The political background
The chancellor Rachel Reeves has been under enormous pressure all year. In addition to some major economic headwinds, she has faced political battles on several fronts. Even her own MPs rebelled when she tried to save money through benefits cuts.
The media reduced her choices down to two simple options. Break the manifesto pledge through an income tax rise and face a political backlash or strangle economic growth through a “smorgasbord” of stealth taxes on individuals, businesses and investors, just to save face with the electorate.
The manifesto promised no increases to ‘taxes on working people’ and Labour are unable to adjust income tax, National Insurance, or VAT without breaking that promise. Last year, the majority of the £40bn in new taxes was raised from employers NI.
Labour committed to two main fiscal rules in its manifesto, described as ‘non-negotiable’ and Reeves re-affirmed these in her speech. They require that:
- the current budget must move into balance, so that day-to-day costs are met by revenues; and
- debt must be falling as a share of the economy by the fifth year of the forecast.
There is no question that Rachel’s critics were ready with knives drawn, probably expecting deeper cuts, greater taxes, or both in anticipation of a far worse economic forecast than came through from the OBR.
The economic background
Labour inherited a difficult situation, but blaming the previous government, who now sit in opposition, is an excuse which is starting to wear thin.
Whilst the economy has spluttered all year, it is not quite the disaster which is often painted. Nor is it the success the chancellor needs it to be to silence her doubters.
Inflation has cooled recently and there is hope that we are now past its peak. It came down to 3.6% in October, from 3.8% in September. Too early to set a definitive trend but in line with expectations.
The job market has weakened. There are fewer vacancies in the year to October, fewer payrolled employees and unemployment has nudged up.
Growth in UK productivity has continued the sluggish trend which set in after the global financial crisis in 2007. Whilst we can point to this being no worse than many other developed economies, as illustrated by the International Monetary Foundation’s latest growth projections, the US has shown that it is possible to buck the trend.
Government debt is close to its highest level, which was hit during the pandemic. The cost of servicing this debt was over £100bn in 2023-24 and 2024-25, and more than any other G7 country. The government’s fiscal policy is to reduce this burden and the bond market reacted positively to the restraint in this budget which did not seek to add more debt over the longer term. The pound rallied, with equity markets also up on the day.
The OBR leak did reveal one surprising positive. The expected OBR downgraded forecast for 2025 was far smaller than anticipated which gave the chancellor a little more room to manoeuvre than expected. The OBR estimates the measures outlined by the chancellor will increase headroom against its borrowing to £22 billion in 2029 to 2030, £12 billion more than it forecast in March.
Reeves made much of the OBR’s improved forecast of 1.5% growth for 2025. However, the longer-term picture is less positive. In 2026, the economy is now expected to expand by 1.4%, below a previous forecast of 1.9%. For 2027, GDP is estimated to expand by 1.6% against March’s estimate of 1.8%. In 2028, GDP is forecast to rise by 1.5%. against 1.7% in March. In 2029, the economy will expand by 1.5%, not 1.8% as thought in March.
Arguably the chancellor could have delivered a more benign budget. The extra headroom may give her enough confidence to ignore her critics and ride out the next twelve months out if the economy improves ahead of forecast. It still feels a little beyond her control and that some luck will be required.
The speech
Opening remarks
We’ve picked out the most relevant changes in the tables below. For the government’s full details on the Autumn Statement visit this page.
Personal taxation and allowances
What
No change to income tax rates for earned income and pensions, but the personal allowance will remain frozen at £12,570, along with the current thresholds, to 2030-31.
When
Ongoing until April 2031
Comment
Fiscal drag was big news in the last Autumn Budget, and extending this for another three years will be seen as a failure for Rachel Reeves. Last year her plan was to increase the personal allowance in line with inflation from 2028. She acknowledged this in her speech. A freeze in personal tax allowances and thresholds mean that those earning an income over £12,570 will pay more tax over that time, to the tune of a collective £8bn as forecast by the OBR.
What
Inheritance tax nil rate bands will remain frozen for an extra year to 2030-31. They are currently up to £500,000 per person and £1,000,000 for a married couple or civil partnership.
When
Ongoing until April 2031
Comment
This is another fiscal drag which will bring more people into the inheritance tax regime. Whilst it may attract fewer headlines than the personal allowance freeze, the inclusion of pensions funds and death benefits into the inheritance tax regime from April 2027 announced at the last budget will already swell the numbers of people caught by this tax.
What
Increased tax on property income.
There will be separate tax rates for property income at 22% for the property basic rate, 42% for the property higher rate and 47% for the property additional rate, from 6 April 2027.
When
April 2027
Comment
This is one more in a succession of changes over many years which makes holding a property as an investment less attractive.
What
Tax on dividend income increased by 2%.
Tax rates on dividend income will increase by 2% at the ordinary and upper rate. From 6 April 2026, the ordinary rate will increase to 10.75% and the upper rate to 35.75%. The additional rate will remain unchanged at 39.35%.
When
April 2026
Comment
This will make business owners think carefully about how they extract profits from their business and may change how this is achieved.
What
Tax on interest from cash increased by 2%.
Tax rates on savings income will increase by 2% at the basic, higher and additional rate from 6 April 2027. The starting rate for savings limit will be maintained at £5,000 from April 2026 to April 2031.
When
April 2027
Comment
Whilst the cash ISA allowance was not completely removed, as had been rumoured, this tax increase will be an unpopular move amongst pensioners in particular, who form a large proportion of those who will pay tax on cash savings. It is likely that the concession to over 65s on the reduced cash ISA limits was intended to offset this.
What
For Agricultural Property Relief and Business Property Relief, any unused allowance for the 100% rate of relief can be transferable between spouses and civil partners.
When
April 2026
Comment
This brings these reliefs in line with the inheritance tax nil rate band rules. It is unlikely to appease farmers, but the policy is intended to improve the inheritance tax positions of small and medium farms specifically, who were negatively affected by last year’s changes.
Pensions and savings
What
The £20,000 cash ISA limit will be changed to require a minimum of £8,000 to be invested in stocks and shares. This, effectively, reduces the cash ISA limit to £12,000.
Cash ISA savers who are over 65, however, will be allowed to continue with the existing £20,000 in cash allowance.
When
April 2027
Comment
There is a belief in government that reducing the cash ISA limit will support investment by encouraging savers to invest more in equities than sit on cash. Whether this will happen remains to be seen. Some people may simply invest more in Premium Bonds, for example, given they are tax free. The exemption for the over 65s is most likely a purely political decision, especially given the additional 2% tax added to interest earned on cash.
What
Salary-sacrificed pension contributions will not be shielded from National Insurance Contributions where they are over a cap of £2,000 per annum.
When
April 2029
Comment
This limits the value of salary sacrificed pension contributions that can receive employee and employer National Insurance Contributions relief. Whilst the headlines may focus on the cost to individuals, it is businesses who may suffer more through higher National Insurance costs.
It does not lessen the benefits of pensions from a tax perspective, and the increase on dividend tax may result in even greater pension contributions from business owners seeking to extract profits out of their business in the most tax efficient way.
It is worth noting this does not come in until 2029 to allow for operational issues to be addressed.
What
There will be a consultation on the future of the Lifetime Isa.
When
Early 2026
Comment
This product could be scrapped or replaced with a simpler solution to support first time buyers.
Whilst we want to maintain and where possible extend tax allowances, simplification of the ISA regime is sensible. There are now multiple ISA products, and complication is unlikely to encourage new investors.
What
The basic State Pension will rise by £440 a year, and by £575 for those on the full, new State Pension.
When
April 2026
Comment
The government is standing by the hugely expensive State Pension triple lock. Fiscal drag through frozen personal allowances, means that more pensioners will be faced with an income tax bill as this increases but it has been announced that no tax will be payable if the state pension is the only income. However, final rules are not yet clear.
What
Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT) extended but VCT income tax relief cut from 30% to 20%.
When
April 2026
Comment
This measure increases the existing annual, lifetime and gross assets limits for companies that are receiving investment under the EIS or VCT scheme. It is designed to support start-ups and entrepreneurs to help them grow the economy.
There is a downside to those who will receive less Income Tax relief on their VCT investment from April next year.
Business investment and taxation
What
The Writing Down Allowance rate for corporation tax will be reduced from 18% to 14% from April 2026.
There will also be a new 40% first-year allowance to permit businesses to write off more of their upfront investment costs.
When
April 2026 for the reduction to 14% and January 2026 for the 40% first-year allowance.
Comment
This is one of a few tax concessions designed to support investment into businesses. There will also be a consultation launched on attracting more entrepreneurs. How much these measures reverse what was seen as punitive National Insurance increases on businesses last year is questionable.
What
Enterprise Management Incentives (EMI) will have their eligibility criteria widened to allow scale-ups, as well as start-ups, to access the scheme
When
April 2026
Comment
There is a desire to encourage entrepreneurialism and business growth within government. EMI schemes are a good way of broadening share ownership in a business, and often the most tax efficient.
What
Minimum wage will increase
When
April 2026
Comment
The minimum wage for over-21s will increase by 50p per hour from April, to £12.71 an hour, a rise of 4.1%. Workers aged 18 to 20 will get a bigger increase of 8.5%, to £10.85 an hour, and 16 and 17-year-olds will get a 6% increase to £8 an hour.
There is some concern that this may negatively impact job opportunities for young people in particular, given the weak job market, slow productivity and National Insurance burden on employers.
What
There will be relief for UK stock market listings, with a three-year exemption from stamp duty.
When
Effective from 27 November 2025
Comment
The number of new listings on London’s stock exchange has crashed in recent years, and it is a source of concern. This is an attempt to stimulate more listings.
There will also be a consultation on attracting more entrepreneurs.
What
Increased taxation of online gambling
When
From April 2026
Comment
Remote Gaming Duty will be increased to 40% from 1 April 2026, a new Remote Betting Rate with be introduced at 25% (excluding Self-Service Betting Terminals, spread betting, pool betting & UK horseracing) from 1 April 2027, and Bingo Duty will be abolished.
What
Capital Gains Tax (CGT) relief on disposals to Employee Ownership Trusts will be reduced from 100% to 50%.
When
Immediately
Comment
Converting ownership of a business to an Employee Ownership Trust has provided a lot of tax advantages for owners, as the disposal has been free of CGT and repayments of any debt owned free of income tax. This has made it appealing to owners for possibly the wrong reasons and the tax advantages have been reduced to make it less of a tax avoidance exercise.
Other announcements
What
Freeze rail fares in England for one year
When
1 March 2026
Comment
This is another politically useful announcement, speaking to cost of living concerns.
What
Remove the two-child limit from Universal Credit
When
April 2026
Comment
This was a popular decision amongst MPs and was billed as lifting 450,000 children out of poverty. The Chancellor saved this announcement until late in her speech, claiming it was only possible because of the difficult decisions announced earlier.
What
Mileage based road tax on electric and plug in hybrid vehicles
When
April 2028
Comment
EV drivers will pay around 3p per mile, whilst plug-in hybrid drivers will pay around 1.5p per mile.
What
Soft Drinks Levy scope increased
When
1 January 2028
Comment
The Soft Drinks Industry Levy or ‘sugar tax’ will be extended to cover milk-based products such as milkshakes.
What
Alcohol duty will increase in line with inflation.
When
1 February 2026
Comment
All alcohol duty rates will be uprated in line with the Retail Price Index (RPI) at 3.66%.
There will be an increase to the cash discount provided to small producers to maintain the relative value of Small Producer Relief (SPR), compared to the main rates. This relief provides lower alcohol duty rates for small producers — provided those products are below 8.5% alcohol by volume (ABV), not produced under licence, and are made on small producer premises producing below 4,500 hectolitres of pure alcohol per year.
What
Fuel Duty rates freeze extended.
When
To 1 September 2026
Comment
The temporary 5p fuel duty cut will be extended for a further five months, with the cut being reversed in three stages: 1p on 1 September 2026, 2p on 1 December 2026 and 2p on 1 March 2027. This will return rates to pre-March 2022 levels. The planned inflation increase for 2026-27 will not take place, with the government uprating fuel duty rates by Retail Prices Index (RPI) from April 2027.
Conclusion and reactions
Our thoughts
Despite the hype, and the enormous error from the OBR to kick things off, this Autumn Statement landed with far less of a thud than the previous year’s.
The tax haul was an increase of some £26 billion, not far short of last year’s £32 billion. That gives Rachel Reeves some fiscal headroom of £22bn, which is not huge, but she will hope it will be enough to survive any short-term economic turbulence and make her next budget a bit more mundane.
She could have added 1% to each rate of income tax and raised a similar amount, from roughly the same people, as she did with this broad combination of tax increases. She has tip-toed around the obvious fact that the amount of tax working people pay has increased, however you present it. Some of these taxes may also weaken our incentive to save and invest for our future.
The increased tax revenues are backloaded, so come with greater risk than an immediate increase in income tax. Some of the tax hikes, such as those from salary sacrifice, come in later years, and the fiscal drag very gradually brings in more tax revenue assuming earnings go up. This means more borrowing in the short term. Borrowing, we are told, will be curtailed once these increased tax revenues come through in later years. However, it is hard to believe that any government would be resolutely committed to increasing taxation as it heads towards a general election. The plan we have been presented with in this budget may not be the final blueprint for the next five years.
Estate planning Issues
Last year’s budget contained bombshells for estate planning, with unused pensions funds being dragged into the inheritance tax regime from April 2027.
This year has been less eventful, but it is worth noting that nil rate bands have been frozen again to 2031. The main nil rate band has remained at £325,000 since 2009. If it had been uprated with inflation along the way the nil rate band would be around £530,000 today, and more by 2028 when the original freeze was due to end. That’s at least £160,000 extra in tax per family because of the freeze.
If you wish to discuss inheritance tax issues please get in touch with your Insight adviser.
Business owner issues
Changes to salary sacrifice rules may be high on some of our clients’ lists of concerns but it will not happen until 2029 so there is time to plan.
Business owners may need to re-consider how they extract profits out of their business given the increase in dividend tax. Pension contributions may be an effective way to mitigate tax, regardless of future salary sacrifice changes.
For business owners looking to expand share ownership in the business, the expansion of EMI schemes may be an opportunity to do this in a tax advantageous way.
Investment issues
It is worth noting that the allowances and reliefs available for the core investment products that our clients use remain in place. The much-hyped attack on pensions tax-free cash did not happen, once again.
Cash ISAs clearly have their place, but we do not view them as long term savings vehicles from a financial advice perspective. The reduction of the Cash ISA allowance for those aged 65 and under is unlikely to have a material effect on financial plans.
We do not see anything in this budget which causes any immediate concern from a planning perspective.
Wider reaction to the speech
Kemi Badenoch was extremely forceful in her well-rehearsed response to the chancellor’s speech. She has struggled to date to create the impact her party demands, and her rather dramatic riposte was taken as impressive and forceful leadership by her supporters and rude and unprofessional by her detractors. Listening to Conservative MPs chanting in time with her speech was disturbing.
Bond and equity markets seemed positively disposed to the Autumn Statement, as was the pound. There was no bond vigilantism, something we are now much more aware of since the Liz Truss mini-budget.
The live media were so fixated on the OBR leak it was in danger of overshadowing the budget itself. Since the speech, tax increases have been attracting most of the headlines. Fiscal drag is more widely understood now, so it is harder for governments to play slight-of-hand tricks with stealth taxes and get away with it unnoticed. We will never know if a simple 1% rise on income tax would have been the politically disastrous decision the Chancellor and Prime Minister clearly thought it could be.
Labour MPs were visibly pleased. Not only did they avoid breaking the manifesto pledge, but it is also well known that the two-child cap for Universal Credit is despised by backbenchers who will be delighted to see it go.
What the current government needs to accept and address over the remaining years of their term is that it is not enough to rely on OBR forecasts and growth data to convince the public that the economy is performing well, and that British people are prospering.
As American Democrats found out to their peril in 2024, when they were presiding over a wonderfully performing US economy, people need to see the results in their pockets each week, not on a chart. Most people are not that concerned about how success is achieved, but they want Rachel Reeves to make us feel financially better off in future than we do today.
Conclusion
We were braced for a big shock that didn’t happen. In fact, the Chancellor doubled down on some of the promises we thought she might not keep.
She did not increase income tax, VAT or National Insurance Contributions. She knows we are paying more tax regardless.
She is continuing to spend, and she didn’t break her fiscal rules. She knows that makes the last two years of her government’s term an even bigger gamble.
The extra headroom created in this budget might make next year’s budget easier, but it remains reliant on a lot of political and economic factors which are out of the Chancellor’s control.
For now, we are grateful to have a smaller list of problems to deal with in this Autumn Statement than we had in last year’s Statement and look forward to discussing any of your questions and concerns.