Just how much cash will you be able to hold in your ISA from next year and what will it cost you to do so? At first sight, new rules for individual savings accounts (ISAs) due to come into force from 6 April 2027 look straightforward. In practice, they are likely to prove anything but, thanks to tricky new regulations published this week.

The confusion stems from changes announced in last November's Budget. Chancellor Rachel Reeves stressed her determination to use the tax system to encourage risk-taking investment into UK companies and infrastructure; she therefore announced that from the 2027-2028 tax year onwards, the annual limit on investments into cash ISAs – where your money is simply held in a risk-free bank or building society account – will fall to £12,000. By contrast, the annual stocks and shares ISA allowance – where your money flows through into productive investments – will remain at the full £20,000.

So far, so good. But what about cash held in a stocks and shares ISA? You're also entitled to hold cash in these accounts. Perhaps you're concerned about market volatility, or think you might need to make a withdrawal soon; maybe you just want to maintain a small cash balance to fund fees and investment charges; you may even have opted to take dividends from existing holdings in cash, potentially to be invested later on.

Moreover, what about cash-like investments in a stocks and shares ISA? Opting for a money-market fund, say, is akin to holding your ISA savings in cash, even if you're technically making an investment.

Reeves's new ISA changes will affect everyone

These complexities have prompted some head-scratching at the Treasury, which delayed publication of the detailed regulation on how the new rules will apply to stocks and shares ISAs until earlier this week. Now, however, it has published an “anti-circumvention rules fact sheet” that is more demanding than many had expected. Most strikingly, the Treasury plans to introduce a new tax on interest earned on cash held in a stocks and shares ISA, even though the tax-free nature of money held in such accounts is meant to be sacrosanct. A 22% tax charge will apply, in line with the rate of savings interest tax, from April 2027 onwards.

While a similar arrangement operated in the UK until 2014, some ISA providers believe the change will fundamentally undermine the tax efficiency of ISAs. Providers will no longer be able to describe all ISAs as tax-free in order to encourage savers and investors, they say. Some ISAs will be more tax-free than others.

The Treasury has also confirmed plans to restrict savers from holding cash-like investments in their stocks and shares ISA. Money-market funds will not qualify for ISAs if they account for the entirety of the investor's stocks and shares ISA portfolio; ISA managers and platforms will then be forced to intervene.

There will also be a veto on transfers of money into a cash ISA from holdings in a stocks and shares or innovative ISA, which is currently allowed. Again, while the goal is to stop investors getting round the new rules, one result will be to limit financial planning and constrain the flexibility of investment strategies.

This will affect everyone. In last November's Budget, the Treasury said savers and investors aged 65 or over would be exempt from the lower annual allowance on cash ISAs, maintaining their full £20,000. The thinking is that older people are often in a phase of running down their savings and may therefore need to take a more risk-averse approach to managing their money. This week, however, the Treasury revealed that the over-65s won't be exempt from the ban on investing an entire stocks and shares ISA in money-market funds, or from the moratorium on transfers to cash ISAs.

All of which adds a great deal of complexity to the ISA rules – and plenty of scope for adverse outcomes for investors. Plus, ISA providers themselves will muddy the waters. JPMorgan Personal Investing, for example, has already announced that, from this week onwards, it will no longer pay interest on cash held in a stocks and shares ISA if an investor's entire pot is held in cash. The move is in line with the intent of the Treasury's thinking, but will naturally save JPMorgan Investing some money. And previously, the Financial Conduct Authority has warned the whole ISA industry about paying poor interest rates on cash held in a stocks and shares ISA.

Elsewhere, ISA providers – including leading online platforms – are already beginning to rethink their policies on what they will and won't allow investors to do. They will want to get ahead of restrictions and may simply withdraw certain products and services completely. Maybe they'll no longer allow investors to receive cash dividends, for example, requiring everyone to use accumulation funds.

Will Reeves stay chancellor long enough?

All of which is a reminder of how strongly the law of unintended consequences applies in the world of tax. The desire of the Treasury to shift money out of cash ISAs into stocks and shares accounts that are seen as more supportive of economic growth is understandable – the most recent official statistics reveal investors put £69.5bn into the former in the 2023-2024 tax year against only £31.1bn in the latter. But more doubt and complexity may simply put people off, reducing the size of the whole pie.

There's one final unknown, meanwhile. This scheme is the brainchild of Rachel Reeves and her team. But will she remain chancellor long enough to finalise the remaining details – a short technical consultation will take place between now and the autumn – let alone to see it come into operation next April? Maybe a different chancellor will want to do something completely different.

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US corporate raider Castlelake thinks it can snap up a bargain in easyJet. The soaring cost of fuel has hammered the budget airline's shares over the last few months, which have fallen from 520p at the start of the year to less than 340p a fortnight ago, before news of a potential bid emerged. But if the oil price comes back down again, as it almost certainly will when the war in Iran comes to a close, easyJet will bounce back.

We will see what happens over the next few weeks. But the bigger story is that a pattern is starting to emerge. A whole series of British companies are being targeted by corporate raiders. It is only a few weeks since it emerged that activist investor Corvex is demanding that the Premier Inn owner Whitbread find a buyer or break itself up. The car sales platform Autotrader is under attack from its investors, as is the rather larger trading platform, the London Stock Exchange. Investment company Hargreaves Lansdown has agreed to be taken over by a private equity consortium led by CV Capital. The list goes on and on. Hardly a week goes by without a well-known British company being either sold off or coming under pressure to break itself up.

Companies change hands all the time, of course. There is nothing wrong with bids and deals. It is one of the ways that companies are forced to keep delivering for shareholders and a way for assets to be reshuffled. Without them, management would become very complacent. But in the British market it is getting out of hand.

These targets not terrible companies. EasyJet may have had a difficult few months, but as anyone who has flown with the airline will know, it offers a pretty good service at fair prices. It is hard to see anything that needs to be radically fixed. Likewise, staying at a Premier Inn is hardly a deluxe experience, but it doesn't pretend otherwise. It is a reliably good-value hotel chain for anyone who happens to be travelling around the UK. Much the same could be said for Hargreaves or Autotrader. They are all reasonably well-run businesses.

Why corporate raiders may struggle

The real problem is that it has become incredibly difficult for even the best-run companies to make any money in Britain. There are three big issues. To start with, growth has stagnated. Far from turning Britain into one of the fastest-growing economies in the world, as she promised, chancellor Rachel Reeves has presided over stagnant growth, rising unemployment, a collapse in start-ups and business investment, and soaring real interest rates as the country's debt grows relentlessly less and less affordable.

Second, taxes have risen to the highest peacetime levels since World War II, with most of the burden falling on businesses. There has been a huge rise in the national insurance that companies have to pay on any staff; big rises in business rates; rising air travel duty (which has especially hit easyJet), and a rise in green levies such as the “packaging tax”. All of those have to be paid out of flat sales, regardless of whether the company is actually profitable or not. Companies have to get more and more efficient every year just to pay all the extra taxes they owe.

Finally, the government has crushed confidence. On coming into office, Reeves talked down the economy by constantly droning on about a “black hole” in the public finances that did not really exist. Ever since, there has been constant speculation about which taxes will have to go up next. And now there is a slow-motion leadership contest, fuelling yet more uncertainty about who will be in charge in a few months, and what policies might change. It is a mess. Against that backdrop, it is hard for companies to expand. Most are just hunkering down and trying to survive.

In zero-growth, high-tax Britain, it is very hard to make any money. The result? Raiders, typically based in the far richer, more dynamic US, look at the figures from a major British company and conclude that they should be doing far better. Perhaps in a country that was more pro-business, and pro-enterprise, they would do. But in Britain that has become very hard. There is very little growth, consumers don't have much spare cash to spend and rising taxes are squeezing profit margins. A whole series of companies are coming under attack and may well be broken up or sold off. But the real problem is the state of the economy. The US corporate raiders and buy-out funds will very quickly find there is not very much they can do to fix that.

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Almost three million people could cut back on pension saving as a result of the impending salary sacrifice clampdown, the government’s own data suggests.

Chancellor Rachel Reeves used her 2025 Autumn Budget to announce a £2,000 cap on the amount workers and their bosses can add into pensions via salary sacrifice before being hit with National Insurance (NI) charges.

The changes will come in from April 2029 and are expected to raise £4.8 billion for the Treasury in 2029/2030 and £2.5 billion in 2030/2031.

But while this may be good for the nation’s finances, it could be a blow for people’s own pension savings.

Research by former pensions minister Steve Webb, now a partner at consultancy LCP, found the government’s own estimates suggest more than 2.8 million workers are expected to cut back on pension saving as a result of the changes.

It comes despite the government-backed Pensions Commission recently warning that people aren’t saving enough for their retirement.

The impact of pension salary sacrifice changes

Salary sacrifice has long-been a popular way for employees to make pension contributions.

Money is added into an employee’s pension pot from their gross pay, adjusting their net income. This also reduces the payroll taxes paid by an employee and employer.

But government guidance shows the cost of the relief has increased markedly, from £2.8 billion in forgone National Insurance contributions in tax year 2016/2017, rising to £5.8 billion in 2023/2024.

Without any change, it is expected that this would almost triple to £8 billion by 2030/2031.

Capping the relief will save the government money.

HMRC has previously disclosed that an estimated 7.7 million employees currently use salary sacrifice to make pension contributions.

Of these, 3.3 million sacrifice more than £2,000 of salary or bonuses.

The Office for Budget Responsibility has already warned that a consequence of the policy could be a reduction in contributions.

A Freedom of Information (FOI) request to HMRC by Webb has revealed the extent of this.

The FOI asked for the government’s assessment of the number of employees that are assumed to cut their contributions in 2029/30.

HMRC said it expects more than 2.8 million workers to reduce their contributions.

This is broken down as 2.2 million earning above the £50,270 upper earnings limit, while 666,000 will generally be basic rate taxpayers.

Webb said: “The government has presented the changes to salary sacrifice for pensions as being a relatively painless way of cracking down on a tax break mostly enjoyed by the well off.

“But these figures show that the effects of the policy will be far more damaging than had previously been admitted.”

He suggests it is hardly ‘joined-up government’ to be stressing the need for more pension saving one day through the Pensions Commission and then implementing a policy that will reduce the pension savings of millions the next.

Webb added: “At a time when the government is running a major Commission to tackle the issue of pension under-saving, it is shocking that a separate government policy will result in more than 2.8 million workers cutting back on pension saving.”

A Treasury spokesperson said: “High earners piled in huge bonuses through salary sacrifice without paying a penny in tax – a taxpayer funded perk largely benefitting the better off.

“Our fair reforms protect 95% of workers earning under £30,000 using salary sacrifice, and as IFS analysis shows, over three quarters of under 30s will be unaffected.”

Japanese shares hit a new all-time high earlier this month, with the Nikkei 225 index up 15% this year, outperforming the Topix index, which is up 9%. The performance gap between the two indices has spiked to the highest level in records going back to 1970, says Leo Lewis in the Financial Times. The Topix, which is weighted by market capitalisation, gives a more accurate picture of the broad health of the Japanese market.

The Nikkei 225, while more famous, is less accurate as it is weighted by price and tracks only the large-cap stocks. The latter's outperformance reflects strong buying enthusiasm from foreign investors for a handful of large-cap technology firms such as SoftBank, Tokyo Electron and Advantest.

While the technology names overheat, there is reason for optimism about the broader market. Corporate profits are picking up as the country exits years of “economic stagnation”, says a note from Asset Management One International. Pro-shareholder reforms are raising capital efficiency. Over the past 15 years, average return on equity for Japanese shares has been 8.14%, but that is on course to rise to 10.5% this year.

There is more juice to be squeezed yet from corporate reforms. On a price-to-book ratio of 1.77, Japanese shares still trade at a notable discount to the 2.32 level of their UK counterparts, not to mention the 5.14 level of US shares.

Japanese shares surge but bonds rise too

Prime minister Sanae Takaichi won a landslide victory in February on populist spending promises. This week, it was reported that Takaichi's government is preparing a supplemental budget to pay for rising costs caused by the blockage of the Strait of Hormuz – Tokyo is heavily subsidising petrol prices.

Heavier Japanese government borrowing increases competition for the limited global supply of loanable funds. Japan has historically been a major exporter of capital through the carry trade. Now those funds are being pulled back home, depriving other finance ministries of a key source of demand for bonds. Japan's ten-year bond yield has hit its highest level since 1996.

At around 206% of GDP in 2024, Japan's gross public debt is the highest in the developed world, says Shigesaburo Okumura for Nikkei Asia. The OECD think tank's latest survey of Japan criticised its “populist fiscal management”. The report notes that, at 10%, Japan's sales tax is low and could be raised to help balance the books. But Takaichi says cutting the tax is a “long-cherished wish” – a wish thwarted by the country's supermarket payment systems, which aren't set up to charge the 0% rate on food she desires.

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Savvy Squirrel is the mascot for the latest government campaign to get people investing, rather than “squirrelling away” their money in savings accounts. But there is something you should know about red squirrels. They aren't much good at anything. At the end of the 19th century, there were over 3.5 million of them knocking around the UK. Now they are all but extinct in England and Wales, while across the UK there are well under 300,000 of them left – mostly in Scotland. They succumb easily to squirrel pox carried by grey squirrels; they aren't as big or as good at finding food as grey squirrels; and when they do find food, they often fail to hang on to it.

It's nice that they put food away for the winter (everyone loves a saver). But depending on whom you listen to, they lose anywhere up to 25% of the food they cache to either theft or forgetfulness (scientific arguments about the spatial memories of the red squirrel are ongoing). They also can't seem to be helped. There are some 47 different organisations trying to stop them disappearing from the UK altogether. But their numbers just keep falling. They are, effectively, Britain's pandas.

Imagine being a policymaker in the UK, knowing all this, looking for a mascot for a new campaign to encourage ordinary people to invest and choosing this animal. One that never invests, only saves; that saves in such a way that guarantees a negative return in not just inflation-adjusted terms but also in nominal terms every single year; and which is heading down the path to extinction despite large sums of taxpayers' money being chucked at it every year.

Savvy Squirrel picks up where “Tell Sid” left off

Older readers will remember the Tell Sid campaign of the 1980s, born out of Margaret Thatcher's plan to get shot of the UK's nationalised industries and create a culture of shareholder democracy at the same time.

The Savvy Squirrel campaign is an infantile attempt (the squirrel is animated) to pick up where that left off. Expect to see Savvy Squirrel on billboards near you soon if you haven't already, on taxis in Manchester, or on the telly with the messages “Take the next Step. Invest” and “Saved a bit? Why not invest a bit?” The message isn't idiotic, of course. The UK has an unusually high savings ratio and households have lots of cash – there is around £ 2 trillion sitting in our accounts.

That doesn't make sense. Not for the savers themselves – once you have six months worth of emergency cash, given up the superior returns that come from an equity portfolio, makes your future less comfortable than it could be. Not for the market – all that money could be flowing into the UK stock market, bolstering liquidity, valuations and the associated ecosystem of profession that the UK needs to keep supporting. And not for the state, either – the less people invest, the less wealth they will have on retirement and the more expensive they will be for the state.

That's why chancellor Rachel Reeves wants to encourage people to “have a small stake in the future of this great economy”. However, if Reeves really wants the UK to become a nation of shareholders, there are more useful things to be done. The first might be to explain to the 22 million people with auto-enrolment pensions in the UK that they are already shareholders, what that means and why it matters. That needs to be done on social media rather than on the telly, as it is best to take information to where people are already talking about these things. Next would be to work on making things more simple rather than more complicated: every change to the pension system and the ISA system makes people trust the wrappers they should be using to invest less.

Then there is the tax system – if you want people to invest in shares, maybe cut capital-gains tax to a level where is it not an effective wealth tax (at current levels it almost always taxes nominal rather than just real gains). The same goes for stamp duty on shares, another one of the UK's underappreciated wealth taxes, and one you pay even inside your ISA and SIPP (when they say tax-free, they don't mean entirely tax-free).

Reeves might also take a very firm line on annual general meetings (AGMs). The government is reviewing the rules on corporate reporting, and there is talk of removing the requirement for in-person AGMs and shareholders' votes on executive pay. Both are appalling anti-shareholder democracy ideas.

Finally, risk warnings. There are changes to these on the way, but if you try to buy any investment product you will find “capital at risk” warnings everywhere. So heavy-handed has the warning system been, says Holly Mackay of Boring Money, a financial research platform, that they are “akin to British Airways telling anyone trying to book a flight how many aviation deaths there have been in the last year”. The result is that around 75% of cash-only savers think that there is a less than 50% chance that £1,000 invested today will be worth more than £1,000 in five years. Either these overly nervous people were squirrels in a past life or the regulators have overplayed their hand.

Risk warnings need to be toned down and the ability of both funds and the listed companies themselves to advertise their wares rapidly ramped up. The Savvy Squirrel campaign has something going for it. It shows that the government recognises there is a problem with the investing environment in the UK. However, it also shows that they won't be solving it any time soon. Not like this, anyway.

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Another week, another FTSE 250 company disappears. On Monday, William Hill's owner, Evoke, said it was in talks with Bally's over an offer for the company that would value it at more than £200 million. It may not seem like much for such a well-known brand, but Evoke is weighed down by debts that have depressed the value of the shares. The bigger problem, however, is that it is grappling with the huge rises in gambling taxes imposed by chancellor Rachel Reeves in the last Budget. She pushed up remote gaming duty, which applies to online casino and roulette games, from 21% to 40%, and online betting duty from 15% to 25%. The rate for betting at old-fashioned bookmakers on the high street was left at 15%, but that was little consolation for the major chains, which these days make most of their money from their apps, and mainly use the shops as a form of advertising.

It is not just Evoke that has been hit by that tax rise, although it has suffered more than most as its operations are concentrated in Britain. Paddy Power said late last year that it was closing 57 of its British shops with the loss of more than 250 jobs, while Entain, the company that owns Ladbrokes and Coral, has also started to close branches. Ahead of the tax rise, Betfred warned it might close all of its more than 1,200 physical stores if the new levies went ahead, and while that has yet to happen, it might well over the next year or two. Add it all up, and the outcome is clear. The tax rise has led to a big wave of closures across what has always been a huge industry.

There are three big problems with gambling tax rises. First, they will deal another big blow to the high street at a time when it is already facing a wave of closures of retailers, cafes and restaurants. There are more than 5,500 betting shops across Britain, at least before the latest round of closures. That is more than triple the number of bookshops and double the number of newsagents. Sure, that branch of Coral or William Hill, with its tatty biros and slightly dodgy-looking punters, was never exactly the most cheerful place in the typical town centre. But even so, it paid business rates, employed people and, in a small way, helped keep the high street alive. If they all start to close down, nothing will replace them. There will just be a few more dismal boarded-up shopfronts.

Raising gambling taxes will crush a British success story

Next, it does not look as if gambling tax rises will raise anything like as much money as expected. The £1.1 billion in extra cash forecast to roll into the Treasury assumes that there will only be very minor changes to behaviour (it would be £1.8 billion with no change). But that hardly seems plausible. If there are fewer physical shops, if the odds are less attractive and less money is spent on online marketing, the casual punter who puts the occasional fiver on the Cup Final or the Grand National will drift away. The hardcore gamblers will use a “virtual private network” that disguises which country you are visiting the internet from, to bet offshore, or else to gamble on the fast-growing prediction markets. Either way, the tax will raise far less than forecast.

Finally, raising gambling taxes will damage a major British industry. Companies such as Bet365 and Entain are among the global leaders of an industry that is worth well over $250 billion worldwide and growing all the time as legal restrictions are relaxed. A robust domestic market is vital if entrepreneurs are to flourish and established businesses are to succeed on the global stage. You might think the Treasury would want to back such success stories. After all, there are not that many of them any longer. Instead, it seems determined to tax them into extinction.

It seems extraordinary that the Treasury hasn't worked out by now that when you increase the taxes on an industry, it gets a lot smaller very quickly. But it looks as if it hasn't and will have to relearn that lesson all over again, and in the most expensive way possible. Even if the Treasury gets its extra billion, it will, in the process, have crippled a major British industry, worsened the crisis on the high street and pointlessly destroyed thousands of jobs. Even for the most hopeless chancellor of the last 50 years, that seems like a losing bet.

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The government has been shouting about getting more people to invest for some time now. For the chancellor Rachel Reeves, it would mean more money to help boost the UK economy.

And she so desperately wants people to invest, she even went ahead with plans to slash the cash ISA allowance from £20,000 to £12,000, effective from the next tax year, for those under age 65.

For anyone looking to take advantage of a £20,000 ISA allowance, they would need to invest anything above £12,000 using a stocks and shares ISA.

This has caused a bit of a stir among cash lovers, though in reality, a large majority of those stomping their feet over the cut have never used their full cash ISA allowance in the first place.

But, if we put feelings aside, the important thing to remember is that people should consider investing – not to please Reeves, but to boost their own wealth. See our guide to investing to help you get started.

I am not sure a squirrel is the right choice for its Invest for the Future campaign, though. It's too closely associated with cash and investing is not squirrelling. Investing does not mean hoarding your cash. And while a squirrel may stash its nuts, investing means you may lose some nuts along the way but hopefully end up with a lot more than you started with.

Savvy the Squirrel is certainly cute and likeable, unlike the pensions ‘Workie’ for those who remember the scary monster appearing on TV screens in 2015 to promote auto-enrolment pensions.

Though, I am not convinced the squirrel will be effective in converting cash hoarding Brits into a nation of investors with the same power as the British Gas ‘Tell Sid’ campaign – now that really did demonstrate the power of spreading the word.

Investing versus saving

If the Savvy Squirrel doesn't convince you to invest, then it’s worth considering what investing could mean for you in the first place.

Latest data from investing platform Vanguard shows that if you had invested £100 in global shares in 1970 and held them through the oil shocks of the 1970s, the dot-com boom, and the Global Financial Crisis, it would now be worth around £35,000, that is 10 times the £3,400 if you had kept your savings in cash.

We take a closer look at saving versus investing in our article.

When should you invest?

Getting started with investing is simple, despite the myths that you need expertise or a lot of cash – you need neither of those. You can invest with just a few pounds and you don’t need to be a trader.

But there are some simple rules you should consider before you invest. This includes:

• Clear unsecured debt
• Build emergency savings
• Have some cash for short-term goals (five years or less)
• Do not invest money you need for bills

And then there are also simple rules to consider when you do start investing. This includes:

• Start small to build confidence
• Do not panic when markets fall; keep investing each month
• Investing is for the long term, so invest money you do not need for five years or more.

According to Vanguard, Brits have a collective £200 billion sitting in excess cash. This is cash that can be invested. By not investing, you are at risk of letting inflation eat into your savings over the long-term. Inflation has come down from its highs of 9.6% in November 2022, but at that time, unless you were earning over 9.6% in cash interest, you were losing money.

Inflation is 3.3%, but again, if your cash is not earning more, you’re losing spending power as the value of your cash erodes.

And remember, when you invest, the power of compounding can be phenomenal and over time, you will build more wealth. And of course, while there are risks in investing, most people see an upside and become more financially resilient than if they had stuck with cash.

Recession is coming. Any hopes chancellor Rachel Reeves may have had of keeping her promise to make Britain the fastest-growing economy in the G7 have surely finally been dashed. Last week, the OECD think tank warned that Britain would be hit harder than any other

Britain's ideologically driven commitment to being the world leader in hitting net-zero carbon emissions means we already have to import most of our energy and prices are now rising out of control. Likewise, in February, retail sales fell back again, and that was before the impact of the conflict in the Middle East fed through to the data. Jaguar Land Rover temporarily suspended production at its Solihull plant over a supply issue, while shoe chain Russell & Bromley collapsed into administration, knocking out yet another high-street stalwart. It is hardly an encouraging outlook.

It is going to get a lot worse. The living wage went up on 1 April, rising by another 4.1% to £12.71 an hour, piling more costs onto employers. From the start of the new tax year, both companies and individuals will be hit with a whole blizzard of tax increases. Business rates will go up sharply as reliefs are withdrawn, with the vast majority of companies having to pay up regardless of whether they are making any money or not. Council taxes will go up, with a typical rise of 5% across England and Wales. The higher rate of tax on dividends and savings and rental income also comes into force, hitting anyone running a small business hard. Even more landlords will give up, making the rental market even worse than it already is.

Frozen tax thresholds will mean that even a modest annual pay rise, and one that barely keeps up with rising inflation, may well take you into a higher tax bracket, and mean that you end up with hardly any extra take-home income (and we all know what kind of impact that will have on incentives to work. Even air passenger duty will go up yet again, making it more expensive to get out of the country if you have had enough of all the other tax rises. The list goes on.

The rises are bad enough in themselves, but the real problem is the timing. Reeves has adopted a strategy of pre-announcing tax rises: in each Budget, she sets out a series of increases that will start to bite a year, or even two or three, out. To the officials at the Treasury, that may seem clever. It allows the Office for Budget Responsibility to say that the books will be balanced, at least one day in the future if not right away. It keeps the bond market happy, so long as no one digs too deeply into the numbers. It allows spending to be increased right away, keeping the backbenchers happy, and the actual pain of the tax increases is a long way off so no one complains about it too much.

Risk of recession means the chancellor needs to act

The trouble is, the moment when taxes go up steeply always arrives one day. The blunt reality is this: no one in their right mind would think that Britain in April 2026 is a country where everyone needs to be forced to pay more to the government. The economy has stagnated and is at risk of sliding into a recession. The Iran war means energy costs are exploding and the Bank of England may have to raise interest rates twice or more before the end of the year, instead of reducing them as had been expected.

Against that backdrop, you would expect the chancellor to be cutting a few taxes and announcing some targeted infrastructure spending to cope with any rise in unemployment, to try and support the economy. But it is too late to change course now. The plan has already been set and the machinery of taxation moves relentlessly forward, with zero flexibility and without any ability to respond as the outlook for the economy changes.

If the chancellor had any courage she would postpone many of the tax rises due to come into force this week. Instead, she would embark on a long-overdue review of public spending, identify savings, stop spending such insane amounts of money on welfare, and find a way to convince her party that the money had run out. She would, after all, have a convincing story to tell.

Unfortunately, Reeves is neither brave nor clever enough to attempt that. Instead, business and consumer confidence will be crushed even further – and a recession now looks close to certain.

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Sometimes it seems we are too hard on Rachel Reeves. Yes, she is a bad chancellor: anti-business with no coherent vision for getting the economy growing and no backbone when she is pushed by her party. On the other hand, it has been seven years since Britain had at least a semi-competent chancellor, and she has inherited a catastrophic mess that would be a gigantic challenge even for an outstanding one.

One might briefly feel that she deserves some support as an under-qualified person trying to do an impossible job at the head of a sclerotic Treasury that needs to be broken up and rebuilt. Then you look at her proposed changes for individual savings accounts (ISAs) and all sympathy goes right out the window.

A brief history of ISA rules

To see why these ISA rule changes are so misguided and why they show Reeves and her team to be truly clueless about investing, let’s go back to when ISAs were first launched back in 1999. The ISA rules then were much more restrictive.

You could pay up to £7,000 into a “Maxi Stocks & Shares ISA” each year, or up to £3,000 into a “Mini Stocks & Shares ISA”, up to £3,000 into a “Mini Cash ISA” and up to £1,000 into a little-used “Insurance ISA” that let you put money into with-profits funds from an insurance company (which in theory was supposed to be less volatile than investing directly in the stock market). You could transfer from a cash ISA to a stocks and shares ISA, but not the other way round. Interest on cash held in stocks and shares ISAs was taxed at 20%. Investments had to have a credible possibility of losing at least 5% of the capital. Bonds had to have at least five years remaining until maturity when they were purchased.

There were a few tweaks through the years before 2014 when then-chancellor George Osborne greatly improved the ISA rules: a higher annual limit of £15,000 could now be split between a cash ISA and a stock and shares ISA in whatever proportions you liked. Money could be freely transferred between both. Cash interest was no longer taxed in a stocks and shares ISA, and low-risk cash-like investments were allowed.

This was a huge step forward. Subsequent changes to ISA rules include flexibility, allowing you to take out money temporarily and put it back again without affecting your annual allowance. You can also now contribute to more than one ISA of each type each year. Today, the ISA is probably the best account of its kind in the world and has inspired similar products in other countries.

Set against this, new types of ISA added complexity. The Help to Buy ISA was a counterproductive attempt to solve the housing affordability crisis that is now a legacy zombie product. The Lifetime ISA's potential as a flexible retirement savings tool was weakened by overly tight age limits and by withdrawal penalties. The Innovative Finance ISA has been too niche for most investors. So further reforms were overdue.

What should happen is the merger of most types of ISAs to create a flexible general-purpose wrapper. All providers could choose what to offer in the wrapper – including cash, investments and innovative finance products – according to what kind of customers they wanted to serve. Lifetime ISAs would probably remain as a separate product with similar flexibility, but open to a wider age range, with fairer withdrawal rules and the ability to transfer in stranded Help to Buy ISAs.

Rachel Reeves's ISA rule changes would be a retrograde decision

Instead, Reeves and the Treasury came to believe that restricting the ability to hold cash would encourage more money to go into the UK stock market. So, unless there is a change of heart, ISAs will take a huge step backwards from April 2027.

Cash ISAs will have a lower annual contribution limit (£12,000 versus £20,000). You will be able to transfer from a cash ISA to a stocks and shares ISA, but not the other way. Cash-like investments such as money market funds will no longer be allowed in stocks and shares ISAs. Interest paid on cash held in stocks and shares ISAs will be taxed.

In other words, we are returning to many of the pre-2014 ISA rules. The degree of stupidity required to attempt this cannot be overstated. Whoever came up with this proposal does not appreciate what investors and savers need and has ignored all the clear benefits that previous reforms delivered.

MoneyWeek would be the first to agree that there is a problem with attitudes towards investing in Britain, but the current ISA rules have nothing to do with that. Quite the opposite: at present, you can put money into as many cash ISAs or stocks and shares ISAs as you like, transfer between them freely, and hold investments then move to cash in the same account if you are nervous about markets or you need to reduce risk. This flexibility is reassuring. Your money does not feel trapped.

Trying to coerce people to invest by restricting cash ISAs is not going to work. They will simply hold cash in taxable accounts instead rather than take risks they don’t want. Much more plausible reasons why people in the UK are unwilling to invest are i) regulators that have been far too keen to talk up the risks of mainstream investments while doing far too little to crack down on unregulated scams and ii) the ongoing national obsession with property.

Depressingly, Reeves’ other proposed ISA rule changes also include plans to end the Lifetime ISA and bring in a new Help to Buy ISA. Whether this will increasingly leave existing Lifetime ISAs as a zombie product, like the original Help to Buy ISA, remains to be seen. Regardless, it would clearly be another retrograde decision. And if the stock market remains moribund, it can only be a matter of time before the immensely idiotic idea of a “British ISA” limited to UK stocks – or, even worse, restricting international investments in all ISAs – also gets resurrected.

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As the oil crisis gathers momentum, it remains to be seen how events play out in the Persian Gulf – a ceasefire might be agreed with Iran and the shipping lanes might start to reopen, as might the production facilities. But as the week started, it did not seem likely. Oil spiked over $100 a barrel, and across Europe, natural-gas prices more than doubled. By Tuesday morning, they had started to fall again. And in real terms, $100 is not in any cases all that extraordinary a price for oil. The real-terms price was $131 in 2008 and $104 after the start of the Ukraine war.

Still, the rise is already pushing up costs across Europe and Asia. And it is Britain that will be hit hardest of all. Twenty years of deluded policymaking is about to be brutally exposed if oil stays at these levels. Why? Firstly, the UK is critically dependent on imported energy. We have been steadily running down domestic production in the North Sea with a punishing mix of windfall taxes and bans on new exploration, while assuming that wind and solar power would make up the shortfall.

That has not happened and it has cost far more than anyone expected. Instead, we rely on massive imports of natural gas to keep the power stations running and imports of oil to keep the petrol pumps open. As it happens, Britain does not import huge amounts of gas from the Middle East, but we still have to pay the global price. If we had our own production, not only would it increase global supply (and therefore reduce the price, at least marginally), but more importantly, in a crisis, the government could always requisition supplies. As it is, when prices go up, we feel the full brunt of it.

An oil crisis will lay waste to British industry

Secondly, an oil crisis will lay waste to industry. What remains of manufacturing was already getting hammered by industrial energy prices that are twice those of France and four times the US's. Car output has fallen back to levels last seen in the 1950s, as has cement production. Huge swaths of the chemicals industry have closed down. With oil and electricity prices almost doubling, what remains will be in deep trouble.

Many manufacturers that were just about breaking even will now have to close and the damage will quickly spread to retailers, cafes and restaurants if their power prices go up as well. Business was in bad shape already. This will finish many of them off.

Thirdly, we rely on massive amounts of foreign borrowing. The rising oil price has already led to a sharp rise in gilt yields. The government's finances will be in worse shape than ever and that is before ministers panic and launch a bailout to try to control the price rises. Almost a third of the £100 billion-plus the UK has to borrow every year comes from overseas. If there is a general sell-off of government bonds, and that is looking more and more likely all the time, then the UK will inevitably be right in the centre of the storm. Sterling is a big enough currency that it can be traded in volume, but not so big that its central bank can control the market. We can be sure the hedge funds will be shorting gilts and sterling if sentiment turns against the UK.

Stagflation is our best hope

Finally, the government was banking on falling oil prices to have any hope of growth. The only real plan that remained was for the Bank of England to steadily reduce interest rates as inflation came under control, reducing mortgage rates and stimulating demand. Chancellor Rachel Reeves kept boasting interest rates coming down were one of her major achievements. In the wake of the oil-price spike, traders have cut the chances of another cut from the Bank this year to zero. Worse, rates might even have to rise if prices spike upwards. With taxes rising at the same time, and unemployment going up as well, stagflation is the best we can hope for. By the autumn, the UK may have tipped into a full-scale recession.

In short, a government that has already sunk to 20% or less in the polls is going to be in deep trouble. It did not have much of a plan for kick-starting growth or for improving living standards to start with, but what little hopes it may have had for the economy have now been dashed. Its own policies have been making the energy crisis worse, not better. An oil crisis is the last thing Labour needs this year. It will painfully expose all the frailties of the British economy – and right now it looks as if it may be too late to do anything about it.

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Summary

• Chancellor Rachel Reeves delivered her second Spring Statement today (3 March) in the House of Commons
• The annual fiscal event was a largely tame affair, with no major policy announcements made
• The Office for Budget Responsibility (OBR) also published its latest economic forecast alongside Reeves’s statement
• It comes after the government recorded a record-breaking budget surplus of £30.4 billion in January following an uptick in tax receipts

Good afternoon and welcome to MoneyWeek’s Spring Statement live report. Chancellor Rachel Reeves is set to deliver the statement to the House of Commons tomorrow (3 March). We will be covering all the major announcements as they happen, as well as bringing you reaction and analysis.

Will anything major be announced during the Spring Statement?

Rachel Reeves isn’t expected to make any major policy announcements as her preference is to do this just once a year at the Budget.

However, the chancellor did confirm some big changes to the benefits system in the 2025 Spring Statement, although some of these were reversed later in the year.

When is the Spring Statement?

The chancellor will deliver the Spring Statement in the House of Commons at around 12:30pm tomorrow (3 March).

The 2025 Spring Statement lasted around 30 minutes, and this year’s statement is expected to take around the same amount of time.

The Office for Budget Responsibility (OBR), the UK’s fiscal watchdog, will also publish updated economic forecasts alongside the Spring Statement. We expect these to be released at around 2:30pm.

What is the Spring Statement?

The Office for Budget Responsibility (OBR) is required to make two sets of economic forecasts each year which outline their projections for the economy, based on the government’s fiscal policy.

The most significant of these is published alongside the Autumn Budget, the most important fiscal event of the year where most governments outline their economic policy.

The other forecast is usually published in the spring. The chancellor usually makes a statement to the House of Commons addressing these projections, hence the name “Spring Statement”.

The Spring Statement is not necessarily an event where new fiscal policy is announced, but previous chancellors have used the statement to outline new economic plans to meet OBR forecasts.

For example Rachel Reeves used the Spring Statement to announce cuts to welfare in her 2025 statement.

Could ‘boring’ Spring Statement be what’s needed for the pension sector?

Plenty of changes are on the way for the pension sector, such as pensions being included in the scope of inheritance tax from April 2027 and a reduction in salary sacrifice National Insurance savings from 2029.

This comes as the seismic Pension Schemes Bill makes its way through the House of Lords.

With all this considered, pension savers will be hoping for a “boring sequence of fiscal events” this year, including the Spring Statement, said Jamie Jenkins, director of policy at retirement firm Royal London.

“Given the recent history of fiscal events, one can easily get excited at the prospect of boredom,” Jenkins said.

That ends our coverage for today, but make sure you join us again tomorrow when we'll bring you live coverage of the Spring Statement, plus more analysis and expert commentary.

Hello, good morning and welcome back to our live coverage of the Spring Statement, which is taking place at around 12.30pm today. Stay with us as we bring you analysis and commentary on what any announcements mean for you.

Reeves expected to focus on stability amid ‘uncertain’ world

The chancellor’s address to the House of Commons today comes amid major tensions in the Middle East after a joint attack on Iran by Israel and the US.

In response, Iran has launched retaliatory strikes with missiles hitting Israel as well as a host of gulf countries including Kuwait, the United Arab Emirates (UAE) and Bahrain.

In the midst of the conflict, which has caused oil prices to surge, the chancellor is expected to drive home the message that the government’s focus on stability will contribute to a “stronger and more secure economy”.

The chancellor is expected to say: “This government has the right economic plan for our country…in a world that has become yet more uncertain.

“Stability in the public finances, investment in infrastructure and reform to our economy.

“Building growth not on the contribution of a few people or a few parts of the country, but in every part of Britain with a state that doesn’t stand back, but steps up."

What could the impact of the Iran conflict be on the Spring Statement?

It is not clear whether Reeves will directly address the conflict in Iran during her statement today, which could prove inflationary.

That said, many experts are saying the tensions are in too early a stage to know exactly what the future effects will be.

What the conflict could mean for the Spring Statement is that the economic forecasts put forward by the Office for Budget Responsibility (OBR) don't account for the Iran conflict, meaning they are making predictions based on a different world today.

The OBR usually publishes its final forecasts five days before the Spring Statement or Budget, after which the Treasury can fine tune any measures which might affect the economy.

Mortgage lenders cut rates ahead of Spring Statement – should you overpay?

A host of major lenders including Barclays, Nationwide and NatWest have cut mortgage rates ahead of the Spring Statement.

Jinesh Vohra, chief executive officer of mortgage app Sprive, said now could be the time for those on variable rate and cheaper fixed-rate deals to use the extra money to overpay on their mortgage and reduce the amount they’re paying in interest.

Do note, this is based on predictions the Bank of England (BoE) base rate will drop which would feed into mortgage costs, but whether rates will come down in the future is now less certain following the conflict in Iran.

If the conflict causes inflation to rise across the globe, it could make central banks more cautious, including the BoE, and less likely to lower rates.

How is the UK economy doing?

The Spring Statement is an update on the state of the UK economy and public finances, but how are both of these actually faring?

How you judge this depends on what macroeconomic measure you’re looking at, be that inflation, Gross Domestic Product (GDP), unemployment or something else.

The Consumer Price Index (CPI) measure of inflation has slowed from record highs in 2022 and currently sits at 3%, according to the latest data from the Office for National Statistics (ONS). But it is still above the government’s 2% target which the Bank of England (BoE) has to meet.

Meanwhile, the latest figures show GDP grew by just 0.1% in the final three months of 2025, and 1.3% across the whole of 2025, although this was better than the 1.1% GDP growth recorded in 2024.

Unemployment hit a five-year high in January while unemployment among 16 to 24-year-olds rose to 16.1% in the final quarter of 2025, the highest level in a decade.

However, wages continue to grow, with annual growth in weekly earnings between October and December 2025, excluding bonuses, rising by 4.2% and above inflation.

The government also recorded a £30.4 billion budget surplus in January, aided by an increase in tax receipts. The ONS said this was £15.9 billion more than in January 2025 and the highest surplus (when not adjusted for inflation) since monthly records began in 1993.

Spring Statement coming up shortly

We're expecting to hear from the chancellor in around five minutes.

The chancellor has just begun delivering her Spring Statement. We will be reporting on the statement here, as it happens.

Reeves: OBR forecasts show 'our plan is the right one'

The chancellor says the Office for Budget Responsibility’s (OBR) new forecast shows that Labour’s plan for the economy is “the right one.”

She says her fiscal policy has led to inflation and borrowing falling while living standards and economic growth are up.

Reeves reiterated that her ambition is for just one large fiscal event a year, limiting major policy changes to the Autumn Budget.

OBR updates forecasts for UK economic growth

Reeves says the OBR has updated its growth forecasts for the UK economy, stating it will be slower in 2026 than previously predicted then faster than previously predicted in 2027.

It is forecasting GDP to grow by 1.1% in 2026, 1.6% in both 2027 and 2028 and 1.5% in 2029 and 2030. In total GDP will grow by 5.6% over the course of this parliament, Reeves says.

Reeves: Brits to be £1,000 better off a year in real terms by next election

The chancellor says the OBR now anticipates that by the next election, due in 2029, the average Brit will be around £1,000 better off a year. This number, she says, is adjusted for inflation.

She adds: “The economy is growing, living standards are rising, and inflation has fallen. But I'm not satisfied yet with these forecasts."

Unemployment to peak in 2026, but fall thereafter

Unemployment has been a major bugbear for the chancellor in recent months, with UK joblessness rising to a five year high.

However, the chancellor says the OBR’s forecast shows unemployment is set to fall soon.

Reeves says the OBR expects unemployment to peak later this year, but is then set to fall in every year of the forecast period.

Joblessness will then end the forecast period at 4.1%. She adds that this would be lower than it was at the start of this parliament in 2025.

Reeves: Public sector net borrowing to fall to 1.8% by 2030

The OBR’s forecasts say the government is set to reduce public sector net borrowing from 4.3% this year to 3.6% in 2027, then to 2.9% in 2028, 2.5% in 2029 and 1.8% in 2030, Reeves says.

She adds that this year the government is set to borrow less than the G7 average, something she says the former Conservative government “never achieved”.

OBR: Inflation to fall faster than November projection

The chancellor says the OBR’s new forecasts will show that inflation will fall faster in 2026 than it had previously expected.

She takes credit for this, saying her reforms in the Budget are helping disinflation in the UK.

In particular, analysts say the policy of removing green levies from household energy bills is the largest contributor to disinflation. The government says it will save the average household £150 a year from April.

Shadow chancellor: “Is that it?”

Rachel Reeves has finished delivering the Spring Statement.

Conservative shadow chancellor, Mel Stride, opened his response with a sentiment many listeners will have been thinking: “Is that it?”

He lambasted Reeves for having “no clear economic plan”, saying as the economy “bleeds out”, the chancellor comes to the House of Commons with “nothing to say and with no plan”.

Stride further criticised the chancellor for raising taxes and “destroying growth” with her fiscal policy.

OBR publishes economic and fiscal outlook

The OBR has published its economic and fiscal outlook for the UK economy following the chancellor's speech. We'll bring you the main takeaways from the document.

Spring Statement ‘provides little relief to people across the UK’

While Reeves insists the Labour government’s plan “is the right one”, is it enough to convince members of the public? Kevin Mountford, personal finance expert and co-founder at Raisin UK, said: “This provides little relief to people across the UK.

“The economy remains fragile, inflation is still above the Bank of England’s target, people are continuing to contend with cost of living pressures, and we’ve also seen the highest unemployment rate since 2021.”

Some 60% of people dipped into their savings to cover their outgoings last year, including 20% who did so to pay day-to-day bills, according to Raisin’s Great British Savings Report.

“While many lack the buffer to absorb these pressures, approaching the end of the tax year is a critical time to review finances, use available allowances, and make sure savings are earning competitive returns,” Mountford said. “Small steps can make a big difference.”

We look at how much you should have in emergency savings in a separate piece.

OBR: Chancellor’s fiscal headroom now higher than in Budget

Rachel Reeves’s fiscal headroom, the financial buffer the Treasury has against unexpected shocks, is forecast to be higher now than the OBR expected at the Autumn Budget.

Following the Spring Statement, the OBR now expects fiscal headroom to be £23.6 billion by the end of the forecast period (2029/30).

This is £1.9 billion more than was expected in the OBR’s November forecast (£21.7 billion).

If this forecast is correct, headroom of £23.6 billion means Rachel Reeves will have the highest amount of headroom since November 2022.

OBR: ‘Key’ risks to the economy forecast due to Iran conflict

In its economic and fiscal outlook report, the OBR says “key” risks remain to its forecasts following the conflict in Iran.

Conflict in the Middle East could have “significant impacts on the global economy, particularly energy markets”, the document reads.

The report also says the OBR made its forecasts prior to tariffs imposed by US President Donald Trump last week, which has caused ripples in the markets since.

Unemployment expected to peak at 5.3% in 2026

The OBR’s forecast anticipates that UK unemployment will rise to just over 5.3% this year, a third of a percentage point more than expected in its November projection.

The fiscal watchdog says it expects weak labour market demand to continue in the near term.

After peaking in 2026, the OBR believes unemployment will fall gradually to an estimated equilibrium level of 4.1% by 2030.

Impact of inheritance tax reforms revealed

The Office for Budget Responsibility has forecast the impact of impending inheritance tax reforms that will see agricultural and business property relief curbed from April 2026 and pensions included in estate calculations from April 2027.

The OBR said changes to the inheritance tax regime announced since the October 2024 Budget, including taxing inherited pension pots and introducing changes to agricultural and business property reliefs, will account for around 14% of total inheritance tax receipts by the end of the forecast in 2030/31.

It said: "The behavioural responses to these measures and the tax base for inheritable pension wealth are particularly uncertain, adding further uncertainty to the forecast."

Capital Gains Tax to bring in £34.9 billion by end of parliament

The latest OBR forecasts show receipts from Capital Gains Tax (CGT) are expected to rise across the forecast period (until 2030).

The rise comes mainly due to projected rises in equity prices, and changes to the inheritance and capital gains tax regimes largely announced in the Budget in October 2024.

Expected CGT receipts in every year are higher now than they were in the OBR’s November forecast.

The OBR expected £29.8 billion to be raised from CGT in 2030/31 in November. They now expect £34.9 billion.

The November forecasts now show the OBR expects CGT to raise £21.8 billion in 2025/26, £20.8 billion in 2026/27, £25.5 billion in 2028/29, £32 in 2029/30, and £34.9 billion in 2030/31.

OBR: One million extra state pensioners to be paying income tax by 2031

The OBR’s economic and fiscal outlook report states an additional one million pensioners will be drawn into paying income tax by 2031 due to a frozen personal allowance and rising state pension, under the triple lock mechanism.

Reeves has previously said the government won’t tax pensioners whose only income comes from a state pension, but HM Treasury is yet to confirm how this exemption will apply.

OBR: House price growth set to remain steady

The OBR is forecasting house prices to grow by between 2.4% and 2.9% each year between 2026 and 2030, broadly in line with rises in average incomes.

Meanwhile, it predicts interest rates on mortgages to rise from 4.1% in 2026 to 4.5% on average each year from 2027 to 2030.

IFS: Be glad no new policy was announced at Statement

Helen Miller, director of the Institute for Fiscal Studies think tank, said today’s Spring Statement did exactly what it said on the tin, addressing the OBR’s updated economic forecasts and not much more.

She said: “There was blissfully little speculation about potential policy changes in the lead up, and no tweaking tax or spending policies on the day. To her credit, she stayed her hand. One major fiscal event per year is enough.

“The OBR’s forecast for borrowing improved ever so slightly, driven by strong tax receipts, which were more than enough to offset the cost of various policy announcements and reversals since the autumn."

Miller praised the chancellor for not making rash policy decisions in response to the conflict in the Middle East.

She said: “The all-important context is that ongoing events in the Middle East, and the sharp market movements they have induced, have already upended some of the assumptions underpinning this forecast. This is yet another reason to be glad that the Chancellor steered clear of making policy announcements in response."

UK’s economic woes demand bolder and swifter action, says Resolution Foundation

Following the Spring Statement, the Resolution Foundation, a left-leaning think tank, has said the chancellor must be bolder and enact swifter policy after it said the OBR’s forecasts are already out of date.

The think tank claimed the new conflict in the Middle East that emerged on 28 February after the US and Israel struck Iran has meant the OBR’s inflation and interest rates forecasts, which were finalised before the conflict started, are not up to date.

A new continued war between the US and Iran could lead to spikes in the price of energy and a renewed inflationary risk to the UK economy, exacerbating the cost of living crisis.

Analysis by the think tank says, if sustained, the sharp rise in oil and gas prices in the wake of the strikes could add over £500 to the typical household energy bill in the summer and roughly a percentage point to inflation.

As such, the Resolution Foundation said that while there is merit in having a low-key Spring Statement, policy action cannot wait until the Autumn Budget.

Ruth Curtice, chief executive of the Resolution Foundation, said: “The Chancellor may have succeeded in delivering a statement free from news today, but with growth weak, unemployment rising, and the risk of further energy price shocks, the UK’s economic woes demand bolder and swifter action.

Curtice highlighted the prospect of higher unemployment as being “particularly concerning” and urged the chancellor to tackle the problem head on and expand the ‘Jobs Guarantee’ to help get people back into work.

She added: “The best news from today’s Spring Forecast was an outlook for lower inflation and interest rates, but sadly both already look out of date before the ink is dry on the OBR forecast.

“The absence of policy decisions today can’t hide the fact that tough decisions lie ahead. Events in the Middle East have made support for families struggling with the cost of living more urgent. Looking further ahead, the Government still faces the prospect of going into the next election with major tax rises and a fresh squeeze on public services funding.”

UK employment prediction could be ‘too optimistic’

Dan Coatsworth, head of markets at investment platform AJ Bell, said events in the Middle East could mean forecasts on the UK’s rate of unemployment are too positive.

He said higher inflation caused by the conflict, meaning falling interest rates are less likely, could breed negative sentiment among consumers and businesses.

This could mean the OBR’s economic forecasts on growth could be too high.

“That situation might also mean Reeves’ prediction that UK employment is ‘set to peak later this year’ is also too optimistic,” Coatsworth added.

Labour’s economic plan is working, says Starmer

The prime minister showed his support for Rachel Reeves’s Spring Statement, writing on his Substack that we are “at a turning point in our economic plan.”

Starmer declared: “Inflation is down, energy bills and borrowing costs have fallen, productivity and business confidence is rising.

“This has all happened because of decisions, Labour decisions, that we have made. Always with the interests of working people in our minds-eye.”

The PM also reiterated much of what the chancellor said during the statement, saying Labour have “rejected austerity” and are doing all they can to drive down the cost of living.

“I know there is more to do. But our economic plan is working,” he added.

OBR: Welfare spending set to rise to £407 billion by 2031

The OBR’s economic and fiscal outlook report says welfare spending is forecast to rise this year by £18 billion (5.8%) to £333 billion.

It is then forecast to increase, not adjusted for inflation, by an average of £15 billion a year over the next five years, reaching £407 billion in 2031.

Do you think the Labour government's plan for the economy is working? Vote in our poll below.

And that's it, we're going to end our coverage here for today. But keep a close eye on MoneyWeek.com over the coming days as we bring you more analysis from today and what it means for you.

What are Plan 2 student loans?

Plan 2 is the official designation for the student-loan system in England and Wales that was in place for students from 2012 to 2023.

Under the system, higher-education students take out loans to cover tuition fees and living costs, although parents are expected to chip in for the latter.

They leave university with average loan debt of around £53,000, but this can be far higher for those undertaking longer or more advanced degrees.

The repayment system is complex, in that the “loan” is really a hybrid of a loan and a graduate tax that rich families can opt out of by paying up front, and repayment levels depend on the size of your earnings, not the size of your debt.

You only start paying the loan back once you hit a certain annual income (currently £28,470 for Plan 2), at which point 9% of income over that threshold is taken from your salary.

And if you don’t earn enough?

If you never earn that much, or have periods out of work, you don’t make repayments. Moreover, any remaining debt gets written off 30 years after graduating. Defenders of the system say that makes it quite a generous offer.

The problem is that while you are not making repayments – during your early career, or during a parental career break, say – the debt continues growing, making it ever harder to fully repay it and hence normalise your income tax rate.

Even for many middle-income workers, the high interest rate means that monthly repayments (in the form of salary deductions at source) fail to cover monthly interest payments, and capital debt continues to grow.

Indeed, in the last tax year overall, £15.2 billion of interest was added to loans, but only £5 billion repaid, and the government expects that only 32% of loans created last year will be paid off in full. Overall, the value of outstanding loans at the end of March 2025 reached £267 billion and is projected to hit £500 billion by the late 2040s.

How is Plan 2 different?

Graduates with Plan 2 student loans, especially those who earn more, are charged much higher interest rates than those who studied either before them (Plan 1, 1998-2011) or since then (Plan 5, since 2023).

(The other existing plan numbers are 3 for postgraduates, who pay extra, and 4 for Scots who studied elsewhere in the UK.)

Both of these cohorts pay 9% extra income tax (with a slightly lower starting threshold), but their interest rate varies in line with the Retail Price Index (RPI).

Thus, their debt pile rises with inflation, albeit the higher RPI measure of inflation that is widely regarded as discredited and is no longer used for uprating state benefits.

For Plan 2, the interest rate is RPI + 3% while you are studying, and once graduated it’s on a sliding scale between RPI and RPI + 3% (once income is above £51,245).

The idea was supposedly “progressive”, in that it was intended to get higher earners to contribute more to their university costs, and encourage them to pay off the loans early.

What does Plan 2 mean in practice?

It’s left millions of young workers facing three decades of crippling extra tax at 9%.

According to the Institute of Fiscal Studies, a typical graduate in their 20s or early 30s has to earn at least £66,000 a year before they start to see their debt shrink – and even then they’d be chipping away at the rate of £9 a month.

That’s a demoralising state of affairs for a whole generation.

And once you are earning over £50,000 you face an effective 51% marginal tax rate.

The system is also widely seen as unfair on middle-income earners.

Very high earners can make inroads into the loans quickly or pay them off in chunks.

Those with wealthy parents might pay the loan off immediately, or never bother taking them.

But for millions of workers on middle incomes – at the age when people often want to buy homes and/or start families – the extra 9% is weighing heavily on pay packets and morale.

Why are student loans in the news?

Rachel Reeves, the chancellor, plans to freeze the threshold above which Plan 2 graduates (in England) will repay 9% of their earnings – meaning that even more not-that-well-off people will be dragged into paying extra tax.

This April, that Plan 2 salary threshold will rise to £29,385, but in the November Budget, the chancellor announced that it will then stay frozen until 2030 – serving up a double helping of fiscal drag aimed squarely at middle-income strivers.

Since then, the issue has been put squarely on the political agenda, with several newspapers launching campaigns against the “tax on aspiration”.

In January, pundit Martin Lewis condemned the freeze as immoral and likened the government to loan sharks for reneging on their “contract” with young people.

The issue is not just a political time bomb, but arguably a giant state-sponsored mis-selling scandal, given that hardly any 18-year-olds understood the implications of the loans they were encouraged to take, says Claer Barrett in the Financial Times.

Meanwhile, the disincentives inherent in sky-high marginal tax rates will inevitably be a brake on UK growth and productivity.

What should happen?

The unfairness needs to be tackled, not least the gap between Plan 2 student loans and Plan 5 student loans – the Institute for Fiscal Studies projects that the top-earning half of 2022 freshers will pay an average of £20,100 more than if they had started university a year later.

This is not just an issue of fairness but of vital national interest, says Lara Williams on Bloomberg.

Student-loan debt is not the only reason more young Britons are emigrating, but it’s a factor – and a self-harming cap on motivation and ambition.

Campaigners call for a threshold freeze, a reform of interest rates so balances do not grow faster than repayments, and a reduction of extra tax rates from 9% to 5%.

Both these are “sensible demands”.

Going further, offering favourable student-loan terms – even debt forgiveness – to our most-needed occupations, such as doctors and nurses, could “help stem any impending brain drain and make up for stagnant wages”.

This is an issue that is only going to grow in salience.

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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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What could be greener than a tree? For anyone interested in sustainable investment, forestry has obvious appeal. But the allure of investing in forestry goes well beyond its environmental credentials: the potential for competitive returns and a generous range of tax incentives are also turning the heads of long-term investors. UK forestry assets drew record investments last year, attracting hundreds of millions of pounds. Some of that money came from institutional investors, including pension funds, family offices and charities, but there are also a growing number of individuals exploring forestry investment, either directly or through a professionally managed fund.

Investing in forestry is exactly what it sounds like. You’re buying ownership of a commercial forest (or a share of ownership) – either a mature, established woodland, or newly planted land. As the trees grow, you’ll hopefully make capital returns from an increase in the value of the forest; there’s also an opportunity to generate income by selling some of the trees for timber, as Alex Davies, the founder and chief executive of Wealth Club, the investment platform aimed at high-net-worth and sophisticated investors, points out. It’s an investment for the long term.

The returns are highly tax-efficient. There’s no capital gains tax (CGT) to pay on the rising value of the trees, although any rise in land value is potentially subject to CGT. And there’s no income tax due on revenue generated from sales of timber. You’ll also benefit from generous inheritance-tax rules when passing forestry investments on following your death, as long as you’ve owned your trees for at least two years.

Don’t invest in forestry for the tax benefits alone

It’s never a good idea to make an investment purely for tax reasons, not least since chancellors can – and very often do – change the tax rules, diminishing the value of incentives and reliefs. However, even after the impact of tax benefits, forestry has an impressive performance record. “UK forestry has a long-term... record of producing strong performance with relatively low volatility, therefore providing risk-adjusted returns that are in excess of many traditional asset classes,” says Davies.

Indeed, forestry is the UK’s best-performing asset class over the past five, ten and 25 years, delivering double-digit annualised returns over each of these periods. And forestry funds in the UK have produced an average annual return of 11.4% a year since 2008, when the first such fund was launched. That’s after fees, but before the positive impact of tax reliefs.

Past performance, of course, is no guarantee of the future. But forestry is also useful as a way of diversifying your portfolio. Returns from forestry investments tend to move independently of returns from other asset classes, including the stock market; in the jargon, returns have low correlations with other assets. Forestry can, then, be an excellent way to boost the resilience of your overall investment strategy.

It is also a tangible asset that is regarded as a good inflation hedge. Demand for timber often increases during stronger periods of economic growth, as construction projects accelerate. Timber prices, therefore, tend to rise during periods of increased inflationary pressure, protecting investors from the eroding effect of inflation on their portfolios.

In any case, during periods when timber prices are lower or falling, forestry managers and funds can simply choose not to sell any of their timber. Most investable forests in the UK largely comprise Sitka spruce trees; there is typically a 15-year window to harvest these trees, so there’s no need to cut them down in any particular year. And since Sitka spruce tend to add around 5% of volume each year, waiting means there’s more timber to sell when the market looks more attractive.

The risks of investing in forestry

Still, despite these plus points, it’s important to recognise that investing in forestry also carries some significant risks. As with any investment where prices can rise or fall, there’s always the possibility for capital losses. Returns will inevitably vary – and are closely linked to the fortunes of the UK’s construction sector. During slower periods for the building trade – which aren’t always predictable – investors may see losses.

Another risk is that this is a natural asset and so vulnerable to environmental factors. Sitka spruce is considered a hardy type of tree, but it’s not immune to problems such as forest fire, wind damage, or even disease. And while it’s possible to insure trees against the risk of fire and storms, there is no cover available against disease; in the worse-case scenario, your investment could be wiped out entirely.

Perhaps the biggest issue of all for many investors will be liquidity risk – forestry is a physical asset that can be difficult to trade. If you own a forest directly, you’ll need to find a buyer when you want to realise the value of your investment, and that may take months, or even years. If you invest through a fund, there may be a set time period for return of capital; in the meantime, the manager may operate some sort of secondary market to help investors get out early, but there are no guarantees. At the very least, think of forestry as an investment you’ll hold for at least ten years.

This is, therefore, not an asset class for investors who feel uncomfortable with risk and illiquidity. Forestry will, though, continue to prove popular and potentially get even more of a boost from recent tax announcements, says Davies. “Forestry has long been a favourite among tax-efficient investors in the know. And its appeal is likely to increase now that the government has upped the inheritance-tax-free business property relief.” Even before the chancellor’s Christmas intervention, more investors were getting on board. Gresham House, one of the UK’s most established forestry investment managers, raised £375 million for its Forestry Fund VI fund, which closed to new investors last year. That was the largest fundraising in forestry ever conducted in the UK. Gresham House now plans to launch a new vehicle in April.

“We’ve had a lot of interest from private-client investors, but we increasingly have an institutional client base too,” says Anthony Crosbie Dawson, director of forestry and private clients at Gresham House. He sees that as a vote of confidence in forestry investment, since institutions don’t qualify for the same tax reliefs as individuals and therefore can’t be investing for that reason. “We raised from UK institutions, but also [from] international investors,” says Crosbie Dawson – “one of our fund investors was a Japanese institution, for example.”

The collective-fund approach makes sense for most retail investors, who get access to professional forestry-management expertise and diversification – managers will invest across multiple forests and woodlands – as well as much lower minimum investments. Buying your own commercial forest is likely to require an upfront investment of hundreds of thousands – and often millions – of pounds, plus you’ll need to manage the woodland yourself, or appoint a manager. By contrast, funds typically have minimum investments of around £50,000.

Clearly, that’s still a significant sum – and Financial Conduct Authority rules only allow forestry funds to take money from sophisticated or high-net-worth investors – but it’s a more accessible entry level than investing directly.

Par Equity – now part of PXN Group – is the other major name in UK forestry, having raised two funds already. The formal launch of its third vehicle, Par Forestry III, is expected soon, and is targeting an average annual return of 7% after charges. “The historic long-term returns from forestry have been extremely good,” said Par Equity’s investment manager Paul Atkinson in a recent interview on the Wealth Club platform, which provides access to forestry funds. “It’s also completely uncorrelated with other capital markets and a pretty good hedge against inflation and, of course, there’s increasing interest in the asset class” due to concerns about climate change.

It’s not just that planting trees and maintaining forestry is a good way to remove carbon dioxide from the atmosphere and store it, although this is important. (Indeed, some forestry funds may generate extra income from the carbon credits available from government schemes aiming to increase carbon sequestration.) It’s also that timber is far less carbon-intensive than steel, concrete and other materials that the UK construction industry has traditionally depended on. The packaging industry, also looking to reduce its environmental impact by moving away from plastics towards recyclable materials, is an important customer too.

The big picture is attractive

In that sense, the big-picture outlook for timber prices is encouraging, with increasing demand from industry buyers likely even if overall levels of activity in their sectors remain relatively flat. There will be short-term ups and downs – prices fell 5% or so in the final quarter of 2025, their first declines for two years, largely because of supply factors – but as homebuilders, for example, start to use more timber, and to work towards the UK’s ambitious new-homes targets, there should be no shortage of customers.

Not that timber prices are the be-all and end-all for investors. “The price of timber can be volatile, as with all commodities, although it’s a lot less volatile than some, but there’s not actually much correlation with the value of the asset because we own the land as well as the trees,” explains Crosbie Dawson. “Forest valuations are based on discounted cash flows over a 35-to-40-year rotation, so what the timber price is today, or in six or 12 months’ time, is not particularly relevant.” In that context, Gresham House has forecast a near doubling in global demand for timber over the next 20 years, providing an encouraging backdrop for investors considering forestry. “People do want more of their portfolios allocated to sustainable assets, but only if those assets are delivering compelling returns,” says Crosbie Dawson.

Reeves’ inheritance-tax U-turn is more good news for forestry investment

One potential driver of the renewed interest in forestry investment is the recent government U-turn on business property relief (BPR) and agricultural property relief (APR). This will enhance the appeal of forestry as a tool for families planning for inheritance tax (IHT). The two reliefs work in the same way, allowing the owners of a wide range of business assets to pass these assets on to their heirs with no liability for IHT, as long as they’ve owned them for at least two years on death. In her first Budget, in the autumn of 2024, chancellor Rachel Reeves unveiled reforms of BPR and APR; from April 2026, she announced, only the first £1million worth of assets would qualify for the reliefs at 100%, with any excess getting only 50% relief. That prompted a huge backlash from farmers worried that they would no longer be able to hand family farms down to the next generation because their children wouldn’t be able to pay the tax bill.

In December, the chancellor backed down, announcing that she would raise the planned £1million threshold to £2.5million – or £5million for couples, since the cap can be transferred between spouses and civil partners. That’s good news for farmers affected by the original proposals – but also for investors in forestry, since most investments in woodland and forestry are qualifying assets for BPR. The chancellor’s decision therefore, substantially increases the attractiveness of forestry from the point of view of IHT planning.

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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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Summary

• The Bank of England’s (BoE) MPC has cut interest rates from 4% to 3.75%
• The MPC last met on 6 November when it held rates at 4%
• The market was widely expecting the MPC to lower interest rates following weakening jobs data, slowing inflation and the UK economy stagnating

| When will interest rates fall further? | UK inflation forecast | MPC meeting dates |

Bank of England’s MPC digesting economic data

Good afternoon, and welcome to our live coverage ahead of tomorrow’s announcement from the Monetary Policy Committee (MPC) on whether it will raise, hold or cut UK interest rates.

The meeting follows a string of macroeconomic news for the UK.

Data published by the Office for National Statistics (ONS) today (17 December) revealed that inflation as measured by the Consumer Prices Index (CPI) slowed to 3.2% in the 12 months to November. This is down from 3.6% in the 12 months to October.

Labour market figures released yesterday (16 December) showed UK unemployment rose to an almost five-year high of 5.1% in the three months to October.

The latest GDP figures from the ONS show the UK economy unexpectedly shrank in the three months to October, falling by 0.1%.

All of this will be keenly reviewed by MPC, who will then decide on where to set interest rates. A stagnant economy, rising unemployment and slowing inflation all suggest a base rate cut is on the way, despite inflation still running ahead of the BoE’s 2% target.

Follow our preview and reaction coverage of the MPC’s decision in this live report.

When is the MPC’s interest rates decision announced?

The MPC will confirm its UK interest rate decision at midday (12pm) tomorrow (18 December).

Stay with us for live reaction to the decision and what it may mean for your finances.

Why does the Bank of England review interest rates?

The Bank of England (BoE) reviews its base rate, eight times a year, as a lever to control inflation but also to stimulate growth in the UK economy.

The government sets an inflation target of 2% for the bank to meet. This is seen as a healthy rate of price rises for an economy.

The theory is that increasing interest rates encourages people to save money and not spend it, which in turn slows inflation.

Conversely, lowering interest rates reduces the cost of borrowing and can encourage people to spend their money rather than save it, which can stimulate growth in the economy.

What is the Monetary Policy Committee expected to announce?

All the signs point to a base rate cut tomorrow. In a research note published last week, one of the ‘big four’ banks HSBC said it expects a cut by 25 basis points to 3.75%.

This, HSBC said, was in line with market expectations, which is pricing in a 93% chance of a cut.

With labour market data showing unemployment on the rise and inflation data from today (17 December) showing price rises have slowed, this suggests a base rate cut is even more likely.

Alice Haine, personal finance analyst at online investment platform Bestinvest by Evelyn Partners, said: “The headline rate of inflation plunged to 3.2% in the 12 months to November, coming in lower than expected, raising the likelihood that the Bank of England will press ahead with a sixth interest rate cut tomorrow and deliver some much-needed respite for Budget-battered Britons ahead of Christmas.”

The Bank of England base rate over time

The base rate has gradually fallen from a high of 5.25% in 2024 – it has been cut five times since then and currently sits at 4%.

The base rate started climbing in December 2021, from 0.1%, as the Bank of England looked to cool runaway inflation that soared in part due to a rise in global demand for goods and higher energy prices.

What is the Monetary Policy Committee?

The Monetary Policy Committee (MPC) is a committee of nine members working for the Bank of England.

The committee is made up of one governor, currently Andrew Bailey, three deputy governors, a chief economist and four external members appointed directly by the chancellor, currently Rachel Reeves.

A representative from the Treasury also sits in on MPC meetings, but isn’t allowed to vote.

A decision on whether the base rate goes up, down, or stays the same, is based on a majority voting system. For example, at the last MPC meeting, five members voted to hold base rate at 4% while four voted to reduce it by 0.25 percentage points to 3.75%, so base rate stayed at 4%.

Why has inflation slowed to 3.2%?

The latest data from the Office for National Statistics (ONS) reveals the Consumer Price Index measure of inflation slowed to 3.2% in the 12 months to November, down from 3.6% in the 12 months to October.

According to last month’s Monetary Policy Committee report, the Bank of England expected inflation to fall to a higher 3.4%. So what is behind the bigger-than-expected fall?

The ONS said lower food prices were the main driver of the fall, with prices rising less quickly on cakes, biscuits and breakfast cereals. Tobacco prices and women’s clothing prices also helped pull the CPI rate down, the ONS said.

What dates will the Monetary Policy Committee make base rate announcements in 2026?

The Monetary Policy Committee will make eight announcements next year following base rate reviews.

These are the dates it will make announcements in 2026:

• 5 February
• 19 March
• 30 April
• 18 June
• 30 July
• 17 September
• 5 November
• 17 December

Monetary Policy Committee 'poised to cut rates'

The Monetary Policy Committee (MPC) is “poised to deliver an early Christmas present to markets in the form of another interest rate cut on Thursday”, said Matthew Ryan, head of market strategy at financial services firm Ebury.

Today’s larger-than-expected fall in CPI inflation will encourage the doves on the committee, who have previously pushed for cuts in order to support the UK’s faltering economy. But the vote of Bank of England governor Andrew Bailey could be decisive.

“On balance, we think that governor Bailey will side with the doves, but with the rest of the committee seemingly entrenched in their views, he may be the only official to change their vote from the previous meeting,” said Ryan.

Thanks for following our rolling preview of tomorrow's UK interest rates decision. We're finishing here for today, but join us again tomorrow morning for more preview analysis as well as live coverage of the decision and reaction from midday.

Good morning and welcome back to our live blog as we await the announcement of the Monetary Policy Committee’s base rate decision. We'll bring you live reaction and analysis following the announcement at midday.

How do you think the Monetary Policy Committee will vote on interest rates?

Where is inflation heading?

The latest Consumer Price Index (CPI) measure of inflation showed prices rose by 3.2% in the 12 months to November, according to the Office for National Statistics (ONS). But where will prices go next?

According to the Monetary Policy Committee’s latest Monetary Policy report, the CPI measure peaked at 3.8% this year.

It predicts it will be at 3.2% in March 2026, slowing to 2.5% at the end of next year, then reaching the 2% target by the last quarter of 2027.

Financial expert predicts 5-4 vote split

The last MPC meeting ended in a 5-4 vote split in favour of holding rates at 4%. That effectively meant that Bank of England governor Andrew Bailey – viewed as one of the centrists among the MPC panel – had the deciding vote.

Matthew Ryan, head of market strategy at financial services firm Ebury, expects that today’s meeting will see the same vote split, but that Bailey will opt to side with the doves on the committee.

“The November meeting minutes suggested that he was very close to doing just that last time out,” says Ryan. “The real question is whether any of the hawks follow suit.”

In a monetary policy context a hawk is someone who prioritises controlling inflation with tight monetary policy, as opposed to a dove who prioritises economic growth with looser policy.

Ryan doesn’t expect any of the MPC’s hawks to follow suit, given that most have expressed hawkish views in recent comments.

“Chief economist [Huw] Pill could make it a 6-3 vote, but he has also voiced a preference for a slow removal of policy restriction during his latest remarks, so he may again opt for no change,” said Ryan.

How closely have you been following the macroeconomic news this week?

BREAKING: As widely expected, the MPC has voted to lower interest rates, from 4% to 3.75%.

How did the Monetary Policy Committee vote?

The Bank of England’s (BoE) Monetary Policy Committee voted 5-4 to cut interest rates.

Andrew Bailey, governor of the BoE, said bank rate is expected to fall gradually in the future, depending on pay growth and services inflation continuing to ease.

Reeves responds to interest rates cut

Chancellor of the exchequer Rachel Reeves has responded to the news that the MPC has cut UK interest rates to 3.75%.

“This is the sixth interest rate cut since the election - that's the fastest pace of cuts in 17 years, good news for families with mortgages and businesses with loans.

"But I know there's more to do to help families with the cost of living. That's why at the Budget we froze rail fares and prescription charges, and will be cutting £150 off the average energy bill next year.”

Reduction in interest rates 'not a signal that borrowing costs are about to fall sharply'

Holly Tomlinson, financial planner at wealth management firm Quilter, said while today's interest rate cut showed there is growing confidence inflationary pressures are easing, it doesn't mean borrowing costs "are about to fall sharply across the board".

"With inflation still above target and policymakers keen to avoid reigniting price pressures, this move is best seen as a cautious adjustment rather than a decisive shift towards looser monetary policy, particularly at a time when household finances remain under strain from years of higher prices and frozen tax thresholds," Tomlinson added.

Monetary Policy Committee still committed to gradual cuts

The rate cut was viewed as a near-certainty by the markets, but with a 5-4 vote split it is clear that the MPC itself didn’t view the decision as a given.

“The decision to cut rates to 3.75% reflects a mixed economic picture, with UK growth relatively flat over the second half of this year while the latest inflation data came in softer than expected,” said Brad Holland, director of investment strategy at J.P. Morgan Personal Investing.

Holland highlighted that “the cooling across the UK economy over recent months has been a cause for concern for many in the market”.

Despite these concerns, four members – Megan Greene, Clare Lombardelli, Catherine L Mann and Huw Pill – viewed the risk of above-target inflation as greater than the threats to the economy.

“For now, it is clear to onlookers that the Bank of England continues to be focused on a ‘gradual’ approach to the rate-cutting cycle,” said Holland. “This may disappoint those who hope that faster rate cuts will spur economic growth and reduce borrowing costs, but with uncertainty still high, policymakers remain cautious.”

Bailey: Disinflation is established

Governor of the Bank of England Andrew Bailey was the swing voter across the MPC’s last two meetings, switching from a hold in November to a cut today and taking the MPC’s decision with him.

“Data news since our latest meeting suggests that disinflation is now more established. CPI inflation has fallen from its recent peak and upside risks have eased,” Bailey said in his comments. “Measures in the Budget should reduce inflation further in the near term. The key question for me now is the extent to which inflation settles at the 2% target in an enduring way.”

Bailey also highlighted the dilemma that the MPC faces: weakness in recent labour market data indicates a faltering economy, but “on the other hand, inflation expectations have not yet shifted downward sufficiently following the past few years of persistent above-target inflation”.

What does an interest rate cut mean for my pension?

Interest rate changes can have a big impact on retirees' income, for better or worse.

Adam Cole, retirement specialist at Quilter, said: “An interest rate cut can have very different effects across the pensions landscape, and the impact will depend largely on the type of pension someone holds and what they are planning to do with it.”

Impact on defined benefit pensions

If you have a defined benefit pension, lower interest rates could be good news. This is because they tend to push up transfer values – the amount of lump sum you could get instead of receiving a guaranteed, regular income.

But higher transfer values are not automatically a green light to transfer.

“Giving up a guaranteed, inflation-linked income for life remains a significant step, and one that should only ever be considered with specialist advice,” Cole cautioned.

Impact on defined contribution pensions

If you have a defined contribution pension – like the majority of people – the impact of a base rate cut depends on how it is invested.

Rate cuts tend to be good for equities, so if your pension is heavily invested in shares it could get a boost. But they also tend to push bond yields lower, which can affect the long-term income potential of lower-risk assets.

“This highlights the importance of asset allocation and not viewing pensions purely through the lens of short-term interest rate moves”, Cole said.

Impact of an interest rate cut on annuities

Annuity pricing remains closely linked to gilt yields, meaning any sustained move lower in interest rates would be expected to put downward pressure on the income available to new annuity buyers.

Yet ahead of the base rate cut, gilt yields remained stubbornly high. As a result, annuity rates remain among the most competitive seen in the past decade.

For example, at the start of this year, a Canada Life benchmark lifetime annuity purchased with £100,000 would have provided an annual income of around £6,800 for a healthy 65-year-old.

Yesterday, improved rates mean the same individual could secure approximately £7,300 per year – an increase that amounts to nearly £9,500 in additional income over a 20-year retirement, by Canada Life’s calculations.

Could falling interest rates help boost UK stocks?

The FTSE 100 is set for its best year since 2013, and looks likely to deliver better returns through 2025 than the S&P 500.

But the large-cap index generates most of its revenue from overseas. Small- and mid-cap UK stocks haven’t had quite as much joy so far this year, with the FTSE 250 returning around 10% this year.

If Bank of England governor Andrew Bailey is correct in his view that inflationary pressures are coming under control, then falling interest rates could be good news for more domestically-focused UK stocks.

“UK household balance sheets are healthy, and savings rates elevated,” said Alex Wright, portfolio manager of Fidelity Special Values. “With inflation easing and interest rates likely to follow, improving confidence could support consumption.”

Read more in senior writer Dan McEvoy's article on the prospects for UK stocks in 2026 here.

Interest rates on savings set to slip

The base rate cut is good news for borrowers but a blow for savers. Interest rates on savings accounts are likely to slip further, so savers looking to make their cash work harder may want to act now and secure the best savings rates on the market.

If you’re willing to lock your savings away, you might want to consider the top fixed rate savings accounts. At the time of writing, the top one-year fixed savings account is the One Year Fixed Term Deposit from Al Rayan Bank Meteor Savings, which pays an expected rate of 4.55%.

The latest inflation reading came in at 3.2%, so make sure your savings are earning more than this, to prevent your money from being eroded by inflation. Don’t miss our best inflation-beating savings accounts guide.

When deciding where to put your money, consider whether you will need to pay tax on the savings interest. There are various allowances so you can earn some interest before you have to pay tax on it – such as the personal allowance, if you haven't already used that on other income, and the starting rate for savings. You won't qualify for the latter if your other income is 17,570 or more.

Basic and higher rate taxpayers get a personal savings allowance. This means you can earn £1,000 in savings interest tax-free if you're a basic rate taxpayer, or £500 if you're in the higher tax band. Tax on savings interest is currently applied at your marginal tax rate – eg 20% for basic rate taxpayers. However, the tax rate for savings income will rise by two percentage points from April 2027.

You can shield your savings from the taxman by putting it in a cash ISA. You can put up to £20,000 into ISAs each tax year – although under 65s will be limited to putting no more than £12,000 into cash ISAs from 6 April 2027.

Read more: How to shield savings from tax if you’ve used up your ISA allowance

It's recommended that you have some cash in easy to access savings, in case of an emergency. The amount will depend on your age and personal circumstances but, for working people, the general rule of thumb is to have enough to cover three to six months of essential spending. Once you have an emergency savings pot, you might want to consider investing some of your savings.

What do falling interest rates mean for mortgages?

A fall in base rate is usually mirrored in mortgage rates, as base rate is the rate charged by the Bank of England (BoE) to smaller banks and building societies to borrow money. It is also the rate of interest the BoE pays to commercial banks, building societies and financial institutions that hold money with it.

When you will see a change in your mortgage rate is dependent on the type you’ve taken out.

Tracker mortgages are directly pegged to the base rate so any change is likely to happen quickest.

Those on standard variable rates may be the next to see a change. That said, you might not see much change as lenders are not obliged to pass on any base rate cut to those with an SVR.

Following the announcement of today's base rate cut, Nationwide Building Society said it will lower the rate on its Standard Mortgage Rate (SMR), its SVR-equivalent, from 6.74% to 6.49% on 1 January.

Those on a fixed-rate mortgage won’t see a change until their deal comes to an end.

David Hollingworth, associate director at mortgage broker L&C Mortgages, said it could be worth opting for a tracker mortgage over the longer term, with interest rates forecast to fall further in 2026.

“Tracker rates have been gradually closing the gap on fixed rate options but are still behind the best of the fixes. However, with more base rate cuts expected next year we will potentially see more borrowers wondering if following rates down could make for a better option in the longer run,” Hollingworth said.

Beat low rates on savings

While interest rate cuts are great for borrowers, for savers it means your money may have to work harder to beat inflation.

While there are some savings accounts that beat inflation (for now), over the long term, you face the risk of inflation eroding the value of your cash – this basically means your money will be worth less in years to come.

To keep up, investing is the key. You will have heard a lot recently about investing. As interest rates on savings come down, and they will, now is the time to turn to investing to really grow your savings and build financial resilience against future rate cuts, which are expected in 2026.

If you put £1,000 into savings today and then paid in £100 a month over 10 years, you will have £13,000 and it would be worth £15,358 with interest at 3% a year – that’s £2,358 interest.

Invest the same, you could end up with £20,287, earning £7,287 interest, with an estimated 8% annual return (it could be higher but also lower), Hargreaves Lansdown's calculator shows.

Better yet, stick it in stocks and shares ISA to shield it from the taxman.

See our guide on how to start investing for more.

Deutsche Bank: three things today’s UK interest rates decision tells us

Sanjay Raja, chief UK economist at Deutsche Bank, draws three key takeaways from today’s MPC meeting.

“First, as has been a long-standing theme for the BoE, divisions within the MPC remain. The December decision came with another split vote with five members voting for a quarter-point rate cut, and four opting to hold Bank Rate at 4%,” Raja said.

“Second, Bank Rate is inching its way towards a more 'neutral' policy setting. And the scope for more rate cuts is limited, with the Bank sending its more explicit message yet on the path for policy: ‘judgements around further policy easing will become a closer call’.

“Third, the trade-off between a deteriorating labour market and falling inflation will complicate the MPC's path ahead. Despite a subtle push to shift away from a quarterly pace of rate cuts, many on the committee continue to put more weight on downside risks to activity (and the labour market).”

When is the MPC’s next base rate announcement?

The MPC’s next base rate decision will be confirmed on 5 February – the first announcement of eight in 2026.

And with that, we’re leaving you for today. Thanks for following our live coverage, but keep a watch on the MoneyWeek site for future updates on what today’s decision means for your finances.

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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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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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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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.

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.

Millions of savers in the UK are being dragged into paying tax on their savings interest because the personal savings allowance (PSA) has been frozen for a decade, according to new research.

By the end of the 2025/26 tax year, taxpayers will have paid over £28 billion in tax on their savings interest since the PSA was launched, with basic rate taxpayers alone paying £4.7 billion, analysis of HMRC data and forecasts by Yorkshire Building Society found, outlining the impact of a policy that has been unchanged since it was introduced in 2016.

Despite jumps in interest rates and frozen tax thresholds pushing more people into higher tax bands, the PSA remains frozen at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers, while additional rate taxpayers still have no allowance at all. During the same period, the Bank of England base rate has climbed from 0.50% to 3.75%, instantly pushing ordinary savers over their allowances even on fairly modest sums.

The landscape for savers has materially changed over the past decade. When the personal savings allowance was introduced on 6 April 2016, the majority of easy access accounts paid 1% or less. Now most pay 3% or less. This means while in 2016 basic-rate-tax payers would have been able to put away as much as £100,000 in a typical savings account, in 2026, with interest rates hovering around 3%, savers would only be able to save around £33,000 without breaching their allowance. For those earning over £50,271 and paying higher-rate tax, that amount would fall to around £16,000.

At the same time people need bigger savings nest-eggs to be able to reach ordinary milestones. The median average house deposit has jumped from £25,000 in 2016 to £36,500 in 2024/5 – an increase of 46%, according to the English Housing Survey Headline Report.

Tina Hughes, director of savings at Yorkshire Building Society, said: “Ordinary people are being penalised by a system that simply hasn’t kept pace with reality. These aren’t wealthy investors — they’re people putting money aside for a house deposit, families saving for their children, or those planning a well-earned holiday.

“When the PSA was introduced, almost no one breached it. Today, millions do — not because they’re rich, but because the allowance is frozen and thresholds haven’t moved. People doing the right thing are facing rising tax bills and fewer ways to protect their savings. It’s time for a modern, fair framework that gives savers clarity and confidence.”

Millions at risk of 'unnecessary' tax bill

Basic rate taxpayers (who earn between £12,571 and £50,270) in the UK hold £516 billion in non-ISA savings accounts that have large enough balances to breach the personal savings allowance, separate data from Paragon Bank showed in November 2025.

The personal savings allowance shields some taxpayers from having to pay income tax on savings interest – basic rate taxpayers can earn up to £1,000 a year in savings interest, while the allowance is £500 for higher rate taxpayers.

However, 5.2 million UK savings accounts owned by basic rate taxpayers were on track to earn more than the £1,000 allowance in interest in 2025, the data shows, leaving them with a 20% tax bill on the savings interest above the threshold.

The problem becomes even worse for higher rate taxpayers.

Higher rate taxpayers (people who earn between £50,271 and £125,140) have their personal savings allowance cut by half, leaving them with just £500 of tax-free savings interest outside an ISA.

Nine million UK non-ISA savings accounts owned by higher rate taxpayers, worth over £632.7 billion, were expected to earn more than £500 in interest in 2025, Paragon’s research shows, meaning these savers should prepare for an extra tax bill.

Additional rate taxpayers, who pay the highest rate of income tax, don’t get a personal savings allowance at all, meaning any interest they earn outside an ISA is subject to tax.

Brits who earn above the personal savings allowance in interest have increasingly helped bolster the government’s coffers. HMRC expected to generate £6 billion in income tax on savings interest in 2025, up from £2 billion in the 2022/23 tax year.

Additional rate taxpayers are expected to contribute the most (£4.2 billion), followed by higher rate taxpayers (£1.3 billion), and basic rate taxpayers (£500 million).

Andrew Wright, head of savings at Paragon Bank, said: “Savers should act now to protect their hard-earned money by moving funds into a tax-free wrapper such as a cash ISA.”

Using an ISA to shield your savings

The easiest way for UK savers to shield their savings interest from the taxman is by using an ISA.

You can put up to £20,000 into ISAs each tax year. There are different types of ISA – including cash ISAs and stocks and shares ISAs. The appeal of an ISA is that any interest or investment income earned within the ISA is shielded from the taxman.

For example, let’s assume you are a basic rate taxpayer who has built up an ISA holding of £100,000 by saving the maximum amount in a cash ISA for five years.

If you placed the entire amount into the best cash ISA on the market right now, from Plum, you could expect to earn 4.66% interest over the next 12 months.

At the end of the 12 months, assuming the interest rate did not change, this £100,000 would grow by £4,660. Because this money was held in an ISA, you would not be charged any tax on that.

However, if this £100,000 was held and grown in a non-ISA savings account, the £4,660 earned would breach the £1,000 personal savings allowance, meaning £3,660 of your interest earned would be taxable. You would therefore pay the government £732 in tax.

Adult cash ISA balances surged in 2025 as savers moved to protect tax‑free returns ahead of the Autumn Budget, with Paragon Bank analysis showing cash ISA balances increasing by over £50 billion as non‑ISA balances fell.

Between the end of January and end of December 2025 savers took a big shift towards tax-efficient savings ahead of the anticipated reduction in the cash ISA allowance announced in the Autumn Budget, CACI data for the period found.

Over the period, the average adult cash ISA account balance increased from £15,919 to £17,225. Meanwhile the average non-ISA account balance fell marginally from £11,919 to £11,909. The data suggests savers were seeking to maximise tax-free interest before potential ISA threshold changes in the 2025 Budget.

Total adult cash ISA balances rose by £57 billion during the period, with much of the growth driven by strong demand for fixed-term products. Overall, adult cash ISA balances in accounts totalled £436 billion across 25 million accounts at December 2025.

Fixed-term ISAs accounted for £35.8 billion of the overall increase, rising to £237.7 billion as customers locked in rates ahead of an expected reduction in interest rates. Instant access ISA balances also grew, albeit at a steadier pace, increasing by £22.4 billion to £192.9 billion.

In contrast, non-ISA balances fell by £1.8 billion over the same period to £845.6 billion across 71 million accounts. This was mainly driven by fixed-term non-ISA balances falling as savers reallocated money into tax-efficient wrappers.

Andrew Wright, head of savings at Paragon Bank, said: “2025 marked a clear shift in saver behaviour, with many people taking proactive steps to protect their returns by making greater use of tax-efficient savings. Anticipation of changes announced in the Autumn Budget encouraged savers to review where their money was held and to maximise the benefits of cash ISAs while allowances remained unchanged.

“What’s particularly notable is the strength of demand for fixed-term ISA products. Savers were not only responding to potential tax changes but also looking to lock in competitive rates amid expectations that interest rates would begin to fall. This combination of tax planning and rate certainty made fixed-term ISAs especially attractive.”

If you've used up your annual allowance, we look at other ways to shield your savings from tax in a separate guide.

Cash ISA savers may have to put money away for an extra 13 years to build a half a million pound savings pot and 16 more years for £1 million if the tax-free allowance is cut.

A reduced cash ISA allowance is rumoured to be one of the main policy changes in the chancellor’s Autumn Budget this week.

There is speculations that Rachel Reeves could halve the allowance to £10,000 or to £12,000 in an attempt to boost investment ideally into British stocks.

But analysis by Investec has highlighted the impact this would have on cash savers, ultimately making it harder for them to build wealth.

Investec claims it currently takes 19 years to reach a half a million pound cash ISA pot, based on average rates, and 17 years for the top rates.

But it could take as long as 32 years with a reduced allowance.

There may also be fewer ISA millionaires, with the time taken to build a £1 million pot rising from 32 to 48 years with a reduced £10,000 allowance based on average rates.

Here is how a reduced cash ISA allowance would affect savers.

The cash ISA conundrum

Reeves is rumoured to be considering cutting the cash ISA allowance to push more money into the financial markets.

The hope is that this would benefit UK stocks and shares ISAs but there would be consequences for those who favour cash savings.

Currently, the average cash ISA pays a rate of 2.79% a year, according to Investec.

A saver depositing £20,000 a year into the typical cash ISA would take 19 years to reach the half a million-pound milestone, according to Investec Save analysis, with interest compounded and assuming no withdrawals.

This drops to 17 years for those who open a current top 10 cash ISA, paying an average rate of 4.17%.

However, a saver only depositing £10,000 a year into the average cash ISA would instead take 32 years to save £500,000 – an extra 13 years.

This falls to 27 years if using Investec’s one-year fixed rate cash ISA, currently paying 4.27%.

Building a £1 million cash ISA pot would also get harder. The research suggests it would take 48 years to get to £1 million based on a rate of 2.79% and 40 years at 4.27%. That compares with 32 and 27 years currently.

David Hunt, head of deposits at Investec, said: “Halving the annual cash ISA allowance would make it significantly harder for savers to build meaningful long-term wealth. Our analysis shows that saving £500k in a cash ISA could take an extra 13 years under the rumoured changes.

“This highlights just how powerful consistent saving and the effect of compound interest can be over time, but also how sensitive those outcomes are to policy changes. The ISA has been one of the most successful savings vehicles in the UK, encouraging millions to save tax-efficiently for the future. Reducing the annual limit would inevitably slow that progress for ordinary cash ISA savers, particularly those who are disciplined about maximising their yearly contributions.”

The most recent rumours suggest the cash ISA allowance could be cut to £12,000 and even then it would take around 28 years to get to half a million pounds and 44 years for a £1 million tax-free pot.

There are also warnings that the reduced cash ISA allowance could hit building societies that often offer some of the top rates.

Andrew Montlake, chief executive at London-based Coreco, said: “While we understand the government's logic for encouraging growth and investment rather than saving, with any action there is a reaction.

"Cutting the cash ISA limit could have a real knock-on effect that restricts the level of money building societies get through the door.

"This will potentially mean fewer loans for borrowers, especially in niches such as holiday lets and adverse credit where many building societies come into their own.”

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.

Millions of commuters are set for a boost after the government said it will freeze rail fares for the first time in 30 years.

There were fears that rail fares could rise by 5.8% next year as they are usually calculated using Retail Prices Index data plus one percentage point. RPI came in at 4.8% in July.

But, ahead of the Autumn Budget in November, the chancellor Rachel Reeves confirmed fares would be frozen for the first time in three decades.

The Treasury said commuters on more expensive routes will save more than £300 per year.

Reeves said the decision to announce the freeze would ease the pressure on household finances and make travelling to work, school or to visit friends and family ‘that bit easier’.

How much will rail fares cost?

Transport costs make up 12% of household spending, the Treasury said, so any reduction will be welcomed by commuters.

The freeze will apply to all regulated fares, including season tickets, peak returns for commuters and off-peak returns between major cities, benefitting more than a billion passenger journeys across England.

According to Treasury calculations, a typical commuter travelling to work three days a week using flexi-season tickets will save £315 per year travelling from Milton Keynes to London, £173 per year from Woking to London and £57 per year for routes from Bradford to Leeds.

The Railways Bill being introduced in Parliament will also create Great British Railways (GBR), a new publicly owned company, that will run and manage the tracks and trains.

There are also plans to invest in tap in tap out and digital ticketing, alongside investing in superfast WiFi on the railway.

Transport Secretary Heidi Alexander said: “We all want to see cheaper rail travel, so we’re freezing fares to help millions of passengers save money.

“Commuters on more expensive routes will save more than £300 per year, meaning they keep more of their hard-earned cash.

“This is part of our wider plans to rebuild Great British Railways the public can be proud of and rely on.”

Will the rail fare freeze benefit consumers?

Ben Plowden, chief executive of the Campaign for Better Transport, welcomed the freeze.

He said: “We know that cost is the number one concern for people wanting to travel by train, so it is very welcome that fares will be frozen next year as we have been calling for.

“As well as helping households with the cost of living, this will enable more people to choose rail, reducing traffic on our roads, benefitting the economy, helping the environment, and connecting communities across the country.”

But the benefits of the freeze really depend on where you live and how much you use the railways.

Not all types of tickets are regulated either. For example, advance purchase tickets, first-class fares and some flexible tickets are set by the operating companies.

The freeze also isn’t much use if you commute on the London Underground. Transport for London fares are set by the Mayor of London so commuters in the capital may not feel the full benefits, especially as prices already rose by 4.6% in March.

London tube fares to rise

Though train fares are frozen, London Tube fares are set to rise by an inflation-busting 5.8% in March 2026. London mayor Sadiq Khan said the national rail fare freeze would not be mirrored in Transport for London fares.

The increase in spring will see a typical £4 tube fare rise to £4.25. Exact details of the new fares are likely to be published before Christmas.

A spokesperson for the Mayor of London said: “TfL and the Mayor are in close conversation with (the) government on fares and will confirm plans for future fares in due course.”

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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Hundreds of thousands of Brits are set to be dragged into an effective 60% tax trap over the next four years, according to new figures.

Almost 2.3 million taxpayers will earn over £100,000 by 2028/29, based on Freedom of Information (FOI) data obtained from the HMRC by wealth and asset management firm Rathbones, leaving them exposed to the tax trap.

The top rate of income tax in England, Wales and Northern Ireland is 45%. However, the tax-free personal allowance gradually reduces once you earn over £100,000. You lose it completely if you earn £125,140 or more.

This means, if you earn between £100,000 and £125,140, you effectively pay an income tax rate of 60%.

HMRC estimates 1.8 million taxpayers earned above the £100,000 threshold in 2024/25, but this is expected to rise by 493,000 to 2.29 million by 2028/29.

Not only does breaching £100,000 in earnings lead to an effective 60% rate of tax on income between £100,000 and £125,140, it means families can lose out on vital childcare support worth tens of thousands of pounds.

Stephanie Ebner, a financial planning lead at Rathbones, said the £100k tax trap had increasingly become a “stealth tax on the middle class”.

“The £100,000 tax trap is one of the most baffling quirks in our tax system,” she added.

“Originally designed to target the very highest earners, after 15 years of inflation and frozen thresholds, it now ensnares thousands of professionals who were never meant to be caught.”

For parents with two children under five, earning just £1 over £100,000 can mean losing childcare support worth almost £20,000, Rathbones warns.

All entitlement to tax-free childcare and free childcare hours is lost once parents earn more than £100,000 a year.

Stephanie said: “These costs must be covered from post-tax income, so it’s no surprise many are concerned.

“Hard-working families would need a substantial pay rise just to offset the impact of this tax trap.”

Source: HMRC via Freedom of Information request November 2025. Figures for the 2023-24 to 2028-29 tax years are estimates.

What is the £100k tax trap?

The £100k tax trap, also known as the 60% tax trap, is where taxpayers earning between £100,000 and £125,140 pay an effective income tax rate of 60%.

This is because your personal allowance, worth £12,570, is tapered off until eventually you have none left. This means being hit with extra tax on top of the 40% marginal rate.

The allowance tapers down at a rate of £1 for every £2 worth of income earned above £100,000.

For example, if your income rose to £110,000 from £100,000 you would pay 40% income tax on the additional £10,000 over £100,000. This works out at £4,000 in tax.

You would also lose £5,000 of your personal allowance (50% of £10,000) which is taxed at 40%. This equates to £2,000 in tax.

It means you pay £6,000 (60%) tax on the £10,000 earned over £100,000.

You pay the 45% additional rate of income tax on anything earned over £125,140.

Fiscal drag pulls more taxpayers into the 60% tax trap

The £100,000 threshold for losing the personal allowance has been frozen since its introduction in April 2010. Income tax thresholds have also stayed the same since April 2021 and remain frozen until April 2028.

But with taxpayers seeing their incomes increase due to rising wages and inflation, more and more people are being pulled into higher tax thresholds – a phenomenon known as fiscal drag.

The number of people losing some or all of their personal allowance due to fiscal drag is projected to rise by 88% between 2021/22 and 2028/29, from 1.22 million to 2.29 million, according to HMRC estimates.

Can you avoid the 60% tax trap?

Put simply, yes. You could give up a portion of your salary, if you’re still working, and add it into a workplace pension, thereby reducing your annual pay.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Check if your employer operates a salary sacrifice scheme, where you give up a portion of your salary, and spend it on certain things free of tax – including pensions. You can use this to bring your salary down below the £100,000 threshold.

“If your employer doesn’t run a salary sacrifice scheme, or the Budget brings in changes that make it harder to take advantage, you can still pay into a self-invested personal pension (SIPP) and receive tax relief at your highest marginal rate.”

Coles highlighted how someone on £101,000 paying £1,000 into a pension would benefit from £400 tax relief and an extra £200 boost as their personal allowance wouldn’t start being tapered down, meaning a £1,000 contribution would only actually cost them £400.

She added: “Plus, if a parent can bring their income back under £100,000, they may keep their eligibility to tax-free childcare too.

“If you’re making income from savings interest, you can use a cash ISA to protect as much as possible from tax.”

That said, there have been speculations the chancellor Rachel Reeves could introduce a £2,000 cap on the amount of earnings that can be exchanged through salary sacrifice in the Autumn Budget, signalling bad news for those trying to avoid the £100k tax trap.

Rachel Reeves has asked the UK competition watchdog to investigate the cost of private dental treatment over concerns about surging prices, where some treatments like a simple tooth extraction have risen by as much as 32%.

The chancellor now wants the CMA to launch a market study following concerns that some patients could be paying over the odds on hidden costs, overtreatment and a lack of information on price and quality of treatment that are not always transparent.

Other reports have emerged that private practices are taking on children under NHS care, but only if parents sign on as private clients.

Reeves said: “I want to see urgent action taken to help reduce prices, whilst the cost of living still puts pressure on families across the country.”

A spokesperson for the CMA said it recognised the private dental sector as an important market that needs to work well for consumers.

If you're interested in private healthcare, we look at it in a different article.

How much have dental costs gone up by?

The cost of private dental treatment surged between 2022 and 2024, according to MyTribe Insurance, which provides information about private healthcare and insurance.

Simple tooth extractions saw the steepest price hike of all common treatments - jumping from £105 to £139 (32%).

White filling implants rose from £105 to £129 (23%) while root canal treatment went up from £350 to £400 (14%).

Private patients in the South West or East of England can expect to pay the highest prices, while those in Scotland and Northern Ireland typically pay up to 30% less on average.

Dental groups have said practices are simply covering costs amid rising inflation and to cover an increase in employer costs.

Employer National Insurance contributions (NICs) rose from 13.8% to 15% in April 2025, and the rate at which they are paid was lowered from £9,100 to £5,000, adding to employee costs for businesses.

Neil Carmichael, executive chair of the Association of Dental Groups (ADG), said: “Without a significant increase in new dentists, consequential inflationary pressures are bound to be felt across the sector.

“Many ADG members have already found recent increases in national insurance and costs for essential supplies to be difficult to absorb.”

Meanwhile, Eddie Crouch, chair of the British Dental Association (BDA), said private dentists were just “covering their costs” claiming profits from private care are “what keeps NHS dentistry afloat”.

NHS dentistry is also in crisis as patients struggle to book appointments.

Recent data from the Office for National Statistics shows 82% of new adult patients were unable to access NHS dental care in May 2025.

Some areas of England struggling from a chronic lack of NHS dental care have been described as “dental deserts”.

Dentists have raised concerns over the terms of the NHS contract, which they say has left them unable to cover their costs, while funding for NHS dental care has been falling since 2006.

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UK asking prices have experienced their biggest November drop in more than 10 years amid Budget jitters and a decade-high number of homes for sale.

Average new seller asking prices fell between October and November by 1.8% from £371,422 to £364,833, according to property website Rightmove.

The average reduction between the two same months over the last 10 years is 1.1%. This year's drop marks the biggest November fall since 2012.

Rightmove said the high number of properties for sale on the market was putting downward pressure on prices while there were concerns over what could be announced in the Budget on 26 November.

A number of changes could be announced by the chancellor Rachel Reeves later this month with major ramifications for the housing market.

This includes a new tax on the sale of homes worth over £500,000, as well the removal of the capital gains tax exemption on primary residences valued at more than £1.5 million. A new “mansion tax” could also be levied on homes worth more than £2 million.

Both pre-Budget jitters and the excess of homes on sale were compounding the seasonal slowdown in prices usually seen before Christmas, according to Rightmove.

It said over a third of homes available for sale had had an asking price reduction between October and November, with the average price reduction worth 7%. Both these figures are the highest since February 2024.

Colleen Babcock, property expert at Rightmove, said many sellers were “keen to avoid standing out” by over-pricing, while the Budget landing later than usual was prompting would-be buyers to take a wait-and-see approach.

She added: “It appears that the usual lull we’d see around Christmas time has arrived early this year, and sellers who are keen to move are having to work especially hard to entice buyers with competitive pricing.

“This means that average new seller asking prices are now 0.5%, or £1,759, cheaper than a year ago.”

High-end housing market takes biggest hit

House prices across the premium market took the biggest hit, Rightmove said, with the number of sales agreed for homes priced over £2 million down by 13% compared to the same period last year.

Meanwhile, the number of new sellers coming to the market in this price bracket was down by 9%, a larger drop compared to homes at the lower-value end of the market.

Houses priced between £500,000 and £2 million, which could be impacted by rumoured stamp duty reform in England and capital gains tax changes, also suffered between October and November.

Sales agreed on properties within this price range were down by 8% year-on-year, higher than the typical average for this month (5%).

Homes priced under £500,000, which accounts for roughly 75% of the market, were more resilient, Rightmove said.

The number of sales agreed in this sector was down by only 4% year-on-year.

Rightmove said as well as concerns over the contents of the Budget, prospective home-movers had their eyes on interest rates, which, broadly, continue to fall.

The average two-year fixed mortgage rate was 4.91% as of 14 November, according to Moneyfactscompare.co.uk, down from 5.48% the same date a year ago.

However, some home buyers may be waiting until rates come down further.

The Bank of England (BoE) held rates at its last meeting on 6 November, stating it believes inflation has peaked at 3.8%. This could signal a cut is coming at its next meeting on 18 December, which may mean mortgage rates drop.

Babcock added: “If we can see some mortgage rate reductions over the next few weeks, supported by a December Bank Rate cut, we could start 2026 on a positive note with the end of the prolonged Budget hiatus lifting the gloomy atmosphere of recent weeks.”

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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Rachel Reeves has given her strongest indication yet that income tax rises could be on the cards in the Budget, refusing to repeat her manifesto pledge not to increase income tax, National Insurance, or VAT.

In a speech, delivered on Tuesday (4 November), the chancellor seemed to set the stage for tax rises in the Autumn Budget, saying: “If we are to build the future of Britain together, we will all have to contribute to that effort. Each of us must do our bit.”

She added that despite the bleak economic outlook for the UK, “austerity, reckless borrowing, [and] made-up numbers” were “the problem, not the solution”.

Reeves faces a difficult Budget, with calculations by the Institute for Fiscal Studies (IFS), a think tank, suggesting she needs to plug a £22 billion hole in the public finances just to maintain existing fiscal policy and keep the £10 billion of fiscal headroom she had in March.

As the chancellor has ruled out deep spending cuts and increased borrowing (which would go against her own self-imposed fiscal rules), it seems the gap will need to be filled by tax hikes.

When asked directly whether the manifesto pledge not to raise income tax, National Insurance, or VAT was still in place, the chancellor refused to directly answer the question. Instead she said: “I will set out the specific policy choices on the 26 November, and that’s the right thing to do, and we’re going through that process.”

Not raising income tax ‘risks doing more harm than good’, says Labour-linked think tank

Commentators and economists have expected taxes to rise in the Budget for some time now, with the possibility seemingly becoming likelier by the day.

Now an influential think tank with close links to Labour has called for the chancellor to “take decisive steps in her Budget in order and aim to double her level of headroom, while focusing on reducing prices, poverty and protecting payslips”.

The Resolution Foundation, which until 2024 was led by Pensions Minister Torsten Bell, says to achieve this, around £26 billion worth of tax rises are likely to be needed as a U-turn on welfare reform and a downgrade to productivity growth estimates are expected to cost the government billions.

The scale of the required cash injection means that avoiding the three big taxes (VAT, income tax, and National Insurance) “risks doing more harm than good”, the think tank estimates.

It ruled out a VAT rise as doing this will cause upwards pressures for inflation, which has remained stubbornly high in 2025. Instead, the think tank has suggested a 2p rise in income tax, offset by a 2p cut in employee National Insurance.

Such a policy would raise around £6 billion a year, according to the analysis, and would target people who pay income tax but not employee National Insurance. This includes landlords, pensioners, and the self-employed.

Beyond this policy, the remaining cash needed could be raised through “sensible reforms”, the think tank said, such as taxing partnership income, raising dividend tax, and closing capital gains tax loopholes, while also boosting growth by reducing the VAT threshold and reforming Vehicle Excise Duty.

James Smith, research director at the Resolution Foundation, said: “The chancellor should look to make sensible tax reforms to car taxes, dividends and capital gains. Switching 2p of employee National Insurance onto income tax would raise £6 billion [per year] while protecting workers’ wages.

“Together, this will help to deliver a decisive Budget centred around prices, payslips and poverty reduction, and that shifts the focus away from black holes and back onto boosting growth.”

However, Sarah Coles, head of personal finance at Hargreaves Lansdown, warned that while such a policy would technically avoid hitting ‘working people’, it would still impact several other types of income that are currently subject to income tax but not National Insurance.

“This includes pension income, earned income from people over the state pension age, savings interest outside cash ISAs, and income for landlords and self-employed people. Someone on a total pension income of £35,000, for example, currently pays £4,486 in income tax at 20%. A rise to 22% would mean they pay £449 extra a year.”

How you could protect yourself from potential income tax hikes

With income tax hikes potentially on the horizon, it could be a good idea to start looking into ways to combat a potential rise and keep hold of more of your money.

One of the best ways to do this is by reducing your total taxable income as much as possible so any increases to the rate of income tax will affect you far less.

This can be done in a number of ways.

Higher pension contributions

One method is to increase your pension contributions, either through your workplace pension scheme, or by putting more into your Self-Invested Personal Pension (SIPP).

As your taxable income is calculated after your pension contributions, putting more into a pension means you can reduce the amount of monthly pay which is subject to income tax.

“It won’t give you more money in your pocket today, but it will help you build a more resilient retirement, “Coles at Hargreaves Lansdown says. “Assuming that tax relief remains at your highest marginal rate, it would also raise the rate of tax relief, so you get more out of every penny you put into your pension.”

Depending on how much you earn, you may be able to reduce your taxable income enough to keep you below a tax threshold, cutting your highest rate of tax.

Utilise ISAs

Coles adds that if you are aiming for a retirement income that could exceed future tax thresholds, “you can consider using cash and stocks and shares ISAs alongside your pension”.

Any money that you save in an ISA can be taken tax free, meaning you are awarded more flexibility when managing your finances in retirement, and helping you pay less tax on your income.

For example, if you have built up a large ISA balance, you can top up your retirement income by taking money out of your ISA savings without having to pay extra income tax.

Currently, the maximum you can put into an ISA each year is £20,000, and you have full control over how much of that allowance you put in each type of ISA.

However, rumours have circulated all year that the amount of this ISA allowance that you can save in cash may be reduced – possibly even halved to £10,000.

Gifts and spousal transfers

Meanwhile, if you are married or in a civil partnership with a partner that pays a lower rate of tax, you can transfer income-producing assets into their name.

“It means you can both take advantage of your tax allowances. You can also use all the tax-efficient vehicles at your disposal, including your ISAs and pensions, as well as the Junior ISAs and Junior SIPPs of any qualifying children,” says Coles.

Defer your income

You may be able to defer your income if you expect to be paying a lower rate of tax at a later date.

“Business owners can manage their dividend payments, but employed people can also take steps,” Coles said.

For example, savers could use fixed-term savings accounts that pay interest annually, rather than an account which pays interest monthly.

“This often makes sense just before retirement,” Coles said. “If this money is currently sitting in accounts paying interest, then from a tax perspective, the sooner you move, the better.”

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.

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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 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.

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Speculation has reached fever pitch about the contents of the government’s forthcoming Autumn Budget. This follows the assessment of the highly respected NIESR (National Institute of Economic and Social Research, Britain’s oldest independent economic research institute) that the government is more than £40 billion adrift of the “fiscal rule” of achieving balance within five years. Allowing for a safety margin of £10 billion, that means a requirement for £51.1 billion, either in extra taxes or lower spending or both, annually by 2029-2030.

Slow growth, unexpectedly high inflation, disappointing tax revenues and overspending have caused the government’s finances to deteriorate rapidly. The promise of chancellor Rachel Reeves, that last year’s swingeing tax increases would be the last of this parliament looks set to be broken.

Most of the speculation has centred on tax increases on the well-off, whether on property, income or overall wealth. This is partly due to the Labour Party’s manifesto pledge not to increase the rates of income tax, national insurance or VAT; partly because there is little that excites the left more than the prospect of raising taxes on the better-off; and partly because the media loves scaring people about taxation.

Labour's unintended consequences

However, there is abundant evidence that last year’s tax increases have been counterproductive, slowing economic growth, reducing compliance and encouraging taxpayers to change their behaviour, even their residency, to reduce tax. These appear to be factors that the government and its Treasury advisers grossly underestimated, if it considered them at all. Or maybe they just didn’t care. The taxes were motivated by revenge on the government’s enemies as much as on raising revenue.

In theory, there are three ways Reeves could address the problem: cut spending, raise taxation or abandon the fiscal rules constraining the government’s room for manoeuvre. Given that even modest reductions in the growth of welfare spending have been defeated by backbench revolts and that increases in spending have been built into the government’s strategy, cutting spending is not an option.

Abolishing the fiscal target and allowing national debt to go on increasing may seem attractive but the cost of borrowing has continued to rise even as the Bank of England, more concerned to help the government than to exercise its theoretical independence, cuts interest rates. The cost of ten-year debt has risen to 4.7%, close to its January peak; that of 20-year debt to over 5.4%.

Some economists have been “crying wolf” about the risk of a spike in gilt yields, as supply continues to increase but demand drops away. So far, the trend has been slowly upwards, but that could change; the point about the parable of the boy who cried wolf is that nobody believes him when the wolf eventually arrives. Scaremongering has proved premature, but crises blow up very quickly. Anatole Kaletsky of Gavekal points out that rigid adherence to the fiscal rule leaves the chancellor unable to respond to an economic downturn. “Rather than benefiting from the Keynesian automatic stabilisers that have underpinned macroeconomic management since the late 1930s,” he writes, “the UK government has embraced a procyclical demand policy that might have been designed to amplify economic instability”. This is true but is the result of successive governments operating too close to the fiscal edge rather than leaving themselves room to respond to unexpected shocks.

Supply-side blunder

Kaletsky is on stronger ground criticising the government’s fiscal policy. “Starmer’s ban on any change to headline tax rates has compounded the demand-side error of pro-cyclical fiscal tightening with a supply-side blunder: imposing high marginal tax rates on a narrow base. This distorts the economy structurally, discourages investment, provokes political resistance, and encourages avoidance – guaranteeing disappointing revenue yields.”

He points out that “90% of British workers have qualified for big tax reductions since 1990” so that “fewer than 10% of taxpayers now bear the entire burden of financing the expansion of Britain’s welfare state, a shift to what may be the world’s most progressive income tax structure [that] occurred almost entirely during the 15 years of Conservative government from 2010 to 2024”.

He shows that “median British workers pay less tax than those in other rich economies”, leaving Britain’s finances dependent on “a very small minority of high earners who would probably prefer to abolish or bankrupt the welfare state rather than to pay ever higher taxes”. He goes on to argue that “the obvious – and, in my view, the only – solution that will ultimately convince the markets is for Britain to increase income tax and reverse the fiscal restructuring of the past 25 years”.

In other words, increase the basic rate of income tax to 22% and then to 25%. This, he argues, would restore bond investors’ faith in the sustainability of government finances, increase confidence and restart growth. More of government services would be funded with revenues contributed by the citizens who benefit from them. The NIESR also says that freezing tax thresholds and raising the standard and higher rates of income tax by 5% would close the fiscal gap, so Kaletsky is not alone.

The problem is that such a policy would drive a coach and horses through Labour’s manifesto commitment. For that reason, Kaletsky doesn’t expect this to be implemented in the Autumn Budget. Instead, “Reeves will likely propose intolerable tax increases that would extinguish any lingering hope of reviving growth – and prove politically unviable. The resulting backlash could spark a financial crisis and force a Black Wednesday-style U-turn in 2026.” Kaletsky believes that such a U-turn, which he thinks is inevitable, combined with a relaxation of the fiscal rule would, as in 1992, be “an economic liberation that could spark an unexpected national revival and growth boom”.

A fresh start?

There are, however, some problems with the 1992 analogy. Then, Britain was in recession with high interest rates and sterling tied to the over-valued deutschmark, providing no hope of escape. Breaking the link enabled interest rates to be cut and sterling to fall, though all the fall was recovered in the subsequent economic recovery. By 1997, the economy was growing strongly, the government’s finances were heading for surplus and taxes were being cut.

It’s very hard to see raising income tax as having the same effect, even if it would stabilise bond yields and interest rates. Moreover, despite the success of the 1992 U-turn, the Conservatives still lost the subsequent 1997 election decisively. Labour backbenchers will be well aware of this. Kaletsky is probably right – there is no alternative – but that does not mean that backbenchers or other members of the government will support it. It is more likely that the government will fall and be replaced either by a national government, as in 1931, or by an election.

That may sound like bad news but it will pave the way for a resolution. Several countries have faced a fiscal and economic crunch but have emerged revitalised. Not just the UK in 1992 (arguably a false dawn) but also Sweden, Greece, Italy and, most recently, Argentina. New governments implemented what was previously politically unthinkable, regained the confidence of the currency markets, deregulated, made government more efficient and revived growth. It just won’t happen under the current government.

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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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Gilt yields are on the rise once again, causing a fresh headache for Labour’s embattled chancellor of the exchequer, Rachel Reeves.

Yields on 10-year UK government gilts rose above 4.8% this morning (3 September), pushing up the cost of government borrowing. The yield on 30-year gilts has risen to over 5.7%, its highest level since 1997.

“The problem facing the UK is that the further bonds continue to climb, the larger the government’s costs are to finance the public debt,” said Matthew Ryan, head of market strategy at Ebury.

To bridge the gap, Reeves may be forced to hike taxes higher in the Autumn Budget. This, says Ryan, risks “a deadly ‘doom loop’” of escalating taxes, subdued growth and ever-increasing government deficits that “could completely derail Britain’s economy”.

“We’re not there just yet, but all eyes will be on how chancellor Reeves and her team intend to proceed," Ryan added.

The rise in borrowing costs risks boxing Reeves in further given her self-imposed fiscal rules. The government is seemingly in a position where cutting expenditure will be nearly impossible, but raising additional revenue risks hurting economic growth or breaking manifesto promises that Labour made during last year’s election.

What are gilt yields, and why are they rising?

Gilts are bonds (debt) issued by the British government. Like all bonds, the income they pay is expressed as a percentage of their purchase price. This is referred to as the yield.

Yields and prices move in opposite directions, because the income they pay is fixed in nominal terms. So when gilt yields rise, it means the price of UK government bonds is falling. That makes borrowing money more expensive for the government.

“Gilt yields are an expression of bond markets’ confidence in the UK government,” said Emma Moriarty, portfolio manager at CG Asset Management. While international factors such as the weakening global economy as a result of Trump’s tariff policy have played a part, “the reality is that the government came out of the last budget round with wafer thin fiscal headroom”.

“Bond vigilantes appear particularly critical of what may be perceived as fiscal mismanagement from the government,” said Ryan, from Ebury. “The massive shortfall between spending and income [is] almost certain to force further tax hikes in the autumn.”

There are other factors behind the spike in gilt yields. Fred Repton, senior portfolio manager on the global fixed income team at Neuberger, highlights that 2 September marked the end of the summer holiday season for US investors following the long Labor Day weekend.

“There was a notable pick-up in new issuance in bond markets that may have surprised bond market participants slightly,” said Repton. “In fact, yesterday was the largest issuance day on record in Europe as a whole.” This surge in supply has clearly dented prices, but Repton cautions that “one should not draw too many conclusions from one extremely active day for issuance".

When is the Autumn Budget?

Reeves announced this morning that the 2025 Autumn Budget will be announced on 26 November.

“We must bring inflation and borrowing costs down by keeping a tight grip on day to day spending through our non-negotiable fiscal rules,” Reeves said in a video announcing the date.

The primary mandate within these fiscal rules is a government commitment to financing day-to-day spending through revenue alone, and only borrowing to invest, by 2029/30.

Rising gilt yields make this harder, because they increase the costs of servicing the debt that the government has already accrued. There is also an implicit need for the government to keep borrowing to finance day-to-day spending between now and the end of the target period, and higher borrowing costs will increase the costs of servicing this debt.

Unless there is an unexpected surge in UK GDP, that means Reeves will either be forced to cut spending or to raise more tax revenue in the Autumn Budget. Either approach will be politically fraught.

“The very public U-turn on proposed cuts to welfare spending showed that, despite the deteriorating fiscal situation, there is still no effective majority for cutting expenditure,” said Moriarty. But Labour promised during its election campaign last year not to raise taxes on “working people”, effectively ruling out any changes to income tax, employees’ National Insurance or VAT.

“Proposals to shore up the fiscal position have been centred on raising taxes in a way which won’t hit working people,” says Moriarty. “There is a real fear that these proposals – for example, a wealth tax – disincentivise economic activity for uncertain impact on revenues.”

How do rising gilt yields affect your money?

The UK government is regarded as one of the most reliable borrowers in the world – as are the governments of most developed nations. The UK has never defaulted on its debt, and there is an argument that it never would (the Bank of England would likely intervene to prevent a default ever occurring, though this would cause its own problems as it would increase inflation).

Gilt yields are therefore seen as the gold standard within the bond market and other bonds tend to be priced in relation to gilts.

Mortgage rates, for example, tend to be linked to gilt yields. Long-duration mortgages are typically tied to 30-year gilts, yields on which are the highest they have been since the turn of the millennium.

Chancellor Rachel Reeves is rumoured to be set to hit homeowners with a property worth £2 million or more with a mansion tax in the Autumn Budget.

Reeves has reportedly been considering an overhaul of property taxes to balance the books in her much-anticipated Budget and one of the main policy changes could be a mansion tax.

Reports in the Daily Telegraph have suggested the chancellor could introduce a regular 1% charge on homes worth above £2 million, which would be collected through council tax.

There are suggestions that the mansion tax could be capped at £5,000 per year.

That is not the only rumoured change though.

Reeves is also reported to be considering replacing stamp duty with a new national property tax on the sale of homes worth more than £500,000 and introducing a capital gains tax charge on properties that sell for more than £1.5 million.

Nothing has been confirmed and the Treasury hasn’t commented but there are already signs that the rumours are hitting the property market.

Data from property website Rightmove shows sales agreed for £2 million-plus homes, which are the subject of a potential mansion tax, are already down 13% year-on-year.

Homes priced between £500,000 and £2 million, which would be impacted by stamp duty changes in England or the rumoured capital gains tax, have seen sales agreed drop by 8% year-on-year

Estate agents say they have also seen a change in activity.

Dominic Agace, chief executive of estate agency brand Winkworth, said this mooted move will create more uncertainty at the highest end of the property market, due to its predicted escalatory nature, at a time when the market is already under pressure as a result of Budget speculation since the summer.

He said: "Guidance will need to be provided swiftly on the highest potential tax charge, so everyone can adjust accordingly.

“With non-dom tax changes, VAT on school fees and mortgage rate increases, this will just add to more pressure on those living in these homes worth £2 million upwards, particularly in London where owners may have leveraged up to buy them."

The threat of a mansion tax could be good for those looking to move up the ladder if it causes prices to drop below wherever the threshold is set.

But there are warnings that shifting stamp duty to sellers and introducing a mansion tax would reduce the incentive for people to downsize and further restrict supply.

This could push up house prices further.

There will also be a big regional divide as the changes would have more of an impact in the south of England and London where property prices tend to be higher.

Which regions could be worst-hit by a national property tax?

Rightmove data suggests that just under a third of homes for sale in England are priced at above £500,000, and would be subject to the proposed new annual property tax, which would replace stamp duty if the policy came into force.

Homeowners in London would be the worst hit, with 59% of homes in the capital currently listed with an asking price of more than £500,000.

In contrast, just 8% of listings in the North East of England are above the £500,000 threshold.

The tax may not even attract as much as the Treasury hopes for.

A fifth of agreed property sales so far this year in England have been for homes over £500,000, Rightmove said, with 52% in London and just 4% in the North East.

How a mansion tax would hit homeowners

Currently, homeowners don’t pay any capital gains tax when selling their main property.

But one policy rumour is that the Treasury is considering applying capital gains tax when home sales reach above £1.5 million.

This would mean these sellers are treated the same as those selling an investment property.

The policy may be a winner with left-wing voters but Rightmove data shows just over 1% of all home sales agreed this year have been for properties worth above £1.5 million.

In London, one in ten (11%) of homes for sale are in this price bracket, with 5% of agreed sales so far this year being for homes above £1.5 million.

In the South West, 0.7% of agreed sales are in the £1.5 million price band, with 2% of available homes for sale in this price bracket.

In the North East, just 0.1% of agreed sales are in this upper-end bracket, with only 0.5% of all properties available for sale priced at over £1.5 million.

There are also reports that there could be an annual charge on high value homes, which may incentivise older homeowners to sell-up and downsize.

Laith Khalaf, head of investment analysis at AJ Bell, said the wealthiest would be hardest hit by charging CGT on high-value properties but there would likely be a knock-on effect for middle income families because anyone with a big tax liability may opt to sit tight in their property, causing a log jam in the housing ladder below them.

He said: “It’s far from certain that such tax changes will take place, but if they do, much will depend on the precise threshold at which CGT becomes payable in terms of the number of people affected.

“Even if such a ‘mansion tax’ is set at a high level, it would naturally cause people on middle incomes to worry it was just the thin end of the wedge, and the next time the government needs a bit of money they could just lower the threshold.

“Homeowners would also need to keep records of the costs of improvements they made to properties in order to offset them against any capital gains tax. That would be the case even for those with properties under the threshold, in case one day those houses grow in value enough to be drawn into taxation.”

How should homeowners react to proposed property tax changes?

For now, claims of property tax changes are just speculation.

Experts are warning against rushing into decisions based on rumours.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said it’s vital not to be driven into doing anything you wouldn’t otherwise consider.

She said: “If you’re worried about tax on downsizing, the key again is not to rush into anything. Downsizing is a major life change, involving all sorts of compromises and changes, and shouldn’t be rushed before you’re ready for it.

"This is your home, and you need to be happy in it. Ask yourself if you would be considering the move if it wasn’t for the rumours, and how you would feel if nothing ended up changing. That should help you decide if it’s right for you.”

But Johan Svanstrom, chief executive of Rightmove, has urged the Treasury to consider if these changes would be worth it financially and socially.

He said: “There is no real incentive for someone in a large home to downsize to a smaller one unless they truly need to and can still afford the stamp duty bill. The current rumours to stamp duty changes would only seem to exacerbate this, as it may deter some at the top of the market from moving if they would then face a new annual tax.”

Svanstrom highlighted that Rightmove’s data shows a proposed mansion tax would only affect a small proportion of the market.

He added: “The government needs to be cautious over the cumulative effect of taxation on higher priced areas of the country as it simply risks stalling this part of the market, since the importance of mobility for people and the overall economy is strong in those areas too.

“A slower market can affect all types of movers, from first-time buyers to key workers and families, even if a tax is aimed at higher value properties.”

The property website has made other suggestions of ways to boost the property market including letting home buyers stagger stamp duty payments rather than shifting the tax to the seller, as the government is rumoured to be considering.

Pension savers who die before the minimum pension age – currently 55 but rising to 57 in 2028 – will see their pots subject to inheritance tax, the Treasury has confirmed.

Chancellor Rachel Reeves previously announced in her Autumn Budget that pension savings would become liable for inheritance tax from April 2027.

While the policy change attracted criticism, the focus had been on how retirees would be affected by this rule change, and how they may wish to spend their pensions to avoid the taxman taking a slice of up to 40% when they die.

However, it has now emerged that the pots of savers who die before they’re old enough to access their pensions will also be subject to inheritance tax (IHT) when the new rules are introduced in April 2027.

Will applying inheritance tax on pensions stop people saving for retirement?

Experts say this is “unfair”, and that it may mean some people stop saving for retirement, worsening the pensions crisis. Last month, the government said it was relaunching the Pensions Commission to look at how to encourage more people to save for old age, as it warned that 45% of working-age adults do not save into a pension.

Caitlin Southalla, a director of pensions and tax firm WBR Group, comments: “Including ‘unused’ pension funds [before age 55] in scope for IHT is unbelievably unfair. If people cannot ‘use’ these funds under current rules, why should they be subject to IHT?

“The government is creating significant barriers for people to save responsibly for their retirement. By all means encourage people to use pensions for later life saving, and not as a wealth transfer tool, but this is not the way to do it.”

Carina Chambers, technical pensions expert at digital wealth manager Moneyfarm, also thinks it’s unfair.

She tells MoneyWeek: "The government’s confirmation that inheritance tax will apply to pension pots of individuals who die before reaching the age of 55 is concerning and fundamentally unfair.

“These are not 'unused pensions', they are savings that individuals were legally unable to access. Penalising families in cases of early death or life-limiting illness is not only unjust, but it also undermines the principles of long-term financial planning.”

According to Chambers, if people fear their savings will be taxed simply because they didn’t live long enough to use them, they may stop saving altogether. “This is a dangerous precedent that risks eroding trust in the pension system,” she comments.

The new rules, coming into effect in less than two years, mean pension pots will be added to someone’s estate regardless of when they die, and IHT of up to 40% could be due depending on the size of the estate. The standard inheritance tax threshold, below which IHT isn’t normally payable, is £325,000, although this can be increased.

Currently, pension funds can typically be passed on free of inheritance tax. Some people choose to use other assets and income streams to fund retirement, and keep their pension savings to pass onto loved ones and avoid IHT.

The Treasury says of the new rules: “We continue to incentivise pensions savings for their intended purpose – of funding retirement instead of them being openly used as a vehicle to transfer wealth – and more than 90% of estates each year will continue to pay no inheritance tax after these and other changes.”

However, the number of families paying IHT has been rising over the past few years. About 3,700 more deaths resulted in inheritance tax in 2022-2023, according to the latest figures from HMRC. This brings the total to 31,500 IHT-paying estates, an increase of 13% on the previous year.

The proportion of deaths liable for IHT has grown to 4.62% – but this is predicted to double by the end of the decade to 9.5% due to the IHT reforms, which also include changes for farmers and business owners.

James Jones-Tinsley, self-invested pensions technical specialist at the consultancy Barnett Waddingham, says pension savers aged under 55 are unlikely to have estates that breach the nil-rate band (the tax-free allowance for IHT).

He explains: “It's reasonable to expect that the younger an individual is; in most cases it is less likely their estate value would exceed the £325,000 nil-rate band. And if they are married or in a civil partnership, then if their assets pass to their surviving spouse or civil partner, they'd have no IHT payable."

However, he adds that “what sticks out in the mud” is that savers “cannot physically access their pension pot before the age of 55 (with some, usually occupation-based, exceptions). Therefore the ability to ‘make use of’ or purposefully redirect that pension fund prior to their death, does not exist”.

Jones-Tinsley says it’s “somewhat unfair” to financially punish an individual who dies earlier than expected, “when they had no personal control over what to do with their pension assets prior to the normal minimum pension age – other than to complete an ‘expression of wish’ form."

Experts warn that the new post-April 2027 landscape could be difficult for people inheriting estates that include pensions.

According to Gareth Davies, pension specialist at Scottish Widows, any IHT charges will add another layer of complexity for those already dealing with the death of a loved one.

He notes: "From calculating the new potential IHT liability once a pension is included, to updating death benefit nomination forms and considering the value of protection policies to mitigate the tax bill – people will need to address these necessities much sooner under the new changes.

“Pension savers may also want to consider consolidating their pots, if appropriate, to cut the admin burden when these changes kick in.”

Britain’s chancellor Rachel Reeves is facing at least as much risk from her parliamentary colleagues as she is from gilt markets. Upon delivering the Spring Statement in March, she introduced welfare reforms to ensure the Office for Budget Responsibility (OBR) would confirm she had met her fiscal rules.

But tightening the criteria for disability benefits was a step too far for many Labour MPs, who rebelled once the welfare reforms came to a vote. The government only managed to pass the bill by gutting its substantive fiscal savings, leaving Reeves with an extra £5 billion to find. She broke down in tears, gilt markets wobbled, and a huge fiscal black hole looms.

Tax hikes cannot fill the gap without endangering growth and breaking a manifesto pledge. The fiscal and political constraints are now so great that the chancellor, a keen chess player, must recognise she is in zugzwang: there are no good moves left.

One year on from a historic landslide, it seems almost impossible to contemplate that the government is unable to command a majority in parliament. And yet the welfare rebellion demonstrates the party is unable to accept the fiscal reality.

Debt interest payments total £100 billion a year, almost twice the amount spent on defence and not far off the education budget. This was her inheritance. Such is the debt albatross slung around the neck of the low-growth UK economy.

The chancellor’s first decisions have compounded the problem. Her attempts to boost growth, such as increasing public investment and relaxing planning regulations, only pay off in the long term, whereas the increase in the minimum wage and employers’ national insurance had an immediate effect on business hiring and confidence.

Is there a third way for Rachel Reeves?

But this is mere tinkering when the solution at its heart is a question of political philosophy. Would tax cuts and a small state boost growth, or must the government deliver tax and spend? Liz Truss famously tried part of the former and lost her job – but with government borrowing and the UK tax burden already at record highs, the latter strategy would be an even bigger gamble.

Reeves has tried to plough a third way, promising not to raise the big three taxes of income tax, national insurance and VAT while spending only to invest. The compromise has not worked. Rather than expanding growth, the chancellor has been forced into ever tighter corners.

The fiscal constraint has led to manoeuvres that have confounded even her own electorate. It’s unlikely Labour voters wanted to reduce benefits for the old, the disabled and children with special needs. This is a government with a majority but without a mandate for the actions that the chancellor decided to take.

The lack of a mandate is exactly what caused so many problems for Liz Truss: if Truss had won a general election on a platform to cut spending and taxes, the government might have been able to pursue such policies with impunity, à la Donald Trump.

Instead, UK voters punished the government in the local elections. The party is slumping in the opinion polls, having lost a third of its support in less than a year. Labour MPs are wondering what they signed up for. Many of them are entering parliament for the first time, scarred by 14 years of Conservative rule.

Anything that smacks of “austerity” must be repudiated. The welfare reforms at which so many of them baulked were only going to reduce the growth of disability spending, not cut it. That was a step too far for enough Labour MPs that the government could no longer rely on its majority.

Our analysis of each Labour MP showed that opposition to the welfare reforms extended well beyond the usual troublemakers. We ranked each MP by a number of quantitative criteria such as their voting record, incumbency and ministerial status to create a ranking for how likely they were to rebel. Even some of those with a relatively neutral score voted against the bill, such was the depth of opposition.

This is the start of an ongoing problem that will stymie the government’s agenda. The rebels succeeded and will now be emboldened. The left of the Labour Party is the political tail wagging the fiscal dog. Hence, there are renewed calls for the government to consider a wealth tax. As much as the gilt market is becalmed by the expectation of higher taxes plugging the fiscal gap, anything that dissuades capital and wealth from flowing into British assets would only serve to make the hole even bigger.

The latest Fiscal Risks and Sustainability report from the OBR has highlighted the dependence of the gilt market on the kindness of strangers. Overseas holders of gilts have become an increasing source of demand for the UK’s government debt. Their share of total gilt holdings has risen from 19% in 1998-1999 to 31% in 2023-2024.

If tax increases are thought to harm growth or hurt capital, foreign holders will need a higher yield or lower sterling to compensate them for the increased risk. All of this adds up to a winter of discontent for gilts. The Budget can’t be tough enough to please financial markets while being loose enough to please Labour MPs. The political and fiscal constraints upon the chancellor have combined to leave her in zugzwang, where no move confers an advantage upon her position. Swapping the pieces on the board won’t improve matters either. Les jeux sont faits.

Helen Thomas is the founder and CEO of Blonde Money, a macroeconomic consultancy.

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 UK economy shrunk in the month to April, fuelled by a retreat in the vital services sector, as the effects of the Iran war started to bite.

The 0.1% contraction is the first time the UK economy has posted negative growth figures since August 2025, the Office for National Statistics (ONS) found.

GDP growth had been strong in the first quarter of 2026, with the economy expanding by 0.6%, showing surprise resilience against the Iran crisis.

But now the full scale of the economic disruption from the war is starting to be seen.

Official data shows the April contraction was driven by a 0.2% fall in the services sector, which accounts for around 81% of the UK’s economic output.

Within this sector, the arts, entertainment, and recreation subsector fell the most (down 0.5%) thanks to a 4.9% fall in sports and recreation activities.

The ONS said some of the fall could be attributed to the cancellation of “multiple sporting events in the Middle East affecting the output of UK-based businesses”.

The contraction was partially offset by a 0.1% rise in the construction sector. Meanwhile, the production sector showed 0% growth.

In terms of quarterly GDP growth, the figures show the size of the economy has increased by 0.7% in the three months to April, up from 0.6% in the three months to March.

Figures like these have long been anticipated by experts. Many were surprised at how resilient the UK economy was in the first quarter of 2026, but the scale of the economic disruption from the Iran war is now showing itself.

Chancellor Rachel Reeves blamed the impact of the war for the disappointing growth figures. She said: “Before the conflict in the Middle East, growth was higher than expected and inflation was falling. This is not a war we wanted or joined, but one that will have an impact at home.

Where will GDP growth go in the rest of 2026?

Though the economy had shown resilience despite the impact of the war in the first quarter, most economists doubt we will see any strong growth for some time.

The Iran war, which started on 28 February, has prompted a rise in global prices, largely through the increased price of oil and gas as the Strait of Hormuz, a narrow waterway between Iran and Oman through which around 20% of the world’s oil and gas is transported, has been mostly blockaded since February.

Motorists have already been feeling the pain as the price of petrol and diesel is up around 23.9p and 36.4p respectively since the war started and households will also be hit with a 13% increase in energy bills from July.

As each of these lead to price increases, most economists think inflation will rise over the course of this year, reversing previous predictions that it would fall this year.

Stuart Clark, portfolio manager at Quilter, said: “We expect the economy to continue to fade as the year goes on, and particularly for as long as there is no lasting peace deal in the Middle East. Even if a deal is to materialise, costs have increased and are unlikely to come back down to levels seen prior to the conflict, and as such growth will be constrained regardless.

“With higher energy costs hitting businesses, and a rise in the energy price cap looming for households, growth is likely to grind to a halt once again,” he added.

The Bank of England’s Monetary Policy Committee (MPC), the panel of 9 experts who meet every six weeks to decide whether to raise, hold, or cut interest rates, will be watching the GDP figures closely.

The MPC next meets on 18 June and most experts expect they will hold interest rates at 3.75% for the fourth time in a row.

The Autumn Budget will finally take place on Wednesday (26 November), after months of speculation about what measures will be taken to rebalance the public finances.

Many are concerned that tax rises could be on the cards when chancellor Rachel Reeves addresses parliament. According to a survey by Hargreaves Lansdown in October, only 3% of people think they won’t be affected by Budget tax rises – whether that’s through changes to income tax, council tax, inheritance tax, capital gains tax, stamp duty or VAT.

In a speech delivered in Downing Street on 4 November, the chancellor told the nation she “will make the choices necessary to deliver strong foundations for our economy – for this year, and years to come”.

Treasury communications frame the policies set to be announced as “fair choices” that help deliver on the government’s priorities of cutting NHS waiting lists, national debt, and the cost of living.

Reeves has said higher taxes on the wealthy will be “part of the story” of this Budget and insisted that those with the broadest shoulders should be contributing the most.

But whatever your wealth, the Budget is likely to have significant implications for your personal finances.

Last year’s event saw a 6.7% increase to the minimum wage, as well as £40 billion worth of tax rises to balance the books and fund public services. This included the much-disliked National Insurance hike for employers.

This year’s Autumn Budget date is later than usual, with the fiscal event usually taking place in late October or early November.

We look at what the Budget is, and the types of things you can expect to be announced in it.

What is the Budget?

The Budget is an opportunity for the chancellor to set out the government’s plans for spending, taxation and the economy.

It typically takes place once a year, but previous chancellors have sometimes deviated from this schedule with two events. Reeves has committed to returning to just one annual Budget.

As well as announcing tax and spending policies, a key role for the chancellor is balancing the books at each Budget. Reeves’s fiscal rules prevent her from borrowing money to pay for day-to-day spending, and require her to have debt falling as a share of the economy by 2030.

Despite criticism that the self-imposed fiscal rules restrain the chancellor too much, Reeves reaffirmed on 3 September that they remain “non-negotiable”.

When chancellors set the Budget, they give themselves some financial leeway – a sort of margin for error known as ‘fiscal headroom’. This is essentially the amount by which they can increase spending or cut taxes without breaking their fiscal rules.

In the spring, Reeves had a fiscal buffer of £9.9 billion, but analysts believe this has now morphed into a black hole of around £22 billion due to weak economic growth, high borrowing costs and failed spending cuts. This means further tax rises look likely in the Autumn Budget.

Economic forecasts are also published at each fiscal event, giving a sense of what we can expect over the next five years. One of Reeves’s main missions is to deliver growth, so she will be judged against this objective.

Find out more about the potential economic impact in: How could the Autumn Budget affect interest rates, inflation and the financial markets?

What happens on Budget day?

The Budget will take place on Wednesday 26 November, with the chancellor delivering her statement at around 12.30pm, after Prime Minister’s Questions.

The shadow chancellor – currently Conservative MP Mel Stride – follows afterwards with his response to the policies announced.

Another key moment on Budget day is the photo opportunity before the statement to parliament. The chancellor famously poses in front of 11 Downing Street with the red box.

What to expect from the 2025 Autumn Budget

The economic outlook for the UK has been weak for some years now, and has not significantly improved since the pandemic.

The economy suffers from slow growth (as measured by GDP), low productivity, and high inflation, unemployment, and borrowing costs.

These factors mean the chancellor has much less money to spend on public services, new projects or to finance tax cuts.

In all, the Institute for Fiscal Studies (IFS), a think tank, estimates that Reeves will need to find £22 billion to simply maintain existing fiscal policy and keep the £10 billion of fiscal headroom she left herself in March, let alone to finance extra expenditure.

The money needed to balance the books will have to be found by either raising taxes, cutting government spending or borrowing more money.

But, as the chancellor’s self-imposed fiscal rules greatly limit her ability to raise more money through borrowing, and spending cuts (like those planned for welfare and the Winter Fuel Payment) have proved difficult to push through, the chances are that taxes will need to increase.

There are a number of ways that she could do this. While no confirmation has been made yet (and will likely not come until Budget day), one of the key tax-raising measures that is expected to be announced is an extension of the freeze on income tax thresholds.

Tax thresholds have been frozen since the 2022 tax year, meaning tax bands have not increased with inflation. This means that as inflation leads to higher prices and wages, workers start to be dragged into higher tax brackets without earning more in real terms, bringing in more revenue for the government. The phenomenon is called fiscal drag.

The threshold freeze was set to expire in the 2027/28 tax year, but it now looks like Reeves will extend it rather than raising income tax rates.

Other revenue-raising measures expected to be announced are an increase in how much expensive properties are taxed, a new tax on electric vehicles, a raid on salary sacrifice, and much more.

We could also see the cash ISA limit cut, which may result in savers paying more tax on money held in non-ISA savings accounts.

For a full list of all the policies confirmed to be in the Budget, as well as those which are widely expected to be announced, read our guide: Rachel Reeves’s Autumn Budget: what we know so far.

Who is responsible for the Budget?

As chancellor, Reeves has ultimate responsibility for the Budget and announces the main measures in a speech before parliament.

Other ministers that have a say over the Budget include Reeves’s second-in-charge, the chief secretary to the Treasury. This is now James Murray, but had been Darren Jones until he moved to the Prime Minister’s office on 1 September.

Pensions Minister Torsten Bell, who was the director of the Resolution Foundation think tank before becoming an MP, is also understood to be taking a key role in this year’s Budget.

The rest of the Treasury is also closely involved in the process and publishes a report alongside each Budget statement, providing further detail on the rationale and costing behind each measure.

The Office for Budget Responsibility (OBR), the UK’s fiscal watchdog, plays a role too, as the chancellor’s Budget decisions are partly informed by data and analysis provided by them. The OBR publishes its economic and fiscal outlook on the same day as the Budget is delivered.

After the Budget statement, MPs may be required to approve immediate changes to some taxes, such as alcohol and tobacco duties. A four-day Commons debate usually follows, after which MPs are asked to agree ‘ways and means’ resolutions to approve further tax proposals.

The last step is the Finance Bill, which gives permanent legal power to the measures introduced in the Budget. The Finance Bill often acts as a motion of confidence in the government – if it cannot pass key measures in the bill, it could be at risk of collapse.