Autumn Budget 2025 predictions: What could Chancellor Rachel Reeves announce? 

Chancellor Rachel Reeves will deliver her second Budget on 26 November, making it one of the latest Autumn budgets in recent memory.

Since taking office, the fiscal picture has deteriorated dramatically. With government borrowing hitting a five-year high and the Office for Budget Responsibility (OBR) downgrading productivity forecasts, speculation has intensified about what tax changes and spending decisions the Chancellor will announce.

What began as predictions of a £20 to £30 billion shortfall has now ballooned to perhaps as much as £40 billion when accounting for the OBR's productivity downgrade and Reeves's desire to increase her fiscal buffer. 

Barclays now forecasts £41.7 billion in tax rises and spending cuts, roughly matching last year's record £41.5 billion raid, despite the Chancellor's previous assurance it was a ‘once-in-a-parliament Budget.’ For reference the Institute for Fiscal Studies projects that Reeves will need to find £22 billion to meet her rules, so there is a large degree of uncertainty on just how much will be needed.

The timing of this Budget is significant, as it has been pushed back to allow the OBR sufficient time to analyse Labour's growth plans, including infrastructure spending and potential trade agreements with the EU, India and the United States.

The following reflects current market expectations and economist predictions; nothing will be officially confirmed until Budget Day.

The fiscal challenge  

Reeves faces an increasingly difficult economic backdrop. The UK's deficit in the first five months of 2025 was £11.4 billion more than the OBR forecast at the spring statement, while UK 30-year bond yields remain stubbornly over 5%, giving the UK some of the highest long-term borrowing costs within the G7.

Economic data paints a sobering picture. Growth has stalled, with GDP expanding by just 0.1% in August, with July being revised down to negative 0.1%. At 3.8%, inflation remains almost double the Bank of England's 2% target.

The OBR's expected downgrade to productivity forecasts — by approximately 0.3 percentage points — will add an estimated £20 billion to the fiscal hole, as lower productivity means less tax revenue over the coming years.

Speaking at a gathering of business leaders in Saudi Arabia, Reeves confirmed that both tax rises and spending cuts are options, saying she wanted to ensure the UK had ‘sufficient headroom’ to provide resilience against future shocks. The implication seems to be that the £9.9 billion buffer she allowed herself in last year's Budget will be insufficient this time around.

With manifesto commitments previously ruling out increases to income tax, National Insurance, and VAT for 'working people,' and spending cuts looking politically impossible given the backlash to welfare reforms and the election of Lucy Powell as deputy Labour leader on an anti-cuts platform, the Chancellor faces an unenviable task.

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Income Tax and National Insurance changes 

The most significant development since the summer is that Labour's core manifesto pledge not to raise income tax, VAT, or National Insurance now appears certain to be broken (though the recent employer’s National Insurance increase was already a grey area).

When Conservative leader Kemi Badenoch asked Prime Minister Keir Starmer in the Commons whether he still stood by the manifesto promise, he pointedly refused to confirm it, in stark contrast to his one-word ‘Yes’ answer to the same question back in July. 

Instead, Starmer said only that the government would ‘lay out our plans’ on 26 November.

Multiple leading economists now warn that raising income tax is unavoidable. For example, Isaac Delestre from the Institute for Fiscal Studies (IFS) notes that trying to raise tens of billions without touching the major taxes would cause ‘unnecessary amounts of economic damage’ and ‘add needless complexity to the system.’

Professor Stephen Millard from the National Institute of Economic and Social Research agreed, telling the Independent that ‘Trying to fill the gap without changing any of the main taxes would mean a lot of small changes, making the tax system ever more complicated and less efficient.’

Active discussions within the Treasury are focusing on several options:

• Income tax and NI swap — a 2p rise in Income Tax but a 2p cut in National Insurance is being actively considered. Around 30 million workers who pay both taxes would pay the same amount, but pensioners and landlords (who don’t pay NI) would be hit
• Top rate of income tax — increasing the 45p rate paid by those earning over £125,140 or lowering the threshold at which people start paying the 45p rate, is also an option. This would affect higher earners while keeping the basic and higher rates unchanged
• Redefining ‘working people’ — Sky News has obtained an internal Treasury definition of ‘working people’ as those earning less than £45,000 annually. This suggests that those on higher salaries could face tax increases, whether to income tax or NI

The most politically palatable revenue raiser remains extending the income tax threshold freeze beyond 2028. This stealth tax has already dragged seven million taxpayers into higher rates since 2021, and extending the freeze by just one year to 2029-30 could generate an additional £10 billion. 

As wages rise with inflation, more workers are pulled into higher tax brackets without any formal rate increase, which remains one way to boost revenues without explicitly breaking manifesto pledges on rates. 

One key point to consider is that increasing the basic rate of income tax would almost certainly generate substantially more tax revenue than increasing the burden on higher or additional ratepayers. However, every pound taken directly out of pay packets is one less pound that can be spent in the economy — and continued flatlining growth may mean a doom loop of even more tax rises in the future.

As an aside, National Insurance on rental income appears increasingly likely, with reports suggesting this could raise around £2 billion a year. The measure would treat rental profits more like employment income, aligning with Labour's willingness to target landlords following their Renters' Rights Bill.

The Resolution Foundation has backed creating a new NI class for rental income at a basic rate of 20%, with an additional 8% on earnings above £50,270. However, the growing trend of landlords using limited company structures might reduce the effectiveness of this measure.

Again, there are trade-offs. More taxes and regulations on landlords often simply translate into increased rents as the cost is passed on to tenants.

Pension changes

The government has refused to rule out pension tax changes. While Reeves has established a Pensions Commission to investigate under-saving, with recommendations expected in 2027, economists warn that the fiscal pressure may force her hand before then.

Potential Changes Include:

• Reducing or removing the 25% tax-free lump sum (currently capped at £268,275), generating billions while targeting those with larger pension pots
• Moving from the current system where higher-rate taxpayers get 40% relief to a flat rate (possibly 30%), significantly affecting higher earners while claiming to make the system fairer
• Restrictions on salary sacrifice arrangements for pension contributions

Naturally, the continued uncertainty and flip-flopping on pension policy is creating significant damage to confidence in the system, with many making irreversible financial choices based on rumours like these — including withdrawing their tax-free cash.

The government has indicated it may wait for the Pensions Commission's findings, potentially meaning major immediate reform at this Budget is off the table, but technical changes remain possible.

Property taxes

Speculation continues over potential new wealth taxes that could fundamentally alter Britain's approach to taxing accumulated assets.

The government is reportedly considering replacing council tax and stamp duty with a progressive annual property tax targeting high value homeowners. This reform addresses the long-standing anomaly whereby council tax valuations are based on 1991 property prices, creating significant distortions.

Various outlets have suggested:

• Larger annual taxes on homes worth more than £500,000
• An annual ‘mansion tax’ of 1% on properties valued above £2 million
• A hybrid model with disproportionate impact on homeowners in London and the Southeast

More dramatically, discussions continue about ending the sacred principle of primary residence exemption from capital gains tax. A threshold of £1.5 million is under potential consideration, above which homeowners would pay CGT at rates of 18% for basic-rate taxpayers and 24% for higher-rate taxpayers on any gains when selling their home.

The Chancellor is also exploring taxes on sellers of homes over £500,000, effectively shifting the burden from buyers to sellers. However, experts warn this could create significant hardship for downsizers, especially older homeowners whose properties have appreciated dramatically over decades — and would be unfair to those who have already paid stamp duty for their homes.

Property developers and land speculators could also face new levies under a potential land value tax, designed to capture increases in land values that result from planning permissions and infrastructure improvements rather than any individual effort. However, these reforms may have an adverse effect on housebuilding.

Politically, the last time significant changes were made to local taxes was the poll tax, which did not end well for the government of the day.

Inheritance Tax

Building on her previous Budget's controversial inheritance tax reforms, Reeves is considering further restrictions that could significantly impact wealthy families and estate planning strategies.

Potential Changes Include:

• Lifetime cap on tax free gifts — the most discussed proposal involves introducing a lifetime cap on the value of gifts that can be passed on tax free before death, fundamentally changing how families transfer wealth across generations
• Extended seven year rule — currently, individuals can make unlimited gifts provided they survive seven years after making them. Speculation suggests the Chancellor could extend this survival period to 10 years, increasing the risk that gifts remain within your taxable estate
• Taper relief restructuring — the current system provides graduated tax reductions for gifts made between three and seven years before death, but these could be restructured to reduce the benefits of early gift-making
• Threshold freeze extension — The Chancellor may extend the freeze on inheritance tax thresholds beyond 2030. The main nil-rate band has remained at £325,000 since 2009; if it had risen with inflation, it would have reached £555,000 by tax year 2029-30
• Residence nil-rate band removal — Reeves could remove the residence nil-rate band worth £175,000, which currently allows married couples to pass on up to £1 million to their children tax-free when the family home is included

Again, like changes to pension policy, major changes to inheritance tax can hugely erode confidence in the system — and feel unfair to those who have made financial decisions in good faith who may now feel dishonestly targeted.

ISA reforms

While Reeves delayed announcing ISA changes last year after backlash from building societies, reform remains firmly on the agenda. 

The government wants to push savers from cash ISAs into stock market investments to boost economic growth and individual wealth, which seems a worthy goal. However, it’s worth considering that pushing risk-averse UK savers into investing at a time of record market highs (which some are describing as a bubble) may not end well.

Current rumours suggest the £20,000 annual cash ISA allowance could be cut to £10,000, though this has faced opposition from MPs on the Treasury Committee and the savings sector. The Chancellor may prefer to encourage stock market investment through other incentives rather than restricting cash savings directly.

Eliminating the stamp duty on shares may be a relatively inexpensive but powerful policy, though perhaps politically difficult given the optics.

Households appear to be preparing for the worst. They set aside £7.9 billion in September, according to Bank of England figures, taking total household savings past £2 trillion for the first time.

Other revenue-raising measures

• Banking sector levies — with UK banks generating substantial profits from high interest rates, windfall taxes on excess profits or income from Bank of England reserves could raise between £1 billion and £8 billion. However, the government is wary of deterring investment in the financial services sector.
• Gambling tax — within Labour ranks, pressure is growing to increase gambling duties. Former prime minister Gordon Brown is leading calls for online gambling levies to rise from 21% to as high as 50%. A new levy on online casinos and high-stakes betting could generate over £3 billion annually.
• Fuel duty — treasury officials may consider removing the temporary 5p per litre reduction introduced in 2022 and applying inflation-linked adjustments to duty rates. These measures could generate around £2.7 billion in additional annual revenue, though this would directly impact ‘working people’ and may prove politically difficult.

What seems unlikely 

• Comprehensive wealth tax — despite calls from some Labour backbenchers, a broad-based wealth tax appears to be a ‘non-starter’ according to Cabinet sources. The exodus of non-doms since Labour took power serves as a warning about the risks of aggressive wealth taxation
• Major public sector pension reforms — Major pension reforms affecting millions of public sector workers (in other words, Labour's core support base) seem politically unpalatable, especially following Lucy Powell's election as deputy Labour leader 
• Significant spending cuts — Reeves insists that there can be ‘no return to austerity.’ With Labour backbenchers in revolt over welfare cuts and the party membership electing Powell on an anti-cuts ticket, spending reductions appear off the table despite clear warnings signs

The economic context

Business leaders are expressing growing concerns. GSK CEO Dame Emma Walmsley has warned the Chancellor to ‘make sure that nothing happens that hampers UK competitiveness,’ particularly regarding tax credits for research. In recent months, major pharmaceutical companies including AstraZeneca and Merck have pulled plans for hundreds of millions of pounds worth of UK investment.

Thirteen business groups, including the CBI, Make UK and the Federation of Small Business, have written to the House of Lords urging amendments to the Employment Rights Bill, warning that conferring additional rights and protections would ‘inhibit hiring’ at a time of rising workplace vacancies.

Reeves has said she is determined to ‘defy’ the gloomy forecasts. She argued that the ‘foundations of Britain's economy remain strong’ and rejected claims the country is in permanent decline.

The Chancellor faces the delicate task of raising substantial revenues while trying to maintain some semblance of her commitment to ‘working people,’ a definition that may prove increasingly elastic as the details emerge.

She might also want to see some economic growth, though it might be hard to see this happening when the tax burden is at its highest since the Second World War, and the money coming in still isn’t enough.

It’s worth noting that for the 2024-25 financial year, the OBR expects that the UK will raise £1,141.2 billion in taxes and receipts, with total managed expenditure forecast to be £1,278.6 billion. The difference, or deficit, of £137.4 billion, represents roughly 12% of the tax take.

This is a large percentage but also not an insurmountable crisis.

As always with Budget speculation, the crucial thing to remember is that these predictions remain based on current market intelligence and economic analysis. Making financial decisions based on speculation rather than confirmed policy can prove costly. 

However, with the Prime Minister refusing to reaffirm manifesto commitments and multiple authoritative sources warning of unprecedented tax rises, the direction of travel appears clear.