27 November 2025: Households Count Cost Of Tax-Raising Measures
Chancellor Rachel Reeves’ second Budget, delivered earlier today after its contents were mistakenly released prematurely by the Office for Budget Responsibility, contained several measures that will directly impact household budgets, writes Laura Howard, Mark Hooson & Kevin Pratt.
Income tax thresholds
Labour’s 2024 election manifesto promised not to raise income tax, employee national insurance contributions or the rate of VAT, and the Chancellor, despite fevered speculation in the run-up to the Budget, honoured this commitment.
But many people will find themselves paying more tax in future years because Rachel Reeves announced that income tax thresholds will remain frozen beyond the current deadline of 2028, until the end of the 2030-31 tax year.
If thresholds are frozen, those receiving a pay increase may find themselves moving into a higher tax bracket as a result. And those not paying tax because the amount they earn is lower than the Personal Allowance of £12,570 will become taxpayers if a pay rise lifts their earnings above this amount. This is known as ‘fiscal drag’.
Nimesh Shah at accountants Blick Rothenberg said: “It was a certainty that personal tax allowances and thresholds would be frozen in today’s Budget. I wasn’t expecting it would be for another three years, and it will drag almost one million people into paying higher rate (40%) tax.”
State pension tax threshold
It is estimated that those in receipt of the ‘new’ state pension will breach the Personal Allowance and thus become taxpayers in 2027, even if they do not have any other source of income.
The Chancellor confirmed in the Budget that state pensions will increase by 4.8% in April under the terms of the triple lock. The current full ‘new’ state pension (for those who retired from April 2016 onwards) is £230.25 a week, or £11,973 a year. The 4.8% increase from April 2026 will take it to £241.30 a week, or £12,548 a year, which is just over £20 shy of the frozen £12,570 Personal Allowance.
Even if the lowest of the triple lock measures is applied next year (an increase of 2.5%), the state pension will comfortably outstrip the allowance in 2027.
Rachel Vahey at investment house AJ Bell said: “With the continued freeze in the income tax personal allowance threshold at £12,570 until April 2031 at the least, the new state pension will soon leapfrog this, meaning that from April 2027 those pensioners receiving the full state pension will have to pay tax, regardless of whether they have any additional private pension income.”
The ‘old’ basic state pension, paid to pensioners who retired before April 2016, will rise from £176.45 per week (£9,175.40 per year) to £184.90 per week (£9,615 per year) when the 4.8% rise is implemented, so it will not threaten the Personal Allowance limit.
Vahey said the government is keen to minimise the burdens associated with collecting the tax on state pensions: “The chancellor in her Budget speech confirmed that pensioners will not be faced with the administrative hassle of self-assessment tax returns.
“Instead, the government intends to find a way to collect the tax from pensioners whose sole income is the basic or new state pension as part of its efforts to ‘modernise the tax system’, with further details to be outlined next year.”
Energy bills
Average household energy bills will see around £154 of costs removed from next April with the removal of the Energy Company Obligation (ECO) and the reallocation of government levies from bills to general taxation.
The ECO scheme obliges suppliers to tackle fuel poverty and reduce carbon emissions.
Analyst Cornwall Insight is predicting that April’s energy price cap, which limits what suppliers can charge for each unit of gas and electricity used, will be £1,675 – this is the estimated cost of annual energy bills for an average household with a variable rate tariff (the cap does not limit the size of bills, which are determined by consumption).
At present, the cap – which is adjusted quarterly – stands at £1,755. It will rise to £1,758 on 1 January 2026.
The cheapest fixed-rate tariffs generally cost less than typical variable rate deals.
Individual Savings Accounts
The current overall £20,000 annual tax-free ISA allowance will be retained. However, only a maximum of £12,000 can be put towards cash savings, with £8,000 of the allowance earmarked specifically for stocks and shares ISAs from April 2027.
Savers aged over 65 will retain the full £20,000 cash ISA allowance, however.
According to analysis by Investec Save, a saver depositing £12,000 a year into a cash ISA paying the current average rate of 2.79% will take 28 years to save £500,000 compared with 19 years if they were able to save £20,000.
Investec Save’s David Hunt said: “The reduction in the annual cash ISA allowance makes it significantly harder for savers to build meaningful long-term wealth.”
Ringfencing the over 65s away from the changes has been welcomed, however. Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Bringing in separate rules for people over the age of 65 is aimed at helping retirees, who often need bigger cash balances. The change will enable them to move money from a stocks and shares ISA into a cash ISA as they de-risk.”
Research from Yorkshire building society shows that just 10% of over-60s would consider investing in stocks and shares.
Mansion tax
From April 2028, homes worth more than £2m will pay an extra £2,500 a year in council tax. For homes worth more than £5m, the charge will be £7,500 a year.
Nick Leeming, chairman of Jackson-Stops estate agents, said: “For every high-end homeowner moving out, you also need someone to move in. By choosing an annual council surcharge that stays with the house, it has the ability impact both buyers and sellers, creating an uncertain outlook for prime houses.”
Landlord tax
Rather than introducing National Insurance on income from rental property as had been mooted in the lead-up to the Budget, the Chancellor will raise taxes payable by landlords instead.
From 6 April 2027, tax on rental income across England, Wales and Northern Ireland will be charged at the basic rate of 22%, while higher and additional rate property tax will be charged at 42% and 47% respectively. This compares to standard income tax rates of 20% for basic rate, 40% for higher rate, and 45% for additional rate.
Jason Tebb, president of property portal OnTheMarket, said: “The additional tax on rental income is disastrous for landlords. After a decade of being squeezed by mortgage interest relief cuts, wear-and-tear allowance removal, stamp duty surcharges, fiscal drag, and endless red tape, this move further erodes net yields, especially for highly leveraged landlords.
“This reform will simply see more and more landlords removing themselves from the private rental sector for a further squeeze on rental supply.”
Tax on dividend income
Share dividend income will be hit with a tax hike from 6 April 2026 when the starting ‘ordinary’ rate, currently charged at 8.75%, will be increased to 10.75%. The upper rate will be raised by the same two percentage points from 33.75% to 35.75%. However, the additional rate will remain unchanged at 39.35%.
Sarah Coles, head of personal finance at Hargreaves Lansdown, commented: “This tax attack on dividends flies in the face of the government’s desire to encourage investors to hold UK equities.
“Income investors have already been hit with a succession of horrible cuts in the annual dividend allowance. It fell from £5,000 to £2,000 back in April 2018, then it was slashed to £1,000 in April 2023 and to just £500 in April 2024.
“To make matters worse, the dividend tax rate was hiked in April 2022 too – up 1.25 percentage points for every tax bracket.”
Tax on savings income
Tax payable on savings interest will be increased from 6 April 2027 across all tax bands by two percentage points. From that date, the basic rate will be charged at 22%, the higher rate at 42%, and the additional rate at 47%.
However, the personal savings allowance (PSA), introduced nearly 10 years ago, means that basic rate taxpayers can earn up to £1,000 a year in savings interest before they start to pay tax on it. For higher rate taxpayers it’s £500 a year.
Sarah Coles described the announcement as a ‘shocking tax rise for savers’. She said: “It’s going to be more important than ever to take advantage of cash ISAs, where all your savings are protected from tax. The change to the cash ISA allowance will not happen overnight so there is still an opportunity to take advantage of your allowance this year.”
According to the Chancellor, over 90% of taxpayers do not currently pay any savings tax.
Pension contribution salary sacrifice
From April 2029, the amount that an employee can contribute to their company pension via salary sacrifice without paying National Insurance will be capped at £2,000 a year.
Salary sacrifice contributions above this amount will still attract tax relief at the individual’s highest marginal rate. However, if pension contributions are made above the cap, experts say this will reduce the individual’s take-home pay and increase the amount of National Insurance that will be paid by their employer.
Laura Hutchinson at tax consultancy Forbes Dawson said: “The restriction of salary sacrifice on pensions is likely to discourage contributions of anything over and above £2,000 threshold. This is not helpful, with less than 50% of highest earning households on track for sufficient retirement provisions.”
Gareth Henty at PwC added: “The change risks reducing pension participation rates at a time when the nation is already facing a significant issue of under-saving for retirement.
“The additional complexity and costs associated with adjusting existing arrangements are unlikely to be welcomed by employers and could have far-reaching implications for the future of workplace pension saving. Moreover, this could be seen as a stealth tax on employers and employees, raising important questions about fairness and the direction of long-term savings policy.”
Related: What Is The UK Average Pension Pot?
Electric vehicles
A new Electric Vehicle Excise Duty (eVED) will cost drivers of electric and hybrid vehicles an average of £240 a year from April 2028.
eVED will be charged at 3p per mile for battery electric vehicles (BEVs) and 1.5p per mile for plug-in hybrid vehicles (PHEVs), to be paid on top of the annual £195 Vehicle Excise Duty (VED) paid by most electric car drivers.
The government says BEV owners will effectively pay half as much as diesel and petrol vehicle owners pay for fuel, while PHEV owners will pay a quarter as much.
The rates, which apply to the 2028/29 tax year, will increase in line with the Consumer Price Index (CPI) measure of inflation after 2029.
RAC head of policy Simon Williams said: “With fuel duty revenue set to decline as more EVs come on to the road, this is one lever the Chancellor clearly feels she can pull to keep the money coming in. The implementation will be critical, so the devil is very much in the details.”
Dan Reavley, head of motor finance at Anglo Scottish Asset Finance, said: “The new tax on electric vehicles feels fair. EVs use the road too, and are just as responsible for its upkeep as traditional fuel-powered cars.
“There’s still an incentive for people to buy EVs, with the new tax thought to be roughly half of what petrol car drivers will pay each year. However, we need more clarity on how electric drivers will report their mileage, given that the tax will be paid on a per-mile basis.
“The plan is for mileage to be reported from your car’s odometer at its annual MOT – as it is already. But, given that many Brits will already be feeling the squeeze come 2028 [following the freezing of income tax thresholds and other tax changes], the government needs to come up with a solution to prevent drivers from ‘clocking’ their odometers to reduce the visible mileage.”
Kelly Becker at Schneider Electric added: “We appreciate the need to replace the revenue lost by fuel duty but introducing a tax on EVs at this stage risks slowing the growth of both the EV and electric charging markets while both are still very much finding their feet. It also sends mixed messages to motorists looking to make the switch to electric and could even make EVs less financially attractive.
“We welcome the subsidies and the additional investment in charging infrastructure, but any slowdown in EV sales would create uncertainty for the automotive, EV charging, electricity network, and low carbon supply chain industries, reducing the ability to plan for future demand.
“Taxation will be inevitable as the EV market matures, but for now, the UK is still building out the essential infrastructure and charging networks needed to support widespread EV adoption. Focus should remain on encouraging investment and growth to accelerate the move to clean transport. The government has an important role to play in supporting adoption and helping to ensure a smooth transition.”
Fuel Duty
Fuel duty will remain frozen at its current rate until September 2026. The duty was cut by 5p per litre in 2022 after Russia’s invasion of Ukraine caused prices at the pump to spike, and was expected to be unfrozen at the Autumn Budget.
After September next year, Fuel Duty will gradually return to March 2022 levels by March 2027.
Minimum wage
For workers aged 21 and over, the minimum wage will increase by 50 pence an hour in April next year, taking it to £12.71.
For those aged 18-20, the minimum wage will rise from £10 an hour to £10.85. For apprentices and other employees aged 16 and 17, the minimum wage will increase from £7.55 an hour to £8 an hour, again from April 2026.
Read more: Average Salary By Age.
Sugar tax on drinks
From 1 January 2028, milk-based and milk substitute-based (such as oat and soya) drinks will be included in the Soft Drinks Industry Levy, which applies to pre-packaged drinks with added sugar, and with more than 5g of total sugar per 100ml.
This measure will fall to 4.5g per 100ml, and manufacturers will need to reduce the sugar content of their products accordingly or pay the levy, which is likely to be passed on in retail prices.
Drinks served in cafes/bars/restaurants in an open-top cup are not affected. Coffee drinks will be included, but again, only if they are pre-packaged and not prepared fresh on the premises.
The change is expected to raise £1bn a year. The ‘sugar tax’ was introduced in 2018 to help combat obesity and dental health problems. Milk drinks were originally excluded because of the health benefits of ingesting calcium.
Two-child benefit cap
The two-child benefit cap is to be scrapped from April 2026, which the government says will ‘lift 450,000 children out of poverty’ by 2029/2030. Currently, parents can only claim universal credit or tax credits for their first two children.
Vikki Brownridge, chief executive at debt charity StepChange, said: “Today’s announcement of the removal of the two-child limit is an immediate, cost-effective way to lift hundreds of thousands of children out of poverty.
“It is a decisive move that will reduce the risk of debt-related harm and ease pressure on thousands of families across the UK.”
The charity said that, in 2024, one-in-ten (11%) of its clients had more than two children compared to 4% of UK households.
20 November 2025: Reeves Eyes Cash ISA Allowance In ‘Futile’ Bid To Boost Investment
With the Autumn Budget now less than a week away, fears are growing that Chancellor Rachel Reeves will take an axe to the £20,000 annual cash individual savings account (ISA) allowance, write Kevin Pratt.
Reeves has a stated aim of boosting investment in shares to stimulate economic growth. The thinking is that reducing the amount individuals can put into cash ISAs will encourage them to opt for a shares-based alternative for at least part of their annual allowance.
Experts believe next Wednesday’s Budget could see the £20,000 cash ISA limit fall to £12,000.
Rachel Springall at analysts Moneyfacts said chopping the allowance would be a futile attempt to push risk-averse savers to invest: “This year has been a milestone for cash ISAs, with the choice of deals and number of providers reaching record highs.
“Savers have flocked to cash ISAs to shield their money from tax, no doubt boosted by worries over a cut to the yearly allowance, with the Bank of England showing almost £30bn of deposits made since the start of April.”
Springall adds that, with frozen income tax bands resulting in some basic rate taxpayers being dragged into paying higher rate tax if they get a pay rise, the amount of interest they can earn tax-free outside an ISA is also reduced from £1,000 to £500 a year.
Income tax bands are already frozen until 2028, and it is widely predicted that this will be extended to 2030 in the Budget.
Springall said: “Savers find comfort in cash ISAs, particularly those who are being hit by ‘fiscal drag’ and do not want to risk their pot in a shares ISA.
“Investing the full £20,000 in a one-year fixed-rate cash ISA paying 3.89% would earn £778 in interest after 12 months, which is completely shielded from tax. If the same amount were invested in a one-year bond at 3.95%, earning £790, higher-rate taxpayers would breach their yearly personal savings allowance of £500.”
Research from investment house AJ Bell confirms strong public sentiment against any move by the Chancellor to cut the cash ISA allowance, with 48% opposing the idea – the same percentage as logged for those against an increase in income tax.
Tom Selby at AJ Bell 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. The fact that a cash ISA [allowance] cut comes in just as unpopular as a hike in income tax rates may give the Chancellor pause for thought on whether such a move is really a good idea.
“Brits clearly do not want to see further restrictions placed on how they save and invest their money. Not only would it be a hugely unpopular measure, but tinkering with the cash ISA allowance would be an ineffective way to promote investing, with more than half of Brits saying that, if faced with a cash ISA cut, they would simply move their money to a different savings account.”
Selby argues that the government should simplify the ISA regime by combining cash and shares ISAs: “This would remove the barrier between cash and investing and ultimately make it easier for people to transition from holding cash to investing and make the most of potential long-term investment growth.”
What the nation thinks of potential Budget changes
Source: AJ Bell/Opinium. Based on a nationally and politically representative survey of 2,050 UK adults, carried out by Opinium on behalf of AJ Bell between 23 and 24 October 2025.
If you have any thoughts on this story and the upcoming Budget, please contact us via getintouch@forbesadvisor.com
14 November 2025: Reeves Shelves Income Tax Hike
Reports across today’s media, led by an article in the Financial Times, suggest that the Chancellor, Rachel Reeves, has ditched plans to raise income tax in her Budget on 26 November, writes Kevin Pratt.
The Treasury does not comment on the likely content of the Budget ahead of the speech. But analysis by the Office for Budget Responsibility of improvements in government tax receipts has prompted speculation that the ‘black hole’ in the public finances could be smaller than feared, reducing the need for drastic measures.
Labour’s general election manifesto contained a commitment not to raise income tax, employee national insurance contributions or VAT (see stories below). The fall-out had such a move been made would have been politically damaging at a time when the party is trailing in the polls.
That said, the Budget will still need to raise revenue, both to reduce the government’s dependence on expensive borrowing on bond markets and to fund its plans to stimulate the economy. With rates of income tax seemingly off the table, experts are speculating what other changes might be made.
Sean Drury, partner at accountants Blick Rothenberg, said: “Reeves will need to scrabble about with a range of relatively small but highly emotive tax policies to fill the fiscal black hole. We are drawing ever closer to the Autumn Budget and there doesn’t seem to be a clear game plan for raising the money needed.”
Among the possible changes to the tax regime, Drury highlights an extension of the existing freeze on allowances beyond 2028. If, for example, the personal allowance is held at £12,570, more employees and, crucially, pensioners will be drawn into paying 20% tax as their income increases.
The same applies to the levels at which employees begin to pay higher rate (40%) and additional rate (45%) tax – £50,270 and £125,140 respectively.
Another option would be to reduce the income tax bands so that tax is payable sooner. Drury says: “She could reduce the personal allowance to £10,000 and then, for simplicity, people start paying 40% income tax when they hit £40,000 and 45% at £100,000. But this would bring at the very least 4.1million pensioners into paying tax.”
A further measure would be to align the tax on share dividends with rates of income tax. At present, those in the 20% tax band pay 8.75% tax on dividend income above the £500 annual allowance. The respective figures for 40% and 45% taxpayers are 33.75% and 39.35%.
Further steps could also see changes made to profits made on the sale of second homes and business assets, so that they are treated as income rather than capital gains and taxed at higher rates.
Drury said holding income tax rates at current levels will change the whole tenor of the Budget: “It is likely that we will get minor tinkering, not dealing with the major issues on either spending or revenue raising, and the can is kicked down the road for another fire drill next year.”
If you have any thoughts on this story and the upcoming Budget, please contact us via getintouch@forbesadvisor.com
11 November 2025: Reeves Backs Benefit Reform As LibDems Seek Hospitality VAT Cut
With the Budget now just over two weeks away, Chancellor Rachel Reeves is giving clearer indications of her plans for tax and spending, writes Kevin Pratt.
Speaking to the BBC, she said the government will act on child poverty, particularly with regard to larger families. This is likely to mean the removal of the two-child cap on the receipt of certain benefits, although whether it will be set higher or payments will be tapered for additional children is not known.
The cap was introduced by the Conservative government in 2017. Its removal would be a way to placate critics from within the Labour party who oppose her apparent intention to break last year’s manifesto commitment not to raise income tax, employee National Insurance contributions (NICs) or the rate of VAT.
She told the BBC’s Matt Chorley that honouring the manifesto would require deep cuts in public spending, which she has effectively ruled out since that would harm prospects for economic growth.
The Liberal Democrats have called for VAT on the hospitality industry to be cut from 20% to 15%, and for the removal of an environmental ‘renewables obligation’ levy from domestic energy bills that would, says the party, cut over £90 from an average household’s annual energy costs.
The measures, which would remain in place until April 2027, would cost £12 billion, which the party says would be more than covered by a windfall tax on ‘big banks’. It calculates that such a levy could raise £30 billion by 2030.
See story below for predictions on how Reeves might raise taxes to bolster the UK’s public finances.
According to The Telegraph, the Chancellor has ruled out reducing the amount that can be withdrawn as a tax-free lump sum from a pension fund. At present, those aged 55 and over can take 25% of their pot as tax-free cash up to an overall limit of £268,275.
However, there have been rumours that the government is mulling a reduction in the amount employees can contribute to their pension, via salary sacrifice, without paying NICs. Such a move would result in employers also paying higher National Insurance bills unless staff reduced their contributions.
Tom Selby at investment house AJ Bell welcomed the report: “Attacking tax-free cash would have been a massive own goal, raising little money and causing uproar from young and old alike.
“While any changes to pension tax relief would almost certainly come with protections for those close to retirement, it’s entirely understandable that people are concerned by the speculation in recent months. When you save diligently throughout your career, you deserve the right to plan ahead without the threat that the government may move the goalposts before you can access your money.
“Constant rumour and speculation will damage confidence in long-term saving, lead people to make short-term decisions that may be bad for their long-term financial health, and cause wariness about household spending choices for fear that government tinkering may upend financial plans.
“How many people will have taken a ‘wait and see’ approach to booking a holiday of a lifetime or pressed pause on a house refurbishment because they can’t trust the government not to make a mess of their financial plans?”
Selby wants the government to pledge not to change tax-free cash entitlements or tax relief on contributions, at least for the rest of this Parliament.
Research from Unbiased, a financial advice platform, suggests over half of Britons (51%) feel pessimistic about the Budget.
Source: Unbiased
The study of more than 1,100 UK adults shows that pension tax relief, inheritance tax and property levies top the list of concerns, with those aged 35–44 (66%) and over 65s (62%) the most anxious about potential financial changes.
If you have any thoughts on this story and the upcoming Budget, please contact us via getintouch@forbesadvisor.com
4 November 2025: Chancellor’s ‘Scene-Setting’ Speech Paves Way For Tax Hikes
Our first 2025 Budget preview (see below) was published when the government’s manifesto pledge not to hike income tax, employee national insurance contributions or VAT seemed absolutely rock solid, writes Kevin Pratt.
But in an unprecedented ‘scene-setting’ speech ahead of her Budget on 26 November, Chancellor Rachel Reeves today seemed to confirm that the government will jettison that commitment, saying: “If we are to build the future of Britain together, we will all have to contribute to that effort”.
Last week, given the opportunity to reaffirm the manifesto promise at Prime Minister’s questions, Sir Keir Starmer merely said the government’s plans will be revealed in the Budget. In today’s speech, Reeves provided no details of the measures she will reveal at the despatch box later this month.
She needs to raise money to plug a hole in the nation’s finances – and a deeply controversial increase to income tax is thought to be on the cards. That would hit employees, landlords, some pensioners and those with substantial amounts in savings accounts – in short, anyone with income above their tax-free allowance.
Laura Suter at investment house AJ Bell says the government will have to make difficult decisions to balance the books: “With an estimated shortfall of £30 billion, it’s not going to be an easy gap to plug. While tinkering with other taxes may raise small amounts here and there, an increase to income tax raises a big chunk of money in one move – approximately £7bn by HMRC’s own estimates.”
What about the political backlash? Suter argues that, while millions of people would be affected, the impact on most individuals would be relatively modest: “A move that hits every income taxpayer in the UK is not going to go down well with the public. But with a cost of just over £1 a day for those earning around £50,000, it’s unlikely to lead to protests in the street and persistent headlines in the papers, like we saw with farmers after last year’s changes to inheritance tax.”
If Reeves decides to target income tax, she still has options. She could raise the basic rate from 20p to 21p, for example, which would result in up to £377 in extra tax being paid per individual. That would bring in just around £23 billion over the next three years.
If she also boosted the higher rate tax rate from 40% to 41%, she’d raise a further £1.6 billion a year, while increasing the additional rate from 45% to 46% would bring in £145 million extra per annum.
The cost of a 1p rise in basic rate income tax
Source: AJ Bell. Annual income tax bill based on income taxpayer with the standard personal allowance. Rounded to nearest £1. Taxpayers over £50,270 would incur the maximum £377 increase. Those with earnings over £100,000 would be hit by the additional cost of the loss of personal allowance.
The left-leaning think-tank, The Resolution Foundation, has suggested that matching any increase in the basic rate of income tax with a similar reduction in employee national insurance contributions would leave employees unaffected.
But Suter says those who do not pay national insurance contributions would lose out: “It would raise overall tax rates for pensioners, landlords, savers and perhaps those with dividend income too, while offsetting the impact on workers. Given the manifesto pledge focused on workers – a definition the government tied itself in knots trying to pin down – the chancellor may argue this policy raises taxes without breaking the spirit of the pre-election promise.”
One thing that seems certain to be among the upcoming Budget’s revenue-raising measures is an extension of the freeze on income tax thresholds beyond the current date of 2028. If the thresholds are static, more people who get pay rises move into a higher band and pay more tax as a result.
17 October: Rumours abound about Rachel Reeves’ upcoming Autumn Statement. Here’s a run-down of what she might do
When the Chancellor presents her Budget on 26 November 2025, the UK will hold its breath. Rachel Reeves has a huge task in terms of balancing the nation’s books, but the prospect of steep tax rises and deep public spending cuts is causing widespread concern, writes Kevin Pratt.
Labour was elected last year with a manifesto pledge not to increase income tax, national insurance contributions or VAT. If we assume she’s going to stand by that commitment – imagine the flak she’d get if she didn’t – then what other money-raising measures are at her disposal? And what might they mean for your household budget and financial well-being?
TAX
An increase in income tax may be off the cards, but the Chancellor can still raise tax in many other ways. For example, she could extend the freeze on income tax thresholds beyond the current date of 2028, which would effectively push some of those who get pay rises into a higher tax bracket – if you hear the phrase ‘fiscal drag’ in the coming weeks, that’s what it’s referring to.
But the government wants more revenue now, so we could see changes to inheritance tax and capital gains tax, either via increased rates or reduced tax-free allowances.
Tweaks to the Stamp Duty Land Tax (SDLT) regime in England and Northern Ireland are another possibility, with reductions in the thresholds increasing what buyers have to pay. There have also been suggestions that property sellers might be targeted with a tax grab on gains made on the sale of a principal residence – a deeply controversial proposition that some fear would bring an already flat housing market to a grinding halt.
Some on the political left have also called for a wealth tax to be levied on the very rich. For example, pressure group Tax Justice UK is calling for a 2% levy on individuals with assets worth more than £10m. It also wants national insurance contributions to be levied on investment income, meaning it would apply to anyone with stock market investments or who lets out property.
Uncertainty abounds, but it’s pretty much nailed on that the Chancellor will stick to the current plan of unfreezing road fuel duty in March 2026 and, at the same time, reversing the 5p per litre cut that has been in place since 2022.
We could also see changes to vehicle excise duty (road tax, to you and me) that would further punish internal combustion engines. But electric cars may not be immune to increases: tax receipts on the national fleet of petrol and diesel vehicles is declining as EVs increase in number, and the gap has to be plugged somehow.
Reeves may also be considering another increase in alcohol duty (last year’s Budget led to an inflation-matching 3.65% hike in February 2025). That said, she’ll likely be casting around for something positive to include in her speech, and she cut a penny off the price of draught beer in 2024 to raise a bit of cheer, so this could be where she pulls a slightly tipsy rabbit out of the hat.
Smokers have long since resigned themselves to getting a tobacco duty clobbering in every Budget, and this year will prove no exception. A tax on vaping, announced last year, will take effect in October 2026.
Insurance premium tax, currently applied at a standard rate of 12%, could also be hiked. IPT is levied on your car, home and other insurance premiums, with a higher rate of 20% on travel insurance, so pretty much everyone would be stung by an increase.
SAVING & INVESTMENT
The Chancellor is expected to make changes to the regime governing individual savings accounts (ISAs) to shift the balance from cash to stock market accounts. The idea is to stimulate investment and boost economic growth, but the enduring popularity of cash ISAs makes it unlikely there will be a wholesale switch in the nation’s financial preferences.
Laura Sutur at investment house AJ Bell says: “Cash is king, as the nation funnelled almost £70 billion into their cash ISAs in the 2023/24 tax year to protect it from the taxman’s clutches. The amount grew by 67% compared to the previous year, with an extra £28 billion paid into the tax-free accounts.
“The rise in cash ISAs has been huge, with more than double paid in compared with two years earlier. Whether rising interest rates, frozen tax bands or rumours of ISA limits being cut are what’s driving this trend, the nation has clearly rediscovered its love of ISAs.”
Another area deemed to be in Reeves’ sights is pensions, where contributions receive tax relief at your highest rate, growth within your pension fund is not taxed, and you can take 25% of your fund as a tax-free cash lump sum from age 55 (rising to 57 in April 2028).
This tax-free allowance is seen as vulnerable, with the Institute of Fiscal Studies suggesting the current cap of £268,275 could be chopped to as low as £100,000.
Fears that pension contribution tax relief might also be in the Chancellor’s cross-hairs seem to have receded, although she may find a way to make high earners with larger pension pots stump up a greater tax contribution.
BUSINESS
Last year’s Budget saw businesses battered by an increase in employers’ national insurance contributions, which took effect in April, when they also faced an increase in the national minimum wage.
The Chancellor talks regularly about the importance of economic growth, but the pervading gloom among business leaders and the increase in the unemployment rate announced this month by the Office for National Statistics suggest it is proving elusive – and increased employer costs are seen as the primary cause.
This may encourage Reeves to spare the rod on business this year, but that would only be at the expense of individuals. Prepare to hold your breath, but don’t expect to heave a sigh of relief.
