HIGHER TAXES ON THE HORIZON
WHERE WILL THE LIKELY IMPACT BE?
– CAPITAL TAXES
– INHERITANCE TAX
– PENSIONS
With a yawning £41 billion hole opening up in Britain’s books, this autumn’s Budget is shaping up to be less about giveaways and more about plug‑holes. Economists at the National Institute of Economic and Social Research say Chancellor Rachel Reeves cannot meet her self-imposed fiscal rules without ‘moderate but sustained’ tax rises, and the Treasury’s options are squeezed by manifesto promises not to touch income tax, National Insurance or VAT.
That has sparked fevered speculation that Reeves will quietly extend the personal tax threshold freeze, overhaul council tax bands or even tighten capital gains and inheritance rules. As Downing Street scrambles to insist that living standards, not tax hikes, are the priority, the markets will be watching to see whether Britain’s ‘impossible trilemma’ forces ministers to break a promise – or break the bank.
AT A GLANCE
Major pledges included £113 billion in capital funding for infrastructure projects. Defence and health saw healthy boosts to their budgets. Overall, the government has committed to £300 billion in future spending. But could the cost of meeting those pledges have ongoing implications for wealth taxes?
Spending reviews were introduced by Labour in 1998 and typically cover a three-year period. These set out the funding that different government departments will receive over that time.
The big winners in the 2025 Spending Review included the Department of Health. It received a £29 billion boost. This will lay the groundwork for the NHS ten-year plan – details of which should be published shortly. Energy infrastructure will benefit from substantial capital investment, including in nuclear. Defence spending will increase by £11 billion. Meanwhile Chancellor Rachel Reeves’ reinstatement of the Winter Fuel Allowance has unsurprisingly garnered headlines.
PERSONAL TAX THRESHOLDS & ALLOWANCES ARE SET TO REMAIN UNCHANGED
The UK economic outlook is far from bright. UK inflation remains sticky. In other words, it remains higher than expected. There are risks to growth, not least from the potential impact of US tariffs. To make things worse Gilt yields have risen which pushes up the cost of government borrowing.
Despite a strong start to the year, it is reasonable to expect the UK economy to likely slow down through the rest of the year due to weakening business sentiment and the impact of tax increases in increased employer contribution implemented in April. The recent fall in interest rates, although it wasn’t a clearcut decision by the Bank of England suggests that the economic outlook will worsen and the economy will contract.
Commentators remain concerned about inflation and believe it is likely to remain higher. Services inflation is still running at over 5% and despite some softening in the labour market, pay growth remains stubbornly high.
Stimulating longer term growth isn’t easy and it seems that growth isn’t going to be the one thing that will help UK finances get back on track.
WHAT IS BEING TALKED ABOUT BY THE FINANCIAL PRESS?
GAP IN THE PUBLIC FINANCES
Several outlets report that the National Institute of Economic and Social Research (NIESR) forecasts a £41.2 billion shortfall in government borrowing by 2029‑30. To close the gap and restore a fiscal buffer, NIESR recommends a ‘moderate but sustained’ programme of tax rises.
It estimates that a five‑pence increase in the basic and higher rates of income tax would fill the hole, but also urges ministers to explore targeted changes to council tax, VAT and pensions allowances. Sky News notes that NIESR even suggests replacing council tax entirely with a land‑value tax.
PLEDGES CONSTRAIN OPTIONS
Labour’s manifesto promised not to raise income tax, employees’ National Insurance (NI) or VAT, which together account for nearly half of tax receipts. This has fuelled speculation that the government may instead extend the freeze on personal tax thresholds beyond 2028.
Freezing thresholds drags more people into higher bands and is seen by analysts as a politically palatable ‘stealth tax’. The Office for Budget Responsibility estimates that freezing income tax and NI thresholds between 2021 and 2028 will raise £42.9 billion by 2027‑28.
TARGETING WEALTH & INVESTMENT
PENSIONS & SALARY SACRIFICE
Pensions reliefs are a recurring rumour. MoneyWeek and Fidelity highlight speculation that salary‑sacrifice arrangements (which allow workers to give up salary in exchange for pension contributions) could be restricted or have their NI exemptions removed.
There is also talk of limiting the amount of tax‑free cash that can be taken from pensions or moving to a flat‑rate of pension tax relief.
POLITICAL BACKDROP
The prime minister has downplayed NIESR’s figures and insists the focus will be on raising living standards rather than tax hikes.
The opposition claims Labour will always ‘reach for the tax‑rise lever’, while economists warn that Reeves faces an ‘impossible trilemma’ of fiscal rules, spending commitments and manifesto pledges.
OTHER IDEAS GAINING ATTENTION
Beyond the big headlines, commentators mention several other possibilities.
ISA changes: The government is reviewing Individual Savings Accounts (ISAs) and may trim the cash‑ISA allowance, though it has committed not to cut the overall £20,000 limit.
Reforming or replacing council tax: NIESR suggests revising council tax bands or replacing the system with a land‑value tax; others float a broader property tax.
Wealth tax: Speculation about a wealth tax continues, but ministers have poured cold water on the idea. Keir Starmer refused to rule one out but insisted ‘we can’t just tax our way to growth’, while cabinet ministers have described the concept as ‘daft’.
Freezing or lowering IHT nil‑rate bands: Both MoneyWeek and Fidelity note that extending the freeze on IHT thresholds beyond 2030 or reducing them could raise revenue.
NBL FOCUS
There is a lot to look out for and we are vigilantly watching to see what the impact might be on clients. It is impossible to be sure where the major tax rises will be but we can certainly talk about mitigating the risks of any possible changes if you would like to have that conversation.
The value of an investment will be directly linked to the performance of the funds selected and the value may fall as well as rise. You may get back less than the amount invested.
An investment in a Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.
Please note that we do not offer or advise on Cash ISAs.
