Autumn Budget 2025
27 November 2025This was a Budget that was heavily trailed (to the extent that the contents were inadvertently published by the Office for Budget Responsibility (OBR) in advance of the Chancellor delivering her speech), but there was one big surprise. The expectation was that Rachel Reeves was going to need to find £20bn or more just to meet her fiscal rules, the reality was that she just needed to find £6bn. The OBR had downgraded its projections for productivity growth, but its forecasts for tax receipts were better than expected, in part because higher inflation forecasts are good for raising tax revenue.
This still left Reeves with substantial challenges. She needed to satisfy the markets about fiscal sustainability, her Party on delivering on Labour values, and the general public, with whom she polls poorly.
She will be encouraged by the response from the bond markets. By increasing her fiscal headroom against her fiscal rules from £9.9bn to £21.7bn (not high by historic standards but larger than in recent years), she is reducing the chances of having to come back next year with further tax increases. It is true that many of her measures are back-loaded (the principal tax increase – freezing income tax thresholds for a further three years – does not start to bite until 2028/9 and her spending cuts consist of ”efficiencies” to be found from 2029/30) but gilt yields nonetheless fell in the hours after her speech.
Labour MPs welcomed the abolition of the two-child benefit cap. A few months ago, Reeves had indicated that she could not afford to do so, but by prioritising this measure she will have strengthened her position among her Parliamentary colleagues.
By increasing her fiscal headroom and agreeing to spend more on welfare (not just scrapping the two-child benefit cap, but also paying for the reversal of the previously announced cuts to winter fuel payments and disability benefits), Reeves still needed to raise substantial sums of revenue, £26bn in total.
Unlike last year, she has not sought to raise large sums from business (other than the gambling industry) or high-net-worth individuals. In addition to the freeze in income tax thresholds, there is a long list of measures that are relatively small in terms of raising revenue. For example, there will be an additional council tax charge for properties worth £2m or more; there are higher rates of income tax for rental, savings and dividend income (although additional rate taxpayers will not pay more on dividend income); limits to salary sacrifice arrangements for pension contributions; and a new per mile charge for electric vehicles. Contrary to some of the speculation that was running relatively recently, there was no mention of an exit tax, a further increase in the CGT rate, or a charge on limited liability partnerships.
There will be opposition to each of the announced measures, but the Treasury will hope and expect to hold the line in respect of all of them.
If Reeves thinks that she has managed to reconcile the concerns of both the markets and her MPs, it will take longer to judge how this will land with the country at large. To some extent, this is a very traditional Labour Budget – higher welfare spending, paid for by higher taxes. Assuming that the OBR forecasts are broadly correct, economic growth will be weak over this Parliament and living standards effectively stagnant. This is a very difficult environment for an incumbent government fighting a General Election.
The hope among Ministers will be that higher-than-expected economic growth comes to the Government’s rescue. The Chancellor framed her speech as being about cutting the cost of living, NHS waiting lists and the Government’s debt, but there was little mention of economic growth in the Chancellor’s speech. Low growth remains a vulnerability for the Government, and it was left largely unaddressed.
You can find our analysis on key matters via the links below:
The Autumn Budget 2025: Private Client perspective
The Autumn Budget 2025: Employment Tax perspective
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