way beyond 2028," Hewson added.

Cash ISA rumours – have changes been shelved?

In recent months, cash ISAs have been at the heart of a media storm. Reeves was rumoured to be looking at cutting the annual allowance from £20,000 to £4,000 – part of a bid to get Britain investing and boost UK growth.

These plans now appear to have been shelved.

An official told the Financial Times: “We are not looking at any changes to ISAs in the Spring Statement. We recognise the range of views around the current ISA system and want to ensure it strikes the right balance between cash and equities.

“We want to continue to support cash savings whilst earning better returns for savers, boosting the culture of retail investment and supporting the growth mission.”

We share further details in: “Will Rachel Reeves impose a £4,000 cash ISA limit?”

Spring Statement: Pensions are unlikely to be a target

One of the main ways the government can raise money from pensions is by adjusting the tax rules, but the upcoming Spring Statement is not expected to be a tax-raising event.

There was lots of speculation about changes to the tax-free lump sum and pension tax relief before the Autumn Budget last year, but neither of these changes ultimately materialised.

The main change Reeves announced last October was that pensions would be brought inside the inheritance tax net from April 2027.

That said, pension savers should still listen out for hints about the state of the UK's finances when Reeves speaks in Parliament this Wednesday.

"Reeves may use the Spring Statement to set the ‘mood music’ for the future direction of travel on tax and spending policy against the overriding economic growth agenda," said Steven Cameron, pensions director at financial services company Aegon.

Meanwhile, pension reforms are likely to take centre stage later in the year, rather than during the Spring Statement.

"The Pensions Investment Review is likely to lead to workplace pensions placing more of their members’ funds in investments designed to boost UK economic growth, which could also deliver better returns for pension savers," Cameron said.

"And this summer’s Pension Schemes Bill will include new measures to ensure all pensions are offering good value for money as well as plans to bring together small pension pots individuals may have left behind when changing employers."

We take a closer look in: "Spring Statement: What could Rachel Reeves say about pensions?"

Harsher punishment for submitting your tax return late

Although the chancellor isn't expected to announce tax hikes during the Spring Statement, MoneyWeek understands that the rules around tax collection will be tightened. This is expected to raise an extra £1 billion a year by the end of the decade.

From next tax year onwards (2025/26), the Treasury will increase late payment penalties for VAT and Making Tax Digital for Income Tax Self Assessment (ITSA). The penalty will increase from 2% to 3% at 15 days, 2% to 3% at 30 days, and 4% to 10% from day 31.

To help enforce the new regime, Reeves will earmark £80 million to pay for third-party debt collectors to bring in £1.3 billion in outstanding tax over the next five years. The Treasury says the collectors will return £16 for every £1 spent on their employment.

Reeves will also announce that a further 600 permanent members of staff will be recruited into HMRC’s debt management teams, and a further 500 in the compliance teams.

For more details, read our full report.

Reeves’s focus will be on spending cuts

The government is expected to reduce spending by billions of pounds in the Spring Statement, in what some commentators are calling the biggest cuts since austerity. We already know what some of the targets will be – from health-related benefits to NHS England and the Civil Service.

Tax hikes do not appear to be on the table, although Reeves is expected to spend money on enforcement measures (including harsher punishments for those who submit their tax return late).

“It’s not surprising that Rachel Reeves has come out in recent days to quash speculation that there could be some sort of tax rise in her speech, given the negative reception the Autumn Budget received from businesses and individuals and the drag that those tax-raising announcements seem to have exerted on growth and confidence,” said Jason Hollands, managing director at wealth management firm Evelyn Partners.

“Given that most of those tax rises have yet to take effect, including the significant hike on employer’s National Insurance costs, the last thing this government needs right now is to say it’s inflicting more of the same. Instead, the onus for now will be on spending cuts that have been well-telegraphed,” he added.

Thank you for following our live blog today. We will be back tomorrow with further analysis in the lead-up to Wednesday's announcements. Have a good evening.

Welcome back... plus latest headlines on affordable housing

Good Tuesday morning, and welcome back to our Spring Forecast live blog. There is just one day to go until chancellor Rachel Reeves delivers her statement to Parliament.

The latest headline overnight is that the Treasury has announced £2 billion of new investment to support social and affordable housing. This is intended to deliver up to 18,000 new homes, contributing to the government's wider promise to build 1.5 million new homes before the end of this Parliament.

The £2 billion injection will only support development on sites that will deliver in this Parliament, the government said.

The Treasury is calling the investment a "down payment" ahead of more long-term investment in social and affordable housing planned later this year. Further details will be revealed after the government completes its current spending review process on 11 June.

"This investment will help us to build thousands more affordable homes to buy and rent and get working people and families into secure homes and onto the housing ladder," said deputy prime minister and housing secretary Angela Rayner.

Would the government ever consider a wealth tax?

A wealth tax is not expected tomorrow and would prove deeply unpopular, particularly after last year’s tax-raising Autumn Budget. The headlines are already full of stories of millionaires leaving Britain thanks to high taxes and plans to abolish the non-dom status.

Around 10,000 millionaires left the UK in 2024, a 157% increase on the year before, according to a report from wealth intelligence firm New World Wealth and investment migration consultancy Henley and Partners. Reeves has already had to soften the non-dom changes in a bid to stem the flow.

Despite this, some have called on the government to consider the measure.

A cross-party group of around 30 MPs wrote to Reeves before the Autumn Budget, calling on her to introduce a 2% tax on assets worth more than £10 million. The group claimed the measure could raise £24 billion per year.

Signatories of the letter included representatives from Labour, the Greens, the Liberal Democrats, Plaid Cymru, and more, as well as former Labour leader and current independent MP Jeremy Corbyn.

Reeves has previously distanced herself from any policy like this, saying in 2023: “We have no plans for a wealth tax.”

We take a closer look in: “Could Labour introduce a 2% wealth tax?”

Expect “tweaks” to public finances

Major tax changes are not expected tomorrow. This was never intended to be a Budget, even if weak growth and high borrowing costs ultimately force Labour into announcing more than it would have liked.

Pete Glancy, head of pension policy at Scottish Widows, said the statement is more likely to be used as a platform for “tweaks to the public finances”. That doesn’t mean it won’t be significant, though.

“Anything we do hear on the day could have an impact on things like saving, investing and pensions,” Glancy said. “For example, the relative performance and attractiveness of our economy could influence asset allocations either towards or away from the UK. Indicators of a recession often favour bonds over equities, and vice versa when things have been predicted to boom.

“Short-term interest rates trending down could shift people from cash ISAs towards equity ISAs, and longer-term interest rates remaining high may favour annuities over income drawdown.

“The trick is to translate what is announced on the day into how it might play out into customer behaviours and customer demand.”

“The government must be smarter on investment”

The Organisation for Economic Co-operation and Development (OECD) has forecast that the UK will be the second-fastest growing economy in the G7 this year, behind the US. However, it recently downgraded its growth forecast from 1.7% to 1.4%. All G7 countries saw downgrades against an uncertain global backdrop.

As the below chart shows, the UK has had the second-lowest growth rate of all G7 countries since the pandemic (Q4 2019 versus Q4 2024).

Growth of G7 real GDP since the pandemic (Q4 2019 versus Q4 2024, percentage change)

The Institute of Chartered Accountants in England and Wales (ICAEW) has said the government needs to make “smarter investment decisions”.

“There must be a step change in the way the government invests if it is serious about kickstarting the economic growth needed for the UK to be the fastest-growing economy in the G7,” said Alan Vallance, ICAEW chief executive. “The evidence is clear – our members have told us that investment, when poorly targeted, can crowd out funding from the private sector.”

A poll of ICAEW members found that 72% want better targeting of government investment to lower the cost of capital for difficult infrastructure projects, rather than replacing capital on projects the private sector is likely to invest in anyway.

Eighty-five percent of members said poorly-targeted government investment risked displacing private sector funding without generating additional economic benefits.

“A smarter approach to investment, which focuses on unlocking private funds and prioritises spending on skills, technology and infrastructure, would be a smarter use of taxpayers’ money,” Vallance added.

How will inflation impact the Spring Statement?

The next set of UK inflation figures will land on the same day as the Spring Statement. This has the potential to cause a major headache for the chancellor.

January’s larger-than-expected jump in inflation (from 2.5% to 3%) helped inform the Bank of England’s decision to pause interest rate cuts this month, as the Bank balances inflationary risks against the desire to kick-start a stagnant economy.

One month's inflation reading won’t have any direct bearing on the Spring Statement, but it could set the tone. Should inflation come in higher than expected, it will add more pressure on Reeves, making her goal of growing the economy and easing cost-of-living pressures that much harder.

A lower-than-expected reading could, on the other hand, offer some optimism.

Read more about what to expect in tomorrow’s report in our February inflation live blog.

Why so much fuss for a non-Budget?

The red box is not expected to make an appearance tomorrow, and shadow chancellor Mel Stride will respond to Reeves’s statement rather than opposition leader Kemi Badenoch. In other words, the government is keen to emphasise that this is not a Budget. Reeves herself has insisted that it will not be a “tax and spend” event.

Why all the fuss then?

The truth is that this statement will almost certainly be a bigger event that Labour originally intended. Gilt yields soared at the start of the year on the back of higher inflation expectations, pushing up government borrowing costs and wiping out most (if not all) of Reeves’s £9.9 billion “fiscal headroom”. Meanwhile, economic growth has been weak – almost non-existent. The OBR is expected to halve its forecast for the 2025 financial year from 2% to around 1%, according to reports from the Telegraph.

This essentially leaves the government with three options: raise taxes, cut spending, or change the fiscal rules.

Reeves has pretty much ruled out the first and third options. Spending cuts have been her chosen route so far. Several have been announced in advance of Wednesday’s statement, including a £5 billion cut to health-related benefits, but we could be given further details during Wednesday’s speech.

Another reason Wednesday’s statement is important is that it could set the tone for tax and spending changes further down the line. If the OBR’s economic forecast highlights a big gap in the public finances, Reeves could use her statement to warm households and businesses up to future tax rises – perhaps at the 2025 Autumn Budget.

Reeves is likely to justify any changes by pointing out that the world has changed since Labour first came into power last July. Defence spending in particular has become more of an urgent priority in light of America’s retreat from European security under US president Donald Trump. Inflation is back on the rise, and could be pushed higher by an escalation of Trump’s trade war. Tariffs could also weaken global economic growth by making it more expensive (and more challenging) for businesses to operate.

Will the government tighten inheritance tax rules?

Tax hikes are not on the cards tomorrow, but it could be worth keeping an eye out for any small print that accompanies Reeves's speech.

"We will have our eyes peeled for any announcements of consultations or reviews that accompany the Spring Statement," said Jason Hollands, managing director at wealth management firm Evelyn Partners.

"Often billed as 'simplification' proposals, one such area could be an overhaul of the lifetime gifting regime, as the government has been clear the taxation of inheritances is an area it is prepared to tighten up on," he adds.

Currently, anyone can give up to £3,000 of their assets to loved ones each tax year without that sum becoming liable for inheritance tax (IHT). After that point, your gift may be classified as a "potentially-exempt transfer". If you die within seven years of making the gift, inheritance tax will be payable on a sliding scale known as taper relief.

Hollands says there is an "almost irresistible urge" for the government to clamp down on gifting rules, as some families are now giving more of their money away in response to IHT changes around pensions.

Pensions currently fall outside of the IHT net, but this is set to change from April 2027.

"We are seeing many clients draw money from pensions, which they had originally planned to leave untouched for IHT purposes, and instead make lifetime gifts to their children and grandchildren," he explains.

Thank you for following our live blog today. We will be back again tomorrow with further preview analysis, before reporting on the chancellor's speech as it happens. Reeves is expected to address the House of Commons at around 12.30pm. Join us then.

£2.2 billion funding boost for defence next year

We had signed our blog off for the evening, but we are briefly returning to bring you the latest headline on defence spending.

Tomorrow, the chancellor is expected to announce a £2.2 billion funding boost for defence in 2026. The Treasury is calling the move a “significant step” towards spending 2.5% of GDP on defence by 2027.

The funding will be invested in advanced technologies, including directed energy weapons for royal navy ships. It will also be used to provide better homes for military families.

Reeves will promise to deliver “security for working people” and a “decade of national renewal”. She is also expected to warn that “we have to move quickly in a changing world”.

Join us tomorrow for further coverage on all things Spring Statement.

It's Spring Statement day... expect further welfare cuts

Good morning and welcome back to our live blog. The latest headline is that chancellor Rachel Reeves is expected to unveil further welfare cuts when she delivers her Spring Statement at 12.30pm.

Work and pensions secretary Liz Kendall announced a string of benefit cuts last week, including narrowing the eligibility criteria for personal independence payments. The changes were expected to save £5 billion by 2030. However, the fiscal watchdog has since informed ministers that the cuts will save £1.6 billion less than planned, according to The Times.

Pound weakens against dollar, as traders prepare for growth downgrade

The pound has weakened against the dollar this morning, as traders anticipate bad news when Reeves delivers the OBR's latest UK economic forecast. The OBR is expected to halve its forecast for the 2025 financial year from 2% to around 1%, according to reports from the Telegraph.

"It could be a testing day for markets if chancellor Rachel Reeves delivers more bad news and is seen to be fighting a losing battle. However, the flipside of a weaker pound is that it benefits the army of dollar earners on the FTSE 100," said Dan Coatsworth, investment analyst at platform AJ Bell.

Inflation drop will come as welcome news to Reeves

February’s inflation report was published today and showed that prices rose by 2.8% on an annual basis in February, down from 3% in January. Economists polled by Reuters had expected it to drop to 2.9%, while those cited by Bloomberg were forecasting 3%.

The result will come as good news to Rachel Reeves as she gears up to deliver a painful Spring Statement today – from a PR perspective if nothing else. Indeed, the Bank of England has forecast that inflation will rise further over the course of the year, potentially hitting 3.75% in the third quarter.

“Make no mistake, inflation remains on a one-way journey: up. We see headline CPI rising to just under 4% later this year,” said Sanjay Raja, chief UK economist at Deutsche Bank. “Inflation expectations have already risen on the back of rising headline prices, energy prices, and food prices. The MPC have taken notice – one reason they opened the door to a potential pause in May.”

See our live blog for all the latest on today’s inflation figures.

Poll: Share your thoughts on rumoured welfare cuts

The main headline this morning is that Rachel Reeves looks set to unveil further welfare cuts after the OBR reportedly informed her that last week's benefit cuts will not save £5 billion by 2030, as expected.

Share your thoughts in our poll – is Reeves right to cut welfare spending further?

10-year gilt yields have been rising

10-year gilt yields have been rising in recent days in advance of the Spring Statement, and are currently north of 4.7%, up from around 4.5% at the start of March.

Gilt yields reflect how much the government must pay to borrow money.

Yields have been rising in response to a deteriorating macroeconomic backdrop, with the OBR expected to downgrade its growth forecast today. Investors are pricing a higher level of risk into the market as a result.

Reeves has said she will not announce any tax hikes today, but it is possible she will use her statement as an opportunity to set the ground for future policy changes, depending on the state of the public finances.

Investors will be listening closely to understand how any future changes might impact the economy.

For example, the hike to employers' National Insurance (announced in October's Autumn Budget) was received negatively and caused gilt yields to rise, as businesses warned this could push inflation higher and damage economic growth.

Recap: What is Reeves expected to announce?

With less than an hour to go until Reeves delivers her statement, let’s recap on what she is expected to announce:

• Growth downgrade: Reeves will share details from the fiscal watchdog's latest economic forecast. Expect growth expectations to be downgraded. Reports suggest the growth forecast for this financial year could even be halved from 2% to around 1%.
• Further welfare cuts: The Office for Budget Responsibility (OBR) has reportedly told Reeves that last week’s benefit cuts will not save £5 billion by 2030 as anticipated, but more like £3.4 billion. Expect further welfare cuts as a result.
• Increased defence spending: A £2.2 billion injection into defence spending is expected next year, focused on boosting military technology and funding better homes for families in the armed forces. The government has already committed to raising defence spending to 2.5% of GDP by 2027.
• Investment in affordable housing: The Treasury has already announced £2 billion of new investment to support social and affordable housing, intended to deliver 18,000 new homes. The government has previously committed to 1.5 million new homes by the end of this Parliament.
• Civil Service cuts: Reeves has confirmed that Civil Service running costs will be cut by 15% by the end of the decade.
• NHS England: The government has already announced that NHS England will be abolished. Government sources cited by the BBC have indicated this could save £500 million per year.
• No tax hikes this time – but how long can this last? Reeves has said this is not a “tax and spend” event. No tax hikes are expected today. However, depending on the OBR’s findings, Reeves could lay the ground for hikes at a future date, such as the 2025 Autumn Budget.

Prime minister’s questions are currently underway. Reeves will deliver her statement once they have concluded, probably at around 12.30pm. Stick with us – we will be reporting live.

OBR Forecast

Increased uncertainty has had two consequences; on public finances, and on the economy, says Reeves.

She reiterates the non-negotiability of her fiscal rules, and harks back to the Liz Truss mini-budget, of which she says ordinary people “are still feeling the effects”.

Turning to the OBR forecast, Reeves says that the current budget would have been in deficit by £4.1 billion by the end of the period.

“As a result of the steps I am taking today, I can confirm that I have restored in full our headroom against the stability rule,” says Reeves.

- Dan McEvoy, senior online writer

Restoring headroom

Reeves claims that the changes she will announce today will create £15.1 billion of headroom by the final year of the forecast.

The OBR, she says, anticipates £4.8 billion of savings from the welfare budget based on today’s changes.

- Dan McEvoy, senior online writer

Reeves aiming at reducing government running costs

“My right honourable friend, the health secretary, is driving forward vital reports that increase NHS productivity, bearing down upon costly agency spend to save money so that we can improve patient care,” says Reeves. “My right honourable friend, the chancellor of the Dutchy of Lancaster, is taking forward work to significantly reduce the costs of running government by 15% worth 2 million pounds by the end of the decade.”

These form part of a package of reforms, including getting the Civil Service making greater use of AI, to reduce the overall costs of running the government.

Day-to-day government running costs could be cut by £3.5 billion by 2029/30, she says.

Chancellor takes credit for falling inflation

Reeves pointed out that the rate of inflation came down in today’s report, coming in at 2.8% in February, down from 3% in January. She said the government must support the MPC in meeting the 2% inflation target, and pointed to the three cuts the MPC has delivered since the summer.

It is worth pointing out that today’s fall in the inflation rate is expected to be short-lived. The Bank of England has forecast that inflation will hit 3.75% later this year.

- Katie Williams, staff writer

Tax evasion crackdown

While there will be no tax cuts, Reeves will cut back on tax evasion. The government will invest in tech that will allow HMRC to crack down on tax avoidance and tax fraud, and increase the number of tax fraudsters charged each year by 20%.

This will raise £1 billion in revenue, bringing the total revenue raised from cracking down on tax evasion to £7.5 billion.

Capital investment will grow by £2 billion a year

A further £2 billion a year will be spent on capital investment by the government, adding to the £100 billion of funding pledged by 2030 in the Autumn Budget.

Reeves says that this extra cash will be used to “drive growth” and “deliver defence commitments” while increasing productivity and improving the quality of front-facing public services.

- Daniel Hilton, junior writer

Reeves: “We have to move quickly in this changing world”

Reeves has committed a £2.2 billion increase to defence in the next financial year. She said this would boost Britain’s economic security as well as its national security.

A minimum of 10% of the equipment budget will be spent on drones, AI technology and advanced manufacturing production, Reeves said, “bringing innovative tech to the front line at speed”.

Reeves said boosting defence spending would create jobs for engineers and scientists and bring business to tech firms and start-ups. She also spoke about giving small businesses better access to Ministry of Defence contracts.

- Katie Williams, staff writer

Reforms to planning regulations to deliver nearly £7 billion in growth

Planning reforms are expected by the OBR to deliver £6.8 billion by 2029/30.

“Our reforms will lead to housebuilding reaching a 40-year high,” says Reeves. 1.3 million homes over the next five years are planned, “taking us to within touching distance of our promise to build one and a half million homes during the course of this government,” she adds.

By 2034, these reforms could boost the economy by 0.4% of GDP – the highest level of any single zero-cost policy that the OBR has ever forecast.

- Dan McEvoy, senior online writer

OBR forecasts a larger economy, says Reeves

“By the end of the forecast, our economy is larger than at the time of the Budget,” says Reeves.

She adds that real household incomes are also expected to grow at more than twice the rate they were expected. “People will be on average over £500 per year better-off under this Labour government,” says Reeves.

- Dan McEvoy, senior online writer

Universal Credit to increase by £8 a week by 2029/30; health elements to be cut

The standard allowance of Universal Credit will be increased from £92 a week in 2025/26 to £106 a week by 2029/30.

The Universal Credit health elements will, however, be cut for new payments by around 50% and then frozen until 2030.

Reeves says this has been done to “provide guaranteed, personalised employment support to help people get back into work”.

This measure was not announced when work and pensions secretary Liz Kendall announced cuts to disability benefits last week.

- Daniel Hilton, junior writer

Mel Stride responds, framing the statement as an “emergency Budget”

Shadow chancellor Mel Stride has responded to Reeves’s statement, and is framing Reeves’s announcements as an “emergency Budget”.

Unsurprisingly, his focus is on the UK’s weak economic growth. Stride is blaming it on the decisions announced by Reeves last autumn, and Labour’s decision to “talk down the economy” after it took office. Remember that famous “£22 billion black hole” that Reeves accused the Conservatives of leaving behind.

The key message from Reeves is that the world has changed since Labour took office, but Stride is trying to push a different narrative: that Reeves is the “architect of her own misfortune”, having “borrowed, spent and taxed like it was the 1970s”.

Stride has asked Reeves to confirm that she won’t raise taxes further at a future date.

- Katie Williams, staff writer

Stride calls for a faster ramp-up in defence spending

On defence spending, Stride says that the 3% target should be brought forward to this target.

“What provision has she made in her plans for increased defence spending in this Parliament if this becomes necessary?” he asks Reeves.

He also asks her to scrap the “absurd Chagos deal” in favour of increased spending on the armed forces.

- Dan McEvoy, senior online writer

Zoopla chief: planning reforms welcome, but work needed on mortgages and social housing

“The housing market needs a strong and growing economy to support housing supply. It’s promising to see the Government focusing on longer-term impact by boosting funding for new homes and avoiding short-term measures like stamp duty holidays that don’t really help with the fundamental challenges in the housing market,” says Richard Donnell, CEO at Zoopla.

“The top priority should be an easing of mortgage regulations, which will support first-time buyers, an important buyer group for homebuilders and the broader market.”

He adds that “increased funding for social housing is essential in the upcoming Spending Review to help support housing delivery and boost the stock of social rented homes, which has been static for 30 years”.

- Dan McEvoy, senior online writer

Proposals to exempt PISCES share transactions from stamp duty

Alongside the Spring Statement, the government has also published a consultation on exempting PISCES transactions from stamp duty.

Private Intermittent Securities and Capital Exchange System (PISCES) is a new type of stock exchange that will allow private companies to have their shares traded intermittently.

The consultation will end on 23 April 2025.

- Ruth Emery, contributing editor

Disability benefit cuts fall short of £5 billion promise

The OBR has said that cuts in disability benefits promised to save £5 billion by 2029/30 will instead save £4.8 billion – £200 million less than anticipated.

The cuts include those outlined by work and pensions secretary Liz Kendall last week as well as the surprise announcement today that Universal Credit health elements will be cut by 50%.

It comes after reports suggested that a spat occurred between the OBR and the Treasury over the costing of the cuts.

The OBR is said to have assessed the changes announced last week and said they would only have produced savings of £3.4 billion in 2029/30. That may be what spurred the changes to the health elements of Universal Credit announced today.

- Daniel Hilton, junior writer

Stride sneaks in a zinger about there being “more last-minute changes to this Statement” than there were to the chancellor’s LinkedIn profile.

He also accuses her of breaking her commitment to only hold one fiscal event per year.

Reeves responds by saying that if this was a Budget, the leader of the opposition would be responding, but that she is probably “looking forward to her lunchtime steak”.

Relief that cash ISA limit isn’t changed

There was no announcement in the Spring Statement about slashing the cash ISA limit. There had been speculation that the £20,000 ISA allowance could be cut to just £4,000.

Carol Knight, chief executive of The Investing and Saving Alliance (TISA), said: "We’re relieved that the chancellor has decided not to announce any immediate changes to the incredibly popular cash ISA in her push for growth.

“Using a stick, by cutting the tax benefits of cash ISAs is not the way to boost the investment culture in the UK. There is a huge amount that the chancellor could and should do to provide a boost to the consumer investment culture in the UK.”

- Ruth Emery, contributing editor

OBR forecast in detail

The OBR’s forecast for growth this year has been halved since the October budget, from 2% to 1%. It has also revised its estimate for borrowing by the end of the Parliament upwards from £70.6 billion to £74.0 billion.

Growth is forecast to stabilise and average at around 1.75% for the rest of the decade.

It forecasts that government policies will offset this by raising £14.0 billion by 2029/30.

“This means that the fiscal rules for a current balance and for net financial liabilities to be falling in 2029-30 are both met by similar small margins to October of £9.9 billion and £15.1 billion respectively,” says the report. “But borrowing is projected to be £3.5 billion higher and debt 0.6 per cent of GDP higher at the end of the decade than in our October forecast.

“The chancellor is just as vulnerable to adverse economic and financial market developments that could wipe out her headroom again and force her to tighten fiscal policy further in the full Budget later this year,” says Paul Dales, chief UK economist at Capital Economics.

“Indeed, the OBR today highlighted that the hit to the economy from widespread 20% import tariffs could cut the headroom by almost £10bn,” he added.

- Dan McEvoy, senior online writer

Could the chancellor have gone further to boost growth?

“Growth is the chancellor’s ‘number one mission’, but other than organisations in the defence sector, many may be disappointed that there was very little in today’s Spring Statement to help them to grow,” said Robert Marchant, partner at tax firm Crowe.

“There are fiscal levers the chancellor could have used such as providing businesses with access to finance for capital investments, making the UK more attractive to the wealthy and boosting the UK’s stock markets, and it will be interesting to see whether there are changes made in these areas in the future,” he added.

Businesses have expressed concern about the impact of upcoming National Insurance changes, with employers’ contributions set to rise from April. Several have warned that the changes could result in price hikes – an attempt to offset the effects of a higher wage bill. Some businesses have said they will look to cut working hours, or even carry out redundancies.

- Katie Williams, staff writer

Lib Dems challenge Reeves not to reduce Digital Services Tax

Daisy Cooper, Liberal Democrat Treasury spokesperson and deputy leader, challenges Reeves to rule out rumoured adjustments to the Digital Services Tax (DST).

The DST raises around £800 million annually by taxing the revenue of big tech companies like Meta that are earned in the UK. It is rumoured that Reeves could be about to reduce the tax in order to secure a more favourable trade deal with the US.

“We are a small, open trading economy,” Reeves responds. “We benefit with trade links around the world, including with our single biggest trading partner, the United States of America, and it is right that we work with our allies in the United States to ensure that that free and open trade continues.”

- Dan McEvoy, senior online writer

Relief - or disappointment? - about pension silence in Spring Statement

Some experts have expressed relief that pensions did not feature in Reeves’s speech, and a quick flick through the Spring Statement document doesn’t reveal any mention of tinkering with pensions policy.

This can be seen as a positive, following the government’s decision in the Autumn Budget to subject pensions to inheritance tax from 2027.

However, there is disappointment that there was no mention of the second phase of the Pension Review, which is supposed to examine the issue of savings adequacy and whether the pension system is on track to deliver the outcomes people want and expect. There had been speculation that it has been postponed, but Mike Ambery at Standard Life says he’s hopeful there will be an update in the coming months.

Lisa Picardo at PensionBee said she was disappointed pensions had been “sidelined” today, and called for new legislation to implement a 10-day pension transfer switch guarantee, and to expand auto-enrolment.

- Ruth Emery, contributing editor

Markets respond to “game of two halves” statement

Reeves’ speech initially dampened investor confidence in UK stocks, but this reversed as the statement went on.

“The Chancellor’s statement was a game of two halves, and it’s been reflected in sharp market movements,” says Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“Rachel Reeves appeared to be on the losing side of investor sentiment with downgrades to growth this year, but scoring goals of optimism with upgrades to GDP further ahead, and forecasts for real disposable income to rise in the months to come.

“The FTSE 100 and FTSE 250 lost ground and then made handbrake turns as hope rebounded about flickers of growth.”

- Dan McEvoy, senior online writer

Allocations for £2 billion extra a year in capital investment yet to be announced

Reeves was asked where the extra £2 billion a year in capital investment will be allocated by chair of the Treasury Select Committee, Dame Meg Hillier MP.

The Chancellor said that details of the allocations will be published in the upcoming spending review, but noted that £2.2 billion has been pledged to defence, and £2 billion will be put towards building affordable and social housing.

- Daniel Hilton, junior writer

Inheritance tax take set to soar even further

Inheritance tax will now raise £66.89 billion between 2024/25 and 2029/30, according to the OBR’s projections released today alongside the Spring Statement forecast.

Compared to the estimates made at the Autumn Budget, the Treasury is set to benefit from a further £2.44 billion boost from IHT in this Parliament.

“Frozen thresholds and rising asset prices have long been increasing the inheritance tax haul and from next month the reforms announced at the Autumn Budget will be accelerating this trend," Stephen Lowe, director at retirement specialist Just Group, said.

Approximately one in 10 (9.7%) deaths are forecast to incur IHT on the estate by 2029/30. The most recent figures show 4.39% of UK deaths led to an IHT charge in the 2021/22 tax year.

Lowe said the predicted increase shows it is "clear that the tax is no longer restricted to the very wealthy and is beginning to take a bigger bite of Middle Britain’s wealth".

He added: “We encourage people to make sure they have an up-to-date valuation of their estate, including a recent assessment of their property wealth, to help them understand if they are likely to incur IHT.

"Estate planning is complex and professional financial advice can be immensely helpful for people who want to manage their estate efficiently and pass on the maximum inheritance to loved ones.”

- Jessica Sheldon, deputy digital editor

Rachel Reeves sets the scene for ISA reforms

While the chancellor didn’t mention ISAs in her speech, the tax-free savings accounts did get a mention in the Spring Statement policy paper.

It said: “The government is looking at options for reforms to Individual Savings Accounts that get the balance right between cash and equities to earn better returns for savers, boost the culture of retail investment, and support the growth mission.”

This could be a hint towards cutting the cash ISA limit in future. Currently, savers and investors can split their £20,000 ISA allowance across different types of accounts like cash ISAs and stocks and shares ISAs as they see fit.

Rachael Griffin at the wealth manager Quilter says modernising ISAs is “long overdue”. She adds: “Making stocks and shares ISAs more attractive than their cash counterpart could help more people grow their wealth over the long term and direct more capital toward productive investment, which is clearly a goal for this government.”

However, Michael Summersgill, chief executive of AJ Bell, says a separate cash ISA limit would “run counter to Labour’s stated aim to simplify the ISA landscape. Rather than having a simple-to-understand £20,000 overall limit, people would have a limit within that limit and there would need to be complex restrictions on transfers from stocks and shares ISAs to cash ISAs to prevent people gaming the system.”

- Ruth Emery, contributing editor

Rightmove: “Government should have extended the impending stamp duty deadline for home buyers”

Stamp duty thresholds will revert to their original levels next Tuesday (1 April), meaning home buyers will potentially have to fork out thousands of extra pounds in tax. To recap, since October 2022, stamp duty has only been due on homes worth more than £250,000, or £425,000 for first-time buyers. However, these thresholds will drop back to their original levels from 1 April – £125,000 for regular buyers and £300,000 for first-time buyers.

Estate agents, mortgage lenders and conveyancers have reported a huge rush in buyers trying to complete before next week’s deadline.

Rightmove’s property expert Colleen Babcock says: “It’s extremely disappointing that the government has not used the Spring Statement as an opportunity to extend the impending stamp duty deadline for those currently going through the home-moving process. We estimate over 70,000 buyers are going to miss the deadline and complete in April instead, and a third of those are first-time buyers.”

- Ruth Emery, contributing editor

Summary: Key announcements from Reeves’s Spring Statement

• OBR forecasts: The growth forecast for 2025 has been halved to 1%, but revised up for the rest of the forecast period.
• Fiscal rules: The chancellor says the measures she has announced have restored her fiscal headroom “in full”.
• Welfare reforms: Reeves announced some further details following on from last week’s reforms. The standard allowance of Universal Credit will increase above inflation from 2026-27, but by less than previously thought. Meanwhile, the health element of Universal Credit will be frozen for existing claimants until 2029/30, and for new claimants it will be reduced by £50 a week in 2026/27 before being frozen until 2029/30. In total, the entire package of reforms (measures announced last week and today) will save £4.8 billion by 2029/30, the government said.
• Defence spending: Labour reiterated its commitment to increasing defence spending to 2.5% of GDP by 2027, and announced an additional £2.2 billion funding boost for 2026.
• Capital infrastructure: The chancellor committed £13 billion to capital infrastructure over the next five years.
• Social and affordable housing: Reeves committed an additional £2 billion to social and affordable housing in 2026/27.
• Clamping down on tax evasion: The government said measures would raise over £1 billion in additional gross tax revenue per year by 2029-30.
• Public sector reform: Steps include abolishing NHS England to “reduce bureaucratic inefficiencies”, and providing £150 million for government employee exit schemes – part of a drive to reduce Civil Service costs by 15% by the end of the decade.

- Katie Williams, staff writer

Reeves’s statement was better than expected – but are tax hikes on the horizon?

In his response to Reeves’s statement, shadow chancellor Mel Stride asked her how the markets would respond. But the answer so far today is that they seem relatively non-plussed – a good outcome for the chancellor.

The FTSE 100 and the FTSE 250 are both in the green, at the time of writing. Ten-year government bond yields haven’t risen significantly either. They are still at around 4.7%, roughly where they were this morning.

A better-than-expected growth outlook from the OBR could be partly to thank. Although the 2025 growth forecast has been slashed in half to 1%, the outlook for the remainder of the forecast period has been upgraded.

Despite this, James Smith, developed markets economist at ING, points out that the UK’s public finances are “operating on increasingly fine margins”. What’s more, he adds that defence won’t be the only department that requires “fresh cash injections over the coming years”.

“At the Autumn Budget, that may leave the Treasury with little choice but to boost government spending plans even further,” he says. “In the absence of further upgrades to GDP growth, or a fall in gilt yields (not our base case), we think this is likely to necessitate further tax hikes.”

- Katie Williams, staff writer

Calls for wealth tax in post-Spring Statement debate

During the post-Spring Statement debate, Andy McDonald, Labour MP for Middlesbrough East and Thornaby, made the case for capital gains tax (CGT) equalisation with income tax or a 2% wealth tax on assets worth over £10 million.

The latter suggestion was supported by Nadia Whittome, Labour MP for Nottingham East.

Both suggested this as an alternative to cuts to disability benefits.

While the chancellor said last September that Labour would not bring in a wealth tax, she did not mention it today - and experts predict we could hear more about this 2% tax on the wealthy in future.

Sarah Coles, head of personal finance at Hargreaves Lansdown, comments: “With the public finances still so tight, the government hasn’t ruled out more tax rises in the autumn Budget, and as the post-Statement debate showed, we can expect the debate on the wealth tax to rumble on.”

According to Coles, there are wealth taxes in countries including Spain, France, Switzerland and Norway. “They all work differently, so there’s no one single structure to follow. In effect, the UK already has taxes on wealth – including CGT and dividend tax when you invest outside an ISA or a pension.

- Ruth Emery, contributing editor

State pension forecast to rise by 4.6% in 2026 - but ‘bizarre tax cliff edge’ looms

The full new state pension of £11,975 a year – that will come into effect next month – will be just under the tax-free personal allowance (£12,570).

The latest forecasts from the Office for Budget Responsibility, released alongside the Spring Statement, suggest the state pension will rise by 4.6% next year under the triple lock, taking it to £12,569.85 a year – just 15 pence below the tax-free allowance.

Jon Greer at the wealth manager Quilter, comments: “The OBR’s latest forecasts confirm we are fast approaching a bizarre tax cliff edge for pensioners.

“What was intended as a mechanism to protect pensioners from poverty is now colliding with fiscal drag. This situation is the result of the triple lock producing some significant increases in the state pension due to high inflation and earning figures while the government has failed to uprate tax thresholds in tandem.”

The OBR predicts the state pension will then rise by 2.5% in 2027/28, taking the full new state pension to £12,885.50 a year – busting the personal allowance by £315.50.

- Ruth Emery, contributing editor

Tell us your thoughts on the Spring Statement

That concludes our live coverage for today – thank you for joining us. But before you go, we want to hear from you. Was the Spring Statement better or worse than you expected?

Pressure is mounting on Chancellor Rachel Reeves as she prepares to deliver her first Spring Statement next week.

Reeves has commissioned the Labour government’s Spring Forecast from the Office for Budget Responsibility (OBR), the UK’s fiscal watchdog. The forecast on the nation’s economic health will be published on 26 March, with Reeves delivering a statement in parliament shortly afterwards.

As households and businesses continue to digest the implications of last year’s Autumn Budget, which unveiled £40 billion in tax hikes and £70 billion in spending policies, you are possibly hoping that nothing further will be announced.

The Treasury has previously said Reeves is “committed to one major fiscal event a year to give families and businesses stability and certainty on upcoming tax and spending changes”, which would suggest this is not intended to be a big event.

However, a challenging economic backdrop could force Reeves's hand.

High borrowing costs and low economic growth have already wiped out the government’s £9.9 billion “fiscal headroom”, according to reports from Bloomberg last month.

The latest Office for National Statistics data shows the UK economy went into reverse in January, with GDP down 0.1%. Meanwhile, inflation has been rising and the Bank of England held interest rates steady in March amid economic uncertainty.

In a recent survey from wealth management firm Quilter, 47% of investors said they expect Reeves to cut spending rather than raise taxes at the upcoming Spring Forecast. Around a third (35%) believe spending cuts and tax rises will be combined, while 6% think tax increases alone will be used to balance the books.

When MoneyWeek asked the Treasury to comment on whether any policies would be announced on 26 March, they neither confirmed nor denied, simply stating: “The government’s commitment to fiscal rules and sound public finances is non-negotiable. As previously announced, the OBR's next forecast will be presented to parliament on 26 March alongside a statement from the chancellor”.

Will Rachel Reeves announce spending cuts?

Spending cuts seem to be the most likely solution.

The government has already outlined a series of welfare cuts this week to save £5 billion by 2030. Alongside welfare cuts, health secretary Wes Streeting has outlined an efficiency drive within the civil service with the goal of bringing about significant savings. This has included scrapping NHS England.

The anticipated cuts come after prime minister Keir Starmer announced the defence budget would increase by £13.4 billion to 2.6% of GDP by 2027 following increased fears that the US would make a deal with Russia to end the war in Ukraine. Starmer has said that much of the funding would come from cuts to the international aid budget.

In the longer term, cuts could be on the horizon for other parts of planned government expenditure. For instance, GB Energy could face billions of pounds less in funding this summer if the government tries to cut costs in its spending review in June, as recent reports suggest.

The state-owned renewable energy investment body was promised in Labour’s 2024 manifesto and is in the early stages of being established. Energy secretary and former Labour leader Ed Miliband is leading the project. But now, reports from the Financial Times say the Treasury is eyeing up potential cuts to the project, which was planned to have a budget of £8.3 billion over the course of the current parliament.

One option to save cash on the project comes from axing the £3.3 billion sum ringfenced to fund low-interest loans for renewable energy projects like putting solar panels on roofs, and shared-ownership wind turbines. This move alone would almost halve GB Energy’s budget.

Meanwhile, many other initiatives and departments could face budget cuts in the June spending review as the government makes up for a shortfall in its fiscal headroom. The review is expected to be so extensive that one government official told the FT that the following blanket response could be applied to every single spending commitment: “[His Majesty’s Treasury] refuses to confirm X”.

When approached for comment, a government spokesperson told MoneyWeek: “We are fully committed to the £8.3 billion for GB Energy, which is at the heart of our mission to make Britain a clean energy superpower and to ensure our homes are cheaper and cleaner to run.”

Spring Forecast: Will Reeves be forced to raise taxes further?

Analysts are not expecting any tax rises to be announced next week.

“The Spring Statement is not scheduled to be a tax-and-spend event, so we aren’t anticipating the fiscal announcements you’d normally expect at a Budget – although it is impossible to be certain this will remain the case,” said Tom Selby, director of public policy at investment platform AJ Bell.

“That doesn’t mean it won’t be consequential, however, with the OBR forecasts setting the scene for the country’s finances and potentially paving the way for more difficult decisions later in the year,” he added.

Selby told MoneyWeek that the Treasury could face some big questions if the OBR forecast reveals that Reeves’s “fiscal headroom” has been wiped out, as anticipated. It will need to decide whether tax rises or spending cuts will be used to balance the books. Deciding which areas to target will be challenging.

“Given the severe criticism the government has faced following the hike in employer National Insurance and the subsequent downgrade in growth forecasts, it seems unlikely further substantial hits to businesses will be on the table,” he said.

A recent survey of 52 leading retailers, conducted by the British Retail Consortium, revealed that 56% of respondents plan to reduce employees’ hours or overtime in response to April's National Insurance changes.

Around half are planning to reduce their headcount, and around 67% are planning to hike their prices to help offset the costs associated with a higher wage bill. All of this could prove damaging to the government’s growth mission.

Some commentators argue that the government has backed itself into a corner by promising not to hike the three main taxes this parliament – income tax, employees’ National Insurance contributions, and VAT. Collectively, these accounted for more than 60% of total tax receipts in 2023/24.

With this in mind, Selby suggests that scaling back public spending could be the only remaining option. This too will be “extremely challenging both practically and politically,” he says, “particularly as the chancellor has committed to not returning to the austerity policies adopted by George Osborne in the wake of the financial crash”.

Treasury says fiscal rules are “non-negotiable”

At the end of January, the House of Commons voted to bring Reeves’s new fiscal rules into law.

The first is known as the “stability rule”. This ensures that day-to-day spending is matched by tax revenues, so the government is only borrowing to invest. The second is known as the “investment rule”. This requires the government to reduce net financial debt as a share of the economy.

The Treasury reiterated to MoneyWeek that these rules are “non-negotiable”. Against this backdrop, it sounds as though Reeves could be in a tough spot. However, the economists at European bank ING recently argued that meeting the fiscal rules is not quite as hard as it sounds.

They said: “Remember that the fiscal rules are based not on actual budget deficits/surpluses right now, but where they’re projected to be in five years’ time. That allows for plenty of creative accounting about what the future holds.

“In the aftermath of the 2022 ‘mini-Budget’ crisis, then-chancellor Jeremy Hunt won round investors and the OBR by promising big real-term spending cuts to various government departments in three to five years’ time. Three years on in 2025, the reality is quite the opposite. Real-term spending is set to increase – by a lot.”

ING believes the Treasury is likely to do something similar this time around, if the OBR reveals that Reeves’s fiscal headroom has been used up, probably focusing on future spending cuts rather than future tax rises.

“The lesson from 2022 is not to be fooled into thinking that will necessarily imply dramatically lower spending in the next financial year,” the bank’s economists added. “More likely, the heavy lifting will come by paring back spending plans in future years, which ultimately may never materialise.”

Jamie Morrison, head of the private client team at HW Fisher, added: “With Labour committed to keeping their main tax announcements [to once a year], we’re not expecting any major tax changes in the upcoming Spring Statement. As the UK’s tax burden is already at a historic high, it is more likely that spending cuts and reform to public finances will take centre stage.”

Alternatively, the chancellor could look to other seemingly invisible options. “On tax, there has been speculation that Reeves might extend the Tories' freeze on tax thresholds beyond 2028, despite her previous pledge to end the freeze,” said Ian Cook, chartered financial planner at Quilter. “This 'taxing by stealth' has been a common move by policymakers when faced with difficult choices,” he added.

The move would almost certainly prove unpopular, though, and be seen as a direct U-turn on what was announced in the Autumn Budget. At a push, it could even be seen as a broken manifesto promise given taxpayers would effectively find themselves paying more income tax as a result.

Domino’s Pizza Group says it is facing a hit of about £3 million a year from recent Budget measures, with the the government’s increase in employer national insurance contributions (NICs) significantly adding to its costs.

Domino’s said in a statement to investors: “Although we have identified specific mitigation plans, we now believe that the annual impact for Domino’s Pizza Group will be circa £3 million per annum from 2024-25 onwards.”

The group also unveiled a new five-year profit and sales target agreement with its franchisees, with the company targeting further store expansion and investments. It currently has more than 1,350 stores in the UK and Ireland.

Domino’s added that sales have continued to increase in the first nine weeks of its fourth quarter, with total orders up 5.3%.

It comes after 79 UK retailers, including Sainsbury’s and Tesco, wrote to Chancellor Rachel Reeves last month to complain about the Budget.

The letter, which was co-ordinated by lobby group British Retail Consortium and also co-signed by Boots, Next and Marks and Spencer, warned that the employer NIC rise - as well as changes to the national living wage - would lead to £7 billion of additional costs that would trigger job losses and higher prices for customers.

How will the employer NIC rise impact retailers?

A number of companies have voiced their anger about the government's change to NIC contributions since the Budget.

Last month Asda said the tax amendments announced in the Autumn Budget would hit the retailer with £100 million in extra costs. Chairman Lord Stuart Rose told shareholders the increase in employer taxes is “a big burden for business to carry”. He added that the supermarket will do all it can not to pass extra costs on to consumers, but it is likely to result in rising costs at the supermarket in some form.

Sainsbury’s, meanwhile, warned of a £140 million hit, while Marks & Spencer said it would mean £60 million in extra costs.

Sainsbury’s chief executive Simon Roberts said: “I don’t think you can shy away from the fact that, because of the changes in everyone’s cost base, it is going to feed through into higher inflation.

“This barrage of costs coming at us is significant and we’re an industry, a very efficient industry and intensely competitive, and there just isn’t capacity to absorb all of this.”

Should you buy the UK-listed Domino's?

In November Warren Buffett, one of the legends of investing, took a major stake in the US entity of the group Domino’s Pizza. However, while the original company, which is the part that Buffett bought into, has a solid record, the UK-listed Domino’s Pizza Group arguably looks even more attractive.

MoneyWeek’s shares editor Matthew Partridge wrote earlier this month: “Domino’s Pizza Group is a master franchise of the US chain, which means that it has the rights to open stores in the UK and Ireland. It is on track to open its 1,400th store in 2025, with a 7% share of the overall market for takeaways.

“It has successfully invested heavily in all aspects of its digital operations in order to cut costs, stay ahead of its competitors and benefit from the boom in people ordering takeaways, which has continued despite the cost-of-living crisis.

“However, the characteristic that makes the UK franchise more appealing than the original company is its valuation. While the US-listed outfit trades at 26 times estimated 2025 earnings, the UK franchise costs only 15 times next year’s profits. It also has a dividend of 3.45%, compared with the 1.5% yield for the American firm. And if you look at both firms’ records since 2018, the UK franchise has grown its sales slightly faster, with similar expansion in profits.

“In addition to a solid business model and a reasonable valuation, Domino’s Pizza Group is benefiting from favourable market sentiment. The stock is above both its 50-day and 200-day moving averages and has eclipsed the overall market over one, three and six months. I would, therefore, suggest that you go long at £3 per 1p, at the current price of 338p. In this case, I would suggest putting the stop-loss at 208p, which would give you a total downside of £990.”

For more up-to-date analysis, see our recent piece on the Spring Forecast, which will take place on 26 March 2025. We delve into how this could differ from a Budget and what the chancellor could announce.

Chancellors have become chatty in recent years, often opting for two annual Budgets rather than just one. This isn’t the official pattern, though, and a Treasury spokesperson recently indicated to MoneyWeek that a Spring Budget looks unlikely in 2025.

“The chancellor has been clear that she will never play fast and loose with the public finances,” they said. “That is why she is committed to one major fiscal event every year.”

The spokesperson added that this approach would “support economic growth and deliver certainty and stability for departments, families and businesses after over a decade of chaos and instability before”.

The comments follow Reeves’s first fiscal statement at the end of October, the Autumn Budget. This included £40 billion in tax hikes and £70 billion in spending plans.

The government said these measures were necessary to fix the “black hole” left behind by the Conservatives and to avoid a return to austerity – but it has run into criticism over several measures.

The hike to employer National Insurance (NI) contributions has been particularly controversial. Labour was determined not to raise taxes for working people, but critics say the NI hike will discourage employers from giving pay rises. It could even result in redundancies.

Seventy-nine UK retailers including Marks and Spencer and Tesco recently wrote to Reeves, warning of the £7 billion hit they will face as a result of changes announced in the Budget. As well as redundancies, they argue the changes will result in higher prices for consumers.

Businesses will be hoping that there are no more nasty surprises lurking around the corner – something Reeves acknowledged at a recent conference with the Confederation of British Industry (CBI).

Speaking at the event in November, Reeves told firms she was “not coming back with more borrowing or more taxes”, adding that public services now need to “live within their means”.

What about the spring spending review?

Every few years, the government carries out a spending review to set the budgets for each department. The last review took place in October 2021 when Rishi Sunak was chancellor, setting budgets until 2024/25.

Reeves is in the process of carrying out the next review, which will set budgets for at least the next three years. She gave an update in her recent Budget speech, confirming the first phase of the review has been conducted.

The next phase of the review was due to be delivered in the late spring, but the Financial Times reported last month that the schedule has since slipped. It is now expected to be delivered at some point in June, according to the paper’s sources.

With this in mind, you might be wondering whether the spring spending review is just a Budget by another name. But the answer is: not necessarily.

The House of Commons Library says that, unlike Budgets, parliament has “little formal role” in the spending review process. It adds: “There is no legislation governing spending reviews and they do not involve any formal role for Parliament, although select committees often scrutinise aspects of each review.”

Reeves has said the spending review will involve “difficult choices”, and has promised to take a “zero-based” approach where all expenses must be justified for each new period. “Just as we cannot tax and spend our way to prosperity, nor can we simply spend our way to better public services,” she added.

When is the next Budget?

If there is no Budget in the spring and Reeves shifts to one major fiscal event each year, the next Budget is likely to take place in the autumn of 2025.

The exact timing of the fiscal statement can vary. Although Reeves delivered the most recent Budget in October, former chancellor Jeremy Hunt opted for November when he delivered his statements in 2022 and 2023.

“For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle,” said Winston Churchill. Governments worldwide have tried to prove him wrong, without success, affirming Einstein’s observation that “insanity is doing the same thing over and over and expecting different results”. Adam Smith wrote over 250 years ago that “little else is requisite to carry a state to the highest degree of opulence, but peace, easy taxes and a tolerable administration of justice”. Ronald Reagan quipped that “I never met a tax cut I didn’t like”, or, by implication a tax increase he did like. But in the view of the modern world, “history is bunk” (Henry Ford), and the wisdom of the past should be forgotten.

Hence, in response to Britain’s high national indebtedness (over 100% of GDP) and the dire outlook for its finances, left-leaning politicians, newspapers, think tanks and the Treasury have spent a great deal of time and effort in the game of Fantasy Tax Increase, drawing up lists of what taxes they would most like to increase. The causes of Britain’s fiscal crisis are simple. First, the government’s fiscal response to the Covid outbreak was grossly irresponsible (but hugely popular at the time). Second, the lowest interest rates in history facilitated extravagant public spending – witness HS2. Third, the slowdown in GDP growth since the 2008 financial crisis limited growth in tax revenue.

Higher growth would solve the problem, as it may be doing in the US, by generating higher tax revenue and reducing the need for welfare spending. But measures to encourage growth only bear fruit in the long term and may cost money in the short term. Governments tend to focus on the electoral cycle of the next five years, ensuring policy failure, rather than the next 25 years. In the shorter term, the government believes it has to either raise taxes or cut spending. The problem with the latter is that no government in the UK has ever done more than slow down the rate of increase, and even that leads to howling about “austerity”, which increases pressure for a catch-up increase when the crisis passes.

Labour's tax rises

That leaves tax rises, which the taxpaying voters hate but the growing number of non-payers don’t, especially in a country more motivated by levelling-down than by encouraging aspiration. Hence Rachel Reeves’s Budget focused on upping taxes few people pay, such as capital gains tax and inheritance tax, and the removal of their tax breaks. But “those with the broadest shoulders” are also the most mobile and canny, with the best accountants and lawyers. The likely result is far less, if any, additional revenue than hoped for – as the Treasury has pointed out to Reeves.

Increases in income tax, expenditure taxes or National Insurance would be harder to avoid but politically suicidal, and might not work. In recent months the monthly fiscal deficit numbers have consistently proved worse than expected, probably thanks to the failure of the tax increases imposed by the last government to raise revenues. There is a political consensus that the solution is higher GDP, growth but that would require reforms with which Labour will struggle. It says it is committed to reforming the NHS, whose declining productivity has been a drag on the whole economy. Labour has also promised planning reform to accelerate the construction and reduce the cost of new infrastructure and housing. But the proposals focus on the application of the sticks of compulsory purchase of land, the confiscation of planning gain and diktats to local authorities – without the carrots of incentives. It promises a bonanza for lawyers.

The pandemic energised the private sector but had the opposite effect on the public one. As Janan Ganesh of the Financial Times says, “Labour is the political arm of the public sector middle class”, making deregulation and increased efficiency not only unlikely but almost inconceivable. With the coal mines all closed and North Sea hydrocarbon production in decline, energy has become a serious drag on the economy. Increasing national energy self-sufficiency and reducing its cost to firms and consumers would be good for growth but the government is determined to go in the opposite direction. It plans to shut down hydrocarbon production, while its target of net zero by 2030 involves a massive cost to consumers.

Finally, the number of people of working age living on benefits is now 4.2 million, a rise of one million since 2019, and is expected to rise by 30% by 2030. This both reduces tax receipts and increases spending. Benefit reform is urgently needed but highly unlikely. The implementation of these reforms would buy the government time but without them, tax revenues will continue to undershoot and expenditures to overshoot. Next year, Reeves is likely to impose more general tax increases, probably breaking Labour’s pledge not to “raise taxes on working people”, in a desperate attempt to appease the bond market, on which the government relies to finance its deficit.

This is already a problem. The yield on 10-year gilts has fallen from 4.6% a year ago to 4.2%, having been 3.75% a few weeks ago, but the US 10 Year Treasury yield has fallen more, from 5% to 4%, despite higher growth. If, as is likely, UK gilts continue to underperform, yields could reach 6% next year. This will significantly worsen the public finances. If the outlook for the economy, the budget deficit, national indebtedness and the government’s popularity look bad now, they will look a lot worse in a year’s time. A storm on the scale of the 1976 crisis is likely. The question then will be whether that will lead to the humiliation of a dramatic policy U-turn on spending and taxes, as it did 50 years ago, or whether the government will go for the full kamikaze.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Rachel Reeves has confirmed she will change the UK’s fiscal rules in her Budget next week, which will free up billions of pounds for infrastructure spending.

The chancellor said she would make the technical change to the way debt is measured in order to allow the government to pay for extra investment.

She told the BBC that the change was being made "so that we can grow our economy and bring jobs and growth to Britain".

The tweak is expected to allow for up to £50bn of extra borrowing to invest in major building projects such as roads and railways. It is expected that the extra money will be used over the course of Labour’s term in power rather than being earmarked for projects in the Budget next week.

Reeves confirmed the change during a trip to the International Monetary Fund’s annual meetings in Washington.

Shadow chancellor Jeremy Hunt said increasing borrowing could mean that interest rates would be higher for longer, which would “punish families with mortgages". "The markets are watching," he added.

Despite the change to the fiscal rules, however, the Budget next week is still expected to result in some cuts to public services and tax rises.

Which taxes could go up in the Autumn Budget?

The much-anticipated Budget will take place on 30 October and is likely to kick off at around 12:30 UK time, just after Prime Minister’s Questions.

Prime minister Keir Starmer has previously warned that the Budget will be “painful” and involve “tough decisions”, leading to speculation about tax hikes.

Over the summer, Reeves accused the former Conservative government of leaving a £22 billion shortfall in the public finances. In recent days, talk has turned to a £40 billion “funding gap” – the sum Reeves is reportedly looking to raise through a combination of spending cuts and tax rises.

Labour has previously promised not to raise income tax, employee National Insurance contributions or VAT. But there are a range of other areas that could be targeted, such as pensions, inheritance tax (IHT) and capital gains tax (CGT).

Furthermore, while income tax rates are not expected to rise, taxpayers will find themselves paying a larger annual bill regardless thanks to the silent tax collector that is fiscal drag.

The personal allowance and income tax thresholds have been frozen until 2028, meaning taxpayers are increasingly finding themselves being dragged into a higher band of tax as their salary increases with inflation.

If the latest rumours are true, Reeves could be looking to extend this freeze (imposed by the previous Conservative government) until the end of the current parliament.

Labour has also confirmed that it will add VAT to private school fees from 1 January 2025 to help fund more teachers in the state sector, meaning costs could increase by up to 20%.

Uncertainty ahead of this month’s Budget saw asking prices for homes in the UK rise by much less than expected in October.

According to data from property website Rightmove, asking prices increased by just 0.3% in October, well below the 1.3% average for the month.

The near stasis comes as Rachel Reeves prepares to deliver her first Budget as chancellor on 30 October, with many fearing policy changes and tax rises that could be detrimental to house price growth.

However, Rightmove says a glut of properties on the market also dampened price rises. The number of homes available for sale was 12% higher than the same time period last year.

Tim Bannister, the company’s director of property science, said: "This month's subdued price growth comes as buyer choice soars to a level not seen since 2014. With the ball in the buyer's court and the pick of a big crop to choose from, sellers need to be pricing competitively to find a buyer.

“Some estate agents report that movers are also now waiting for Budget clarity and anticipated cheaper mortgage rates later this year.”

Buying a house in a 'new town' is cheaper

The findings come after lender Halifax reported that house buyers could save up to £50,000 by purchasing a property in a new town built after the Second World War compared to elsewhere in the UK.

Halifax says the average house price in a new town is £300,656, as opposed to a UK average of £346,995.

Over the past 30 years, Halifax says the average price of a property in a new town, such as Milton Keynes, has jumped by 441 per cent, slightly behind the average for the whole of the UK at 454 per cent.

However, some new towns have seen significant property spikes. Crawley in West Sussex tops the list, with property prices surging by 543 per cent since 1994, from £63,712 to £409,836.

What is happening with house prices?

House prices rose by 1.5% in August, bringing the annual growth rate to 2.8%, according to official figures.

The average price of a property in the UK now sits at £293,000, an £8,000 uplift compared to a year ago.

The Land Registry index, which differs from the way Halifax calculates prices, shows that annual house price inflation was highest in the North West, where prices increased by 4.6% in the 12 months to August. The South West had the lowest annual inflation of all regions in England, with prices rising by just 0.8%.

Jeremy Leaf, estate agent and a former RICS residential chairman, says: “This most comprehensive of all house-price surveys, as it includes cash and mortgage transactions, demonstrates once again considerable market strength despite reflecting activity over the past three months at a time of economic and political turbulence.

Where have house prices risen the most?

The official house price index from the Land Registry and the Office for National Statistics reveals that of the four UK regions, values rose the fastest in Northern Ireland.

Average house prices in Northern Ireland jumped 6.4% over the past year to reach £185,000. This was followed by 5.4% growth in Scotland, with the average property now costing £200,000. In Wales, house prices rose 3.5% to reach £223,000. Meanwhile, in England prices increased 2.3% to £310,000.

In terms of English regions, the North West saw the fastest annual house price growth (4.6%), followed by Yorkshire and the Humber (4.4%), and then the West Midlands (2.6%).

The slowest house price inflation was seen in the South West (0.8%), followed by London at 1.4%. The average home in the capital now costs £531,212.

Could research and development (R&D) tax credits be a target for Rachel Reeves in her first Budget? The annual cost of the credits, paid to businesses investing in innovation, has increased to around £7.5 billion a year. And amid warnings that not all claims are bona fide, that pot of cash could make a tempting target. 

More than 55,000 small businesses received R&D tax credits last year, the latest figures from HM Revenue & Customs show, underlining the value of this scheme to large numbers of companies. However, the scheme has already undergone substantial changes, with reforms introduced in April aimed at simplifying the system and cracking down on ineligible claims.

Recent R&D reforms

The new arrangements have merged the two separate schemes that discriminated between claims made by small and larger businesses. However, the principle remains the same: if your business invests in innovation, it should be able to offset some of the cost of that investment against its corporation tax. And if you’re not paying corporation tax because your business is not currently profitable, you should still be eligible for support. 

The rules get quite technical, but the relief is a valuable one, enabling you to claim back up to 27% of your innovation costs (depending on your circumstances) under the new merged scheme. Claims can be made in relation to innovation costs incurred in your past two accounting years. 

Importantly, innovation has a broad meaning under the scheme. It might be that your business is investing in trying to make some sort of advance in science or technology. Or you may be seeking to overcome some sort of scientific or technological uncertainty. That brings a broad range of work into play. It’s not only major technology breakthroughs that count, but also investments in process or development – a company that finds a new way to run an operation or execute its production, say, may be eligible to claim. While HMRC’s figures show that companies in the information and communications sector account for more R&D tax credits than any other, it also receives plenty of claims from manufacturers, professional services companies and the construction industry. 

The bottom line is that if your firm is pursuing innovation of any kind, it is worth looking into whether you are eligible for support. And while it seems unlikely that the chancellor would axe the scheme altogether, she may seek to make further changes to the rules. It therefore makes sense to assess your position now, if only to understand how the Budget affects you. 

That said, tread carefully with claims. In recent years, the government has become increasingly concerned about the quality of claims – and fraud – and HMRC has been scrutinising filings more closely. The tax authority even has powers to claw back credits it decides should not have been paid, with a growing number of small businesses handed bills for thousands of pounds. Some of those demands relate to claims made several years ago. 

It’s therefore imperative not to leave yourself vulnerable to a difficult inquiry from HMRC. It may be a good idea to take professional advice from an accountant or a tax credits specialist before proceeding with a claim. But work with an adviser you trust. A small cottage industry has grown up around the tax-credits sector, with firms making bold claims about how much support they can secure for businesses. They will typically take a sizeable chunk of this cash – and if HMRC does subsequently investigate your case, it may be difficult to pursue the adviser.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Higher taxes on the wealthy will be “part of the story” in chancellor Rachel Reeves’ second Budget, she has said.

With just one day to go until she stands up at the dispatch box on Wednesday (26 November), speculation is mounting about what that will mean for millions of taxpayers.

Most experts predict tax hikes and spending cuts are almost inevitable in the Autumn Budget. A clampdown on pension tax relief, more capital gains tax on property, further tightening of inheritance tax rules, and the potential for more tax to be brought in by frozen income tax thresholds are all rumoured to be on the table.

We look at the runners and riders of policy options in what could be an unsettling Budget for Britain’s higher earners and investors.

Which taxes could go up?

If the government sticks to its promise not to raise the three main working taxes – National Insurance, income tax and VAT – Reeves will need to look for other areas that remain untapped.

1. Extending the tax threshold freeze

It increasingly looks like the chancellor will row back on her decision to end the freeze on personal tax thresholds, according to reports in The Times.

Reeves seems to be set to abandon her pledge to let the threshold freeze expire in 2028 and instead extend it to 2030. Doing this is forecast to raise around £50 billion by the 2029/30 tax year, according to data from the Institute for Fiscal Studies (IFS).

Extending the freeze to 2030 could mean high earners find themselves paying thousands more in income tax compared to 2021, when thresholds were first frozen, according to calculations by Rathbones.

Someone who earned £100,000 in 2022 could pay £7,000 more in tax than if thresholds had kept pace with inflation. The additional tax burden would be £5,600 for someone on £80,000, and £4,600 for someone on £50,000.

The figures assume wage growth in line with the Office for Budget Responsibility’s data and forecasts, and 2% inflation in 2030.

2. Salary sacrifice

A clampdown on salary sacrifice schemes could be announced, according to reports, in a bid to raise between £3 billion and £4 billion. This is set to be done by reducing the amount employees can sacrifice from their wages to put into their pensions without having to pay National Insurance.

Under current rules, employees can give up a slice of their pay in exchange for a benefit, such as a pension contribution. It is a tax-efficient arrangement, because it means you pay less income tax, and both you and your employer pay less National Insurance.

3. Investments

Dividends seem to be under threat of increased taxation in the Budget, according to The Telegraph.

Reeves is reportedly considering bringing the amount of tax due from income derived from dividends closer to the amount due from earnings, potentially raising around £2 billion.

A hike to capital gains tax could also be on the cards. A report in The Guardian in August claimed the Treasury is considering increasing rates by “a few percentage points”. This would supposedly be accompanied by some kind of CGT allowance for investors who put money into British businesses, as the government seeks to revive UK markets.

4. Property taxes

A possible replacement of stamp duty with a new levy on the sale of properties worth more than £500,000 could be introduced in the Budget, it is rumoured. Such a policy would shift the tax burden from property buyers to sellers.

Meanwhile, the Treasury is supposedly also thinking about replacing council tax with a new local property tax in an attempt to boost struggling local authorities. The Telegraph reports that properties in council tax bands F, G, and H will be targeted, representing around 10% of all English homes.

Finally, landlords could also be in the Treasury’s line of sight. Labour insiders supposedly told The Times that officials are considering charging National Insurance on property income in the hope of raising £2 billion.

5. Inheritance tax

Inheritance tax was a significant focus in the last Budget, but further measures could be on the cards this year, according to The Guardian.

The Treasury is considering tightening up gifting rules, potentially by introducing a lifetime cap on the value of gifts someone can pass on before they die, or by changing the rules on taper relief (also known as the seven year rule).

6. Business taxes

The government has promised not to raise corporation tax above its current level of 25% for the duration of this Parliament. However, businesses could be impacted in other ways.

At last year’s Budget, the government said it would reform business rates to boost struggling high streets. Reeves promised to introduce lower rates for retail, hospitality and leisure properties, paid for by increasing rates for more valuable properties (those with rateable values above £500,000). The government is due to give an update at this year’s Budget.

The British Retail Consortium (BRC), a trade association, has praised the chancellor’s plans to cut rates for retail, hospitality and leisure properties, but suggests 400 large stores could close if forced into a higher tax band, potentially resulting in 100,000 jobs lost. Aldi UK, the supermarket chain, has also warned that any measures which increase costs for businesses could result in higher food prices.

7. Cash ISA cut

Cash ISA savers are reportedly in the chancellor’s crosshairs with the amount of the overall £20,000 ISA limit you can allocate to cash savings set to be reduced.

Rumours of this policy have circulated since the start of the year, but reports now suggest it will be announced in the Budget, with the cash ISA limit reduced to around £12,000. The overall £20,000 limit is not expected to change.

8. Income tax

In recent weeks, Reeves appeared to indicate she would raise income tax in the Budget, but seems to have since rowed back from this position. However, as no official confirmation came either way, it remains an option open to her on Wednesday.

9. Wealth tax

A wealth tax is another area of speculation, but would be seen as an extreme move, with even Reeves saying in September she is “not even sure it would work”.

A wealth tax is effectively a levy on an individual’s total wealth rather than just their income. It could be applied as a percentage payable by individuals with assets over a certain level. Some of the Parliamentary Labour Party support the policy, and campaigners have previously suggested a 2% wealth tax for individuals with wealth over £10 million.

Should you act on Budget rumours?

Rumours can incite panic but it is important to stay calm and avoid knee-jerk reactions that can leave you worse off over the long run.

Last year, Reeves was widely expected to cut the amount of tax-free cash retirees could take from their pension – a rumour which prompted many to access their pension pot earlier than previously planned. The policy never materialised and some savers were left with regret. Leaving the money invested for longer could have allowed their tax-free lump sum to grow further.

That said, there are some sensible steps you can take as part of your ongoing financial planning to guard against Budget changes:

• Tax-efficient investing: If you want to invest and are looking to protect yourself from CGT and dividend tax, Coles says using a stocks and shares ISA is a “no-regrets move”. If you already have investments but hold them outside of an ISA, moving them inside a tax-efficient wrapper is also a good idea. This process is known as a ‘Bed and ISA’ transfer.
• Cash ISA: You can use a cash ISA to avoid a tax bill on your savings interest. Basic-rate taxpayers become liable for tax as soon as they earn £1,000 in savings interest. Higher-rate taxpayers can earn just £500, and additional-rate taxpayers have no allowance at all.
• Boost your pension: Boosting your pension contributions is almost always a good idea, as a pension is one of the most tax-efficient ways to save.
• Salary sacrifice: Salary sacrifice allows you to swap a portion of your salary for a benefit, such as a pension contribution, and helps both you and your employer pay less tax. For higher earners who would otherwise lose means-tested payments like Child Benefit, it reduces their take-home pay without actually leaving you worse off overall.
• Lifetime gifts: Under current rules, to avoid paying IHT you need to outlive the gift by seven years. Alternatively, regular gifts made out of surplus income become tax-free immediately. For example, you could contribute a regular amount to a grandchild’s junior ISA. To qualify, these gifts cannot be made from capital (i.e. savings or the sale of assets) and must not compromise your standard of living.

The problem with tax hikes

The chancellor undoubtedly is facing a challenging economic outlook at the Budget, needing to fill a budgetary black hole of around £22 billion, according to the Institute for Fiscal Studies (IFS).

At the same time the most recent GDP data shows that the economy grew by just 0.1% in the three months to September, while unemployment, inflation, and borrowing costs all remain high.

The easiest way to raise the £22 billion needed would be to raise taxes, but the problem is the tax burden is already at a record level.

Personal tax thresholds have been frozen since 2021, and inflation has been high. This means many find themselves in a higher tax bracket thanks to fiscal drag alone.

Furthermore, Labour’s general election manifesto promised not to raise income tax, employees’ National Insurance or VAT, but a challenging fiscal backdrop meant Reeves had to look for other ways to balance the books last October.

The 2024 Autumn Budget put the burden on businesses. Tax hikes worth £40 billion were announced overall, with the majority being funded through an increase to employers’ National Insurance contributions.

We are now starting to see the economic impact. Survey data from the Office for National Statistics (ONS) suggests some firms are not recruiting new workers or replacing those who have left. Businesses warned this would be a consequence of higher payroll taxes.

Taxes on wealth were another focus last autumn, with policies on IHT, capital gains tax (CGT) and pensions being announced. Reports suggest this may be prompting some wealthy individuals to leave the UK for more tax-efficient shores.

The IFS suggests proper reform of the tax system would reduce the “disincentive effects” that taxes currently have on investment and the drag that they have on growth.

The Chancellor, Jeremy Hunt, has delivered his first budget today against a mixed outlook for the UK economy.

Billed as a ‘growth budget’, Hunt’s focus has been on getting the UK back to work.

Incentives to encourage workers to return are sorely needed as the UK economy has seen one of the slowest recoveries from the pandemic, among the group of OECD nations.

According to the latest data, the economy is still 0.2% smaller than it was in February 2020, when the pandemic started to move around the world.

Economists have blamed the high number of inactive workers in the economy for this sluggish recovery. High levels of long-term sickness, coupled with early retirement among those over 50, have been singled out as key contributors to the economy’s sluggish performance.

Hunt wants to encourage workers back into the workforce by changing pension allowances, improving access to childcare and devoting more money to training.

However, the Chancellor does not have much fiscal room for manoeuvre. The office for budget responsibility (OBR) has warned that the country's borrowing is running at unsustainably high levels, and the government will either have to reduce spending or increase tax collection to balance the books.

Initial projections suggest that the country will only hit the Chancellor’s target of debt as a percentage of GDP falling, by the end of the next Parliament.

Here’s a round-up of the most important changes and what they mean for your finances.

Stay tuned as we’ll be updating this page throughout the day with more details from the announcement…

Economic outlook

According to the Office for Budget Responsibility (OBR) the country is no longer on track to plunge into a recession this year.

The OBR now expects the economy to contract by 0.2% this year, with unemployment expected to rise only modestly as a result. GDP growth is expected to return in 2024 and for the next five years.

"After this year the UK economy will grow in every single year of the forecast period: by 1.8% in 2024; 2.5% in 2025; 2.1% in 2026; and 1.9% in 2027,” said Hunt.

The OBR also expects inflation will fall to 2.9% by the end of 2023. Underlying debt is forecast to start falling in 2027/28. The deficit is set to fall every year over the next five years to 1.7% of GDP by 2027/28. Thanks to these growth forecasts, the overall tax burden is expected to be slightly lower than previous projections, although it’s still high by historic standards.

Energy Price Guarantee

One of the announcements made before Hunt stood up to deliver his speech is that the Energy Price Guarantee (EPG) will be held at its current rate of £2,500 until July 2023. Hunt was planning to let the energy subsidy rise by 20% on 1 April. However, he will now keep it at the current support level for another three months amid sliding energy prices. Wholesale energy prices have dropped by around 50% since October.

See our article for details on what the EPG extension means for energy bills.

“High energy bills are one of the biggest worries for families, which is why we’re maintaining the Energy Price Guarantee at its current level. With energy bills set to fall from July onwards, this temporary change will bridge the gap and ease the pressure on families, while also helping to lower inflation too,” Hunt said in a pre-Budget statement this morning.

Childcare

In another swift move to get more people back into work, Hunt has also extended free childcare to all children over nine months - it previously only kicked in when a child turns three.

A report this month from Coram Family & Childcare found childcare costs have shot up by 5.6% in the last 12 months; a part-time place for a child under age two costs on average around £148 a week.

Though the extension of free childcare is welcome for parents, there is still an issue around the availability of childcare, which has been declining - only 57% of local authorities have enough childcare places available for children under two, down from 72% in 2021. Only 59% report having enough childcare available for parents working full time, down from 68% last year, according to Coram’s report.

To that end, Hunt also announced more funding for schools to provide wraparound care for school-age children, incentive payments of £600 for childminders joining the profession and an increase in the funding to nurseries of £204 million from this September rising to £288 million next year, an increase of 30%.

"The extension of free childcare announced in today’s Budget is welcome news for working parents. These measures will go some way to help prevent women in particular from dropping out of the workforce to care for children," explains Alice Haine, Personal Finance Analyst at Bestinvest.

"Up to 30 hours of free weekly childcare for all one and two-year-olds – an extension to the current scheme for three and four-year-olds - offers a lifeline to working mothers who want to ensure a return to work makes financial sense. However, the support will be rolled out slowly so not everyone can instantly access the full 30 hours plus it will generally only apply within term time and to households where both parents work. However, on a positive note, from September 2025 every working parent with a child aged over nine months and under the age of five will be able to access up to 30 hours of free childcare per week."

Pension reforms

As part of his plan to get people back to work, Hunt said he’s hiking the pensions annual tax-free allowance from £40,000 to £60,000.

What’s more, the Chancellor has also decided to abolish the Lifetime Allowance - previously set at £1.07 million. Prior to the budget, there was speculation he’d hike the allowance to £1.8 million, but this goes much further.

He also confirmed that the Money Purchase Annual Allowance – the amount that someone can continue to contribute to a flexible money purchase pension once benefits have been taken - will be increased from £4,000 to £10,000.

However, there was a nasty surprise buried in budget notes regarding the tax-free lump sum. This sum is going to be frozen at £268,275, equivalent to 25% of the current lifetime allowance, and frozen thereafter.

Still, Hunt's changes are a boost for pension savers. As Jason Hollands, Managing Director of Bestinvest, the online investment platform says, “The scrapping of the lifetime allowance will mean that those who have halted pension savings entirely - for example because they took out fixed protection to preserve access to earlier lifetime allowances of £1.25 million or £1.5 million - are now in a position to potentially recommence pension contributions, at a time when more of their earnings are likely to be subject to the higher rates of tax."

"But in doing so they need to carefully consider whether this will mean forgoing access to a larger tax-free lump sum. For someone in that position who has not contributed to pensions for several years and whose adjusted earnings are below the level at which the horrendously complicated and punitive tapered pension allowance regime kicks in, they could potentially subscribe up to £180,000 in pensions next year. This could be achieved by using the new, larger £60,000 gross annual allowance and then mopping up unused allowances of £40,000 for each of the previous three years under pensions ‘carry forward’ rules. This is therefore an opportunity for some both to provide a massive boost to their retirement pots, and to take shelter from higher taxes."

Fuel and beer duty changes

As was widely expected, Hunt also postponed the 11p rise in fuel duty and extended last year's 5p a litre cut.

And amid a wide-ranging shakeup of alcohol duty changes, the government has "extended" the "generosity" of Draught Relief so the duty on an average pint of beer served in pubs will not increase this year. The duty on a pint from the pub will be up to 11p lower than supermarkets.

“Duties are one area where the government can raise or cut prices at a stroke, so it’s heartening to see they have stepped in on behalf of drivers. Frankly, after such a long freeze of fuel duty it would have been a surprise if they rose prices right now," notes Sarah Coles, head of personal finance, Hargreaves Lansdown.

"The tax on alcohol will rise 10.1% in August, but there will be a separate rule for draft beers in pubs, which will mean the duty on draft pints is 11p lower than in supermarkets. There’s also the hope that the delay in rising duty will protect the nation’s drinkers while inflation is so high, and only kick in when it has started to fall back."

Stimulating growth through investment

While Hunt didn't scrap the planned corporation tax hike as some businesses and MPs had hoped he might, he did unveil a range of tax changes for businesses to encourage investment,

These include full expensing, allowing companies to deduct 100% of the cost of certain plant and machinery from their profits before tax. This will be in place from 1 April 2023 to 31 March 2026.

The government has also introduced a 50% first-year allowance. This allows businesses to deduct 50% of the cost of other plant and machinery, known as special rate assets, from profits during the year of purchase.

A new R&D scheme for 20,000 SMEs was also published for R&D "intensive businesses." Eligible loss-making companies will be able to claim £27 from HMRC for every £100 of R&D investment.

Alongside these schemes, Hunt also announced billions of pounds in new funding for AI and supercomputer research as well as an additional £11 billion for the armed forces, taking the UK's total spending on defence to 2.25% of GDP by 2025.

You’ve seen the little red box. You’ve heard mutterings of the infamous 2022 mini-Budget that sent your mortgage rate sky high. 

You may have even noticed that your pay packet increased slightly from 6 January as a result of National Insurance cuts made in last year’s Autumn Statement. 

But what exactly is a government Budget? What does it mean for your finances? And what time will it be announced on Wednesday, 6 March? 

What is a government Budget?

Each year, the Chancellor of the Exchequer sets out the government’s plans for the economy in a Budget statement. This includes its spending plans and how they will be funded through taxation. 

In 2016, it was announced that the Budget should be held once a year in the autumn, with an additional statement being made in the spring. 

However, in recent years, the government has deviated from this schedule due to a number of factors. These have included the timing of the 2019 general election, and the need for measures to address the economic disruption caused by the Covid-19 pandemic. 

This year’s Spring Budget follows hot on the heels of Jeremy Hunt’s Autumn Statement on 22 November 2023. It is likely to be the government’s last chance to set out tax and spending measures before the next general election. 

It comes against a tough economic backdrop, with inflation still high at 4%, interest rates still being held at 5.25%, and the UK having slipped into recession in the final three months of 2023. 

The public will be paying close attention to see what economic concessions Hunt is able to make with the limited fiscal headroom he’s got to play with.

When will this year’s Spring Budget be announced?

This year’s Spring Budget will be announced on Wednesday, 6 March at 12.30pm, just after Prime Minister’s Questions. 

Jeremy Hunt, the chancellor, will deliver a speech to MPs in the House of Commons announcing the Budget measures. 

Typically, each Budget is followed by four days of debate. Some tax proposals will be approved almost immediately, while others will be agreed later. 

Some time after each Budget statement, the proposals are made legally binding through a Finance Bill.

Who is responsible for the Budget?

The Chancellor of the Exchequer, currently Jeremy Hunt, is responsible for the Budget. 

After each Budget, the Treasury will typically publish a report providing further detail on the measures announced.

The chancellor’s Budget decisions are partly informed by data and analysis provided by the Office for Budget Responsibility (OBR). The OBR is an independent watchdog funded by the Treasury. Typically, the OBR publishes its economic and fiscal outlook on the same day as the Budget is delivered. 

After each Budget statement, the Commons Treasury Select Committee (a cross-party committee) scrutinises it and provides a report. The government then produces a report in response to these findings.

What does the Budget mean for me?

The contents of the famous red box can have a big impact on your day-to-day life. 

The Budget determines whether or not public services are well-funded. It determines how much you pay in tax. And it also has a sizeable impact on the health of the overall economy. 

You only need to look back to October 2022 and the disastrous mini-Budget to see the consequences of getting it wrong. Gilt yields soared, the pound crashed, the Bank of England had to step in, and mortgage rates skyrocketed. 

Ahead of this year’s Spring Budget on 6 March, we’ve compiled a round-up of all the measures you could expect to see, from tax cuts to ISA reforms. 

The price of a litre of petrol is influenced by a number of factors, including wholesale costs, delivery, supplier margins. However, the largest chunk of the price of petrol in the UK is made up of various taxes on the fuel.

Fuel duty alone makes up 34% of the price of a litre of petrol, while an extra 17% is made up of VAT.

That means that over half the price of a litre of petrol or diesel is just tax. One benefit of this is that surges in oil prices don’t directly translate into hikes on the forecourt.

The levies mean motorists pay more than just the wholesale cost of the fuel and supplier margins, but the same taxes can protect from the worst of market swings when the price of oil changes.

That is the case right now, as the war in Iran is continuing to push the price of oil up, creating a knock-on effect on the price of petrol and diesel.

While the price of oil has increased by around 38% since the beginning of the war on 28 February, up from around $0.45 or ($73 a barrel) to around $0.69 per litre ($100 a barrel) on 6 May, the price of a litre of petrol has increased much less than that.

Petrol prices have climbed by around 18% in that same time period, going from 133p a litre to 157p.

The high taxes on fuel also open the door for chancellor Rachel Reeves to help motorists amid rising fuel prices – groups like the TaxPayers' Alliance have urged her to cut taxes should the fuel crisis continue.

Petrol cost breakdown: What makes up the price of a litre of petrol?

The price of a litre of petrol is generally made up of around six different components, with the manufacturer, retailer, and government all taking a slice of the pie.

A chart showing how the price of a litre of petrol is determined can be found below.

Fuel duty (34%)

Fuel duty is the largest component of the price of a litre of petrol and diesel.

Fuel duty is a tax levied by the government on the consumption of fuel. You pay fuel duty on both petrol and diesel, but also on domestic heating fuel (although a reduced rate).

The rate of fuel duty has been frozen since 2010, and had a further 5p knocked off in March 2022 as a temporary measure, bringing it to 52.95p per litre. It will remain at this rate until September 2026, chancellor Rachel Reeves confirmed in the Autumn Budget.

Under current plans, the temporary 5p cut that was made in 2022 will be gradually reversed after September 2026, therefore increasing the cost at the pump.

Wholesale costs (34%)

The second-biggest component of the cost of a litre of petrol is its wholesale cost. The price of wholesale petrol is based on the price of raw materials including crude oil and refining costs.

The price you pay at the pump will increase or decrease with market movements, which can sometimes be very volatile.

VAT (17%)

VAT is a flat tax of 20% that applies to most consumer goods you buy in the UK, including petrol.

As fuel duty is included in the price of a litre of petrol and VAT is added afterwards, drivers end up paying tax on a tax. VAT represents 17% of the total value of a litre of petrol.

Retailer margin (11%)

This is the amount of money that retailers make every time they sell a litre of petrol.

Delivery and distribution (1%)

This is the cost of distributing and transporting petrol, and is passed onto drivers when they pay at the pump.

Biofuel content (6%)

This is the cost of making the fuel you buy more eco-friendly.

The breakdown for the price of a litre of diesel is broadly the same as that for petrol, but some components make up more of the price, and some less.

A pie chart showing the breakdown of a price of a litre of diesel can be found below.

How are petrol prices determined?

Though it is not the only factor, the main thing that determines the price of a litre of petrol is the price of oil as, without oil, you cannot have petrol.

To make petrol and diesel, the first step is for manufacturers to buy crude oil in the wholesale markets.

Due to its geopolitical importance, the oil market is especially sensitive to external shocks so the price of the commodity can be quite volatile – when there is a greater risk of extracting it, the price of oil will typically increase.

This is what we are currently seeing in the wake of the Iran war. Oil prices have shot up as there is increased risk in extracting oil in the Middle East and transporting it out.

In particular, Iran’s closure of the Strait of Hormuz, a narrow naval passageway between Iran and Oman through which around 20% of the world’s oil is transported, has crippled the global oil supply.

Another example can be seen in the immediate aftermath of Russia’s invasion of Ukraine when the safety of oil processing was threatened.

What is more, oil is typically traded on the global market in dollars, which means that if the dollar strengthens or the pound weakens, oil becomes more expensive for consumers here in the UK.

The AA’s fuel price spokesperson told MoneyWeek: “The influence of the exchange rate is often overlooked when drivers compare oil price movements with those at the pump. At the moment, it is critical. Oil and fuel on commodity markets are traded in dollars, which makes the weaker pound very bad news for motorists.”

Once manufacturers have the crude oil, they then need to transport it to their refinery. There, the crude oil is refined, distilled, purified, and then mixed with a number of other components to finally make the fuel you use in your car.

From ground to pump, making petrol is a long and complex process with a lot of different parties that want to make a profit, all influencing the price you pay.

On top of this, the government taxes petrol and diesel quite heavily, further increasing the price of fuel at the pump.

Jeremy Hunt will announce his first Autumn Statement on Thursday, 17 November.

The new chancellor is preparing to make “difficult decisions” to repair the country’s £50bn fiscal black hole, and has already warned that “everyone will pay more taxes”.

The Autumn Statement replaces the “medium-term fiscal plan” that was supposed to be announced on 31 October.

Instead of setting out a scary Budget on Halloween, the chancellor is now widely expected to turn his Autumn Statement into a “Frozen Statement”, with a range of tax allowances frozen as part of a stealth tax raid.

It means that a toxic combination of inflation, investment gains, and house price and wage growth, will push millions more taxpayers into higher tax brackets; some may even start paying certain taxes for the first time. Workers, investors, pension savers and even grieving families could all be hit by the Frozen Statement.

Hunt previously said “decisions of eye-watering difficulty” would have to be taken to reduce government debt and calm the markets, after the chaos unleashed by Kwasi Kwarteng’s mini-Budget in September.

After the Bank of England raised interest rates to 3% – the biggest hike in decades – Hunt reiterated his warning that there was more bad news to come. He said: “Sound money and a stable economy are the best ways to deliver lower mortgage rates, more jobs and long-term growth. However, there are no easy options and we will need to take difficult decisions on tax and spending to get there.”

What will be announced in the Autumn Statement?

The chancellor will publish a forecast from the Office for Budget Responsibility (OBR), and further measures such as spending cuts and tax hikes. It will set out in detail plans to plug the "fiscal black hole" – estimated to be at least £50bn – as well as a medium-term plan to grow the economy. Hunt was supposed to deliver a smaller version of this on 31 October, but after the prime ministerial revolving door spun round once more – Liz Truss out, Rishi Sunak in – the decision was taken to delay it and transform it into a full Autumn Statement.

The Treasury has warned of tough decisions – a sentiment echoed by industry experts.

Nimesh Shah, chief executive of the accountancy firm Blick Rothenberg, says he doesn’t expect to see any “giveaways”, adding: “The tone under Jeremy Hunt [compared to Kwarteng] is very different; the government is focused on maintaining tax receipts and cutting spending in order to reduce the debt cost.”

Indeed, within just days of becoming chancellor, Hunt had taken an axe to policies designed to support households struggling with the unrelenting cost of living crisis. He scaled back the Energy Price Guarantee, shelved plans to cut a penny off the basic rate of income tax and reversed the 1.25% cut to dividend tax.

Energy Price Guarantee

Hunt announced he was scaling back the Energy Price Guarantee within weeks of taking over, but he’s yet to announce a replacement.

It looks likely he will let the subsidy scheme expire for most in April of next year, although he has pledged to protect the most vulnerable.

According to reports, the government may be considering keeping some form of the cap while also allowing energy prices to increase, reducing pressure on the public finances. While the average energy bill would still rise to an uncomfortable level for most consumers under this plan, it would stop prices spiralling out of control.

However, as the situation in global energy markets remains incredibly fluid, it's too early at this stage to say with a high level of confidence what level consumers’ bills will settle at next year.

Council tax shake up

Reports have emerged that Hunt may also look to shake up the council tax system in order to allow local authorities to raise more money from homeowners.

Under the current system local authorities are not allowed to raise council tax bills by more than 2.99% each year. That includes 1% for the social care precept and 1.99% for general council tax.

If local authorities want to raise more money they have to put the plans to a local referendum, allowing constituents to veto any proposals.

While the Conservative Party manifesto in 2019 pledged to keep the veto on large council tax rises, it appears Hunt may be looking at this avenue to help councils fund social care.

Options on the table include raising the threshold at which a referendum has to be called or scrapping the requirement for a referendum altogether.

Under Tony Blair's Labour government, inflation-busting council tax hikes were common until the coalition government changed the law to cap rises at 2.99%. Since then councils have relied on government grants to fill the gaps between spending and income.

Inheritance tax threshold could be frozen

There is speculation the chancellor will extend a freeze on the inheritance tax (IHT) threshold until April 2028 https://moneyweek.com/personal-finance/tax/inheritance-tax/605498/inheritance-tax-warning-autumn-statement.

Rishi Sunak previously froze the threshold at £325,000 until April 2026 when he was chancellor, and Hunt is expected to prolong the freeze for another two years.

Such a move would mean the tax-free allowance will have remained the same for almost two decades - since 2009 - instead of being raised in line with inflation. If it had been adjusted with rising prices, it would have increased to £464,643 (CPI), or £537,129 (RPI).

Experts say freezing the threshold could see the Treasury pocket an extra £1bn, due to more people’s estates being dragged into the IHT net.

James Green, investment director of the financial adviser deVere Group https://www.devere-group.com/, says the “covert tax increase… will soon start putting a painful squeeze on grieving families”.

He adds: “IHT is very obviously no longer just for the super wealthy, as it was originally intended. It’s impacting more and more middle-class families whose main asset is their family home.”

Pension tax breaks could be frozen – or even cut

Tory governments are fond of tinkering with pensions to raise revenue - and it’s likely Hunt will continue this tradition next week.

According to the Telegraph, the pension lifetime allowance is set to be frozen for two more years, until 2027. The lifetime allowance refers to the amount that savers can accumulate in pension pots during their lifetime without being hit with a penalty when they come to take the money out.

It currently stands at £1,073,100. Savings over that limit are taxed at 55% if the money is taken as a lump sum, or at 25% plus your marginal rate of income tax if withdrawn gradually.

Experts believe the extended freeze will catch an extra two million pension savers. The knock-on effect is that some workers, especially those in the NHS and other parts of the public sector, will simply stop paying into their pension to avoid the tax and retire early - further exacerbating shortages in those workforces.

Sean McCann, chartered financial planner at the insurer NFU Mutual, believes Hunt may also look at lowering the pension annual allowance to raise revenue. This would be simpler than changing pension tax relief.

He notes: “You can currently put up to £40,000 in a pension each tax year, but slashing that to £30,000, or even £20,000 to align with the annual ISA allowance, would save the government huge sums. However, the population is not saving enough for retirement so the government will need to tread carefully.”

What about the state pension triple lock?

The triple lock refers to the guarantee that the state pension will increase each year in line with whichever is highest out of inflation, wages or 2.5%. It is currently suspended until April 2023, but there are fears that the one-year suspension could be extended, or that the triple lock could be axed for good.

The triple lock is a key Conservative manifesto pledge, and one that Truss and Kwarteng had committed to in recent months.

However, new power duo Sunak and Hunt have offered no such assurance. Hunt said last month: “I’m very aware of how many vulnerable pensioners there are and the importance of the triple lock but [...] I’m not making any commitments on any individual policy areas [...] every decision we take will be through the prism of what matters most to the most vulnerable.”

On becoming PM, Sunak has also made no commitment to the policy.

On the other hand, it has been reported that Sunak is reluctant to scrap the pledge because pensioners are unable to boost their incomes through other means. If Hunt can raise billions using a Frozen Statement, it could mean the triple lock survives.

Pensioners received a 3.1% annual increase in April. In April 2023, if the triple lock is restored as planned, they could see their payout rise by 10.1%, due to soaring inflation.

However, if Hunt decided to scrap the triple lock and uprate state pensions by wage growth instead (5.5%) next year, pensioners would lose out on up to £442, according to the investment platform AJ Bell.

Tom Selby, head of retirement policy at AJ Bell, believes there will be some heated discussions between No.10 and the Treasury over the triple lock. “What we have here is a genuine tussle between politics and ensuring the public finances remain on a sustainable footing,” he notes.

Benefit increases to be revealed – and a boost to the National Living Wage

We should find out what is happening to benefit increases when Hunt delivers his Autumn Statement.

Benefit payments usually rise every April. Truss previously failed to commit to increasing benefits in line with inflation, and was expected to make a final decision this month.

While capping benefit increases would be an easy way to raise revenue, Sunak is said to be planning to stick with an inflation-linked rise, to ensure the government is seen as “fair and compassionate”.

Meanwhile, the chancellor is expected to announce a rise in the National Living Wage, from £9.50 an hour to about £10.40 an hour. The rise of nearly 10% would benefit around 2.5 million workers.

Income tax thresholds could be frozen for longer

Income tax thresholds are already frozen until 2026, but Hunt could announce an extension to this, possibly until 2028.

This is a stealth tax that would drag millions of people into the income tax system for the first time, or into higher tax bands.

NFU’s McCann told MoneyWeek: “It’s unlikely we’ll see an increase in the rates of income tax or VAT, as that would go against one of the key pledges of the 2019 manifesto, but there are other ways the government can raise revenue.

“If Jeremy Hunt freezes income tax thresholds, this will drag even more people into 40% and 45% tax bands over the next six years as wages increase.”

He adds: “Those who find themselves being tipped into higher rates of tax should consider paying more into their pension to reduce their taxable earnings.”

Experts say extending the income tax band freeze is “very likely”, and could save the government £5bn a year.

National Insurance could be tweaked… again

The government reversed the 1.25 percentage-point increase in National Insurance contributions (NICs), introduced by Sunak when he was chancellor, on 6 November.

But Hunt could be tempted to look again at NICs as a way of raising money to plug the fiscal hole. Fiddling with NICs rather than income tax is arguably more palatable to voters (simply because many people don’t understand it), and avoids negative headlines about income tax being raised.

Shah at Blick Rothenberg comments: “Hunt may scale back the 1.25% reversal so it only applies to basic-rate taxpayers (anyone earning less than £50,271 a year) from next April – therefore, someone earning above the higher rate would pay National Insurance at 3.25% (rather than 2%).”

He adds that the chancellor could go further, and “apply National Insurance to rental profits and capital gains” too.

Capital gains tax allowances could be frozen or lowered

According to McCann, if the chancellor wants to target those with the broadest shoulders, he could look at capital gains tax. “CGT is currently charged at 10% and 20% – plus an additional 8% if the gain is from residential property – but the Office of Tax Simplification (OTS) has previously recommended aligning the rates with income tax.

“Aligning CGT with income tax may be viewed as disincentivising enterprise, so increasing the rates to 20% and 30% and retaining the 8% surcharge on residential property would be a compromise that would still raise increased revenue for the Treasury. Most CGT comes from a small number of taxpayers who make the largest gains, and this move would help raise further money from that group.”

There are rumours that the CGT annual exemption – currently £12,300 – will be stuffed in the deep freeze as part of the Frozen Statement, instead of raising it to reflect inflation (and house price and investment growth), which normally happens each year.

McCann fears the chancellor could be more aggressive though, by slashing - rather than freezing - the allowance.

He notes: “The chancellor could reduce the CGT annual exemption of £12,300 in order to widen the net of those who pay the tax. Latest figures suggest CGT is paid by 323,000 people, but the OTS estimates that reducing that annual exemption to £5,000 would double that number.”

If we do see a tougher CGT regime announced next week, it will reinforce the case for utilising ISAs and pensions, as gains within these are not taxable. Married couples and those in civil partnerships can also transfer assets to each other to make use of both sets of CGT allowances, as well as shift a potential gain to the partner who is in a lower tax band.

Public spending could be squeezed

Hunt will be aiming to save money wherever he can, from cutting planned investments (the HS2 rail project will be reviewed, for instance) to trimming day-to-day department spending. Sunak has vowed to protect only one area of spending, the NHS, meaning other departments like welfare, education and defence could face large cuts.

The spending squeeze could also mean below-inflation pay deals for public sector workers like teachers, civil servants, police and social workers.

Remember to get your tickets for the MoneyWeek Wealth Summit hosted by Merryn Somerset Webb, on 25 November 2022! – we’ve got some brilliant speakers lined up and, given everything that’s going on, we’ll have an awful lot to talk about.

Book your place now at moneyweekwealthsummit.co.uk

Jeremy Hunt, the new chancellor, is set to reveal the rest of his “medium-term fiscal plan” in less than two weeks’ time, after tearing up most of his predecessor Kwasi Kwarteng’s mini-Budget.

Hunt has warned ministers that spending cuts are coming, and that “decisions of eye-watering difficulty” will have to be taken to reduce government debt and calm markets.

The chancellor has already scaled back the Energy Price Guarantee, shelved plans to cut a penny off the basic rate of income tax, reversed the 1.25% cut to dividend tax and back-tracked on changing IR35 legislation.

Experts say households should brace themselves for more bad news on 31 October, when the chancellor will publish the government’s fiscal rules alongside an Office for Budget Responsibility (OBR) forecast and further measures such as spending cuts and tax hikes.

“Given the events of the last few weeks it seems unlikely the new chancellor is going to present any ‘good news’ on taxation in the Medium-Term Fiscal Plan,” comments Adrian Lowery, financial analyst at the investing platform Bestinvest.

“The statement will reaffirm the reversals to Kwarteng’s ill-fated mini-Budget and clarify the fiscal outlook with detailed forecasts from the OBR. The focus will be on repairing the Tories’ fiscal credibility by further closing the deficit black hole that has opened up.”

Nimesh Shah, chief executive of the accountancy firm Blick Rothenberg, agrees, saying he doesn’t expect to see any “giveaways” – such as abolishing the unpopular high income child benefit charge or removing the tapered personal allowance when someone’s income reaches £100,000. “The tone under Jeremy Hunt is very different; the government is focused on maintaining tax receipts and cutting spending in order to reduce the debt cost.”

We look at what changes could be announced at the end of this month.

State pension triple lock could come under attack

There is growing speculation that the state pension triple lock could be scrapped. The triple lock – which means the state pension is guaranteed to increase each year in line with whichever is highest out of inflation, wages or 2.5% – is currently suspended until April 2023.

While Kwarteng said last month that he and the prime minister were “absolutely committed” to the triple lock, Hunt has offered no such assurance.

Yesterday he said: “I’m very aware of how many vulnerable pensioners there are and the importance of the triple lock but, as I said earlier, I’m not making any commitments on any individual policy areas, but every decision we take will be taken through the prism of what matters most to the most vulnerable.”

Pensioners received a 3.1% annual increase in April this year. Next April, if the triple lock is restored as planned, they could potentially see their payout rise by 10%, due to inflation running at a 40-year high.

If Hunt decided to scrap the triple lock for another year – or axe it completely – and uprate state pensions by wage growth instead (5.5%), pensioners would lose out on up to £430 a year, according to the investment platform AJ Bell.

“The costs associated with maintaining the triple lock next year are likely to be eye-watering – which is undoubtedly the reason the UK’s latest chancellor, Jeremy Hunt, is reluctant to commit to the policy,” says Tom Selby, head of retirement policy at AJ Bell.

“Clearly no politician wants to head towards a general election having applied a real-terms cut to pensioners’ incomes, and you would think No.10 will be fighting hard against such a measure. What we have here is a genuine tussle between politics and ensuring the public finances remain on a sustainable footing.”

According to Selby, abandoning the triple lock in favour of an earning-linked increase could save the Treasury an estimated £4bn – £5bn a year.

Another change to National Insurance?

Last month the government announced that the 1.25 percentage-point increase in National Insurance contributions (NICs), introduced by former chancellor Rishi Sunak, would be reversed on 6 November..

But Hunt could be tempted to look again at the policy as a way of raising the amount of money that flows into the Treasury’s coffers. Fiddling with NICs rather than income tax is arguably more palatable to voters (simply because many people don’t understand it), and avoids negative headlines of income tax being hiked.

Shah at Blick Rothenberg comments: “The 1.25% reversal to National Insurance is due to take effect from 6 November, but Jeremy Hunt may scale back the cut so that it only applies to basic-rate taxpayers (anyone earning less than £50,271) from next April – therefore, someone earning above the higher rate would pay National Insurance at 3.25% (rather than 2%).”

He adds that the chancellor could go further on tax increases, and “apply National Insurance to rental profits and capital gains” too.

Benefit increases could be cut

Benefits could also be in the firing line as part of Hunt’s cost-cutting spree.

The chancellor has refused to say whether benefits will rise in line with inflation, saying he will not make any “firm commitments”.

Benefit payments usually rise every April. Liz Truss has previously failed to commit to increasing benefits in line with inflation, and was expected to make a final decision by the end of November.

However, this could now be moved forward with Hunt making an announcement on 31 October instead.

Public spending could be slashed

Paul Johnson, director of the Institute for Fiscal Studies, says the chancellor will have to make “some scary decisions” on Halloween about spending cuts.

He adds: “Hunt will need to find a way of making his plans credible. That is likely to involve at least some cuts to planned investment and day-to-day spending [such as health, pensions, welfare, education and defence]. There are no easy options here.”

Speaking in parliament yesterday, Hunt refused to make commitments on defence spending, despite Truss promising to increase it to 3% of GDP by 2030 during her leadership campaign.