The Autumn Budget 2025 was delivered in the chaotic fashion that has typified Labour’s time in government, as the OBR report was mistakenly released before the Budget.
Rachel Reeves has announced a £26bn tax raid that will stifle ambition and dent growth. Plans to boost the UK’s stock market are unlikely to work. The UK’s brain drain is set to continue.
As the OBR report was leaked shortly before the Budget, traders had a chance to react before Rachel Reeves’ delivery at the dispatch box. In the immediate reaction to the leak, the FTSE 100 jumped by around 10 points, and the UK 10-year gilt fell by around 7bps.
By the time Chancellor had finished, the FTSE 100 was 0.7% higher at 9,677. The 10-year was flat on the day 4.48%.
Sentiment couldn’t have been worse going into the Autumn Budget, and Reeves has done little to improve the mood. The positive reaction in UK stocks was largely driven by uncertainty being removed, rather than any major cheer around the measures outlined today.
Plans to help those in need, such as scrapping the two-child benefit cap and boosting apprenticeships, are to be commended, but the methods being used to fund them contradict Labour’s promise to promote growth.
Economic Forecasts
The OBR expects inflation to rise to 3.5% this year, slightly above the 3.2% forecast in early 2025. This will make the Bank of England’s job that little bit more challenging in the short term. However, the OBR expects inflation to fall again next year. Inflation is forecast to fall to 2% in 2027.
The main positive forecast change was an upgrade to UK growth next year, with the OBR now seeing GDP growth at 2.5%.
Tax
Going into the Budget, it was thought Rachel Reeves would announce as many as 12 tax increases. She lived up to expectations.
In total, today’s measures will increase taxes by £26bn by 2029/2030. Today’s tax hikes were focused on higher earners and those with savings and investments.
Property income, savings, and dividends
The Labour government will increase tax on income from property, savings, and dividends by 2%. This is a blow for those fighting to secure their financial futures, as well as small business owners who are already struggling due to prior increases in National Insurance.
‘The last thing the UK really needs right now is more tax on investment and entrepreneurship,” said Jason Hollands, managing director at wealth management firm Evelyn Partners.
‘These hikes seem to be aimed mainly at extracting more cash from the UK’s small business owners, who don’t have the option of owning their company shares in a tax efficient Individual Savings Account. It will be felt by entrepreneurs as a kick in the teeth, as it takes guts to set up a small business and cash-flow can be uneven and profits uncertain, especially in the current environment where the economy is struggling.”
Salary-sacrificed pension contributions
Salary-sacrificed pension contributions will be subject to National Insurance above £2,000. This is thought to raise £4.7bn in 2029/30.
“Salary sacrifice on pension contributions enables workers to get the full value of every pound through income tax and National Insurance savings. Restricting the amount of someone’s salary that can be sacrificed to £2,000 a year will make people feel that bit poorer and we could see less going into pensions as a result,” said Helen Morrissey, head of retirement analysis, Hargreaves Lansdown.
Morrissey continued:
“It’s a move that could have huge impacts on people’s retirements. A 22-year-old earning £25,000 per year receiving 3% per year as an employer contribution on top of their own 5% one would reach retirement with a pension pot of £226,000. However, if the employer had been able to boost their contribution to 5% the end result would be closer to £283,000.”
Housing tax
A ‘Mansion Tax’ on properties worth more than £2m levied through higher council taxes. Properties worth £2m will face a £2,500 tax rising to £7,500 for homes worth £5m.
Income tax
The income tax thresholds will be frozen until the end of 2030/31. No change to income tax rates.
Other measures
Fuel duty will be frozen until September 2026.
A new mileage tax on electric vehicles.
Tobacco and alcohol levies will be increased. No surprise here.
Online gambling is being tackled wth duties on online gambling and gaming as high as 40%. Horse Racing will face no additional taxes as feared.
Investment & Stock Markets
Yesterday, there were reports of slashing the Cash ISA allowance to £12,000 and of a stamp duty holiday on newly listed shares for a 3-year period. They were confirmed today.
Both measures are designed to promote investment in UK stocks. But industry experts disagree.
“Cutting the Cash ISA allowance is unlikely to move the dial in any meaningful way when it comes to encouraging more people to invest – and certainly not in British stocks. Efforts to funnel retail investors into UK equities run counter to the principle of diversification, a cornerstone of good investing,” explained Jane Sydenham, Investment Director at Rathbones.
“Those using Cash ISAs are generally not choosing cash as an investment, but as a stepping stone for short-term goals like a house deposit, while benefiting from tax-free interest. Money displaced from Cash ISAs would likely end up in taxable savings accounts, not the stock market. Forcing risk-taking isn’t the answer – education and choice are. The government should focus on carrots, not sticks.”
The changes to pension contributions above and the Cash ISA Allowance have been met with disdain by the industry.
“Together, these measures send a signal that saving for the future is becoming less attractive,” said Louise Lewis, Partner and Joint Head of Trusts, Estates and Tax at law firm Freeths.
Rachel Reeves has also taken aim at Venture Capital Trusts, reducing income tax relief from 30% to 20% in a major blow to the industry.
“In the Budget the Chancellor announced that she would be reforming the UK’s venture capital schemes, allowing the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) to invest more money in more mature businesses. That was straight off the Venture Capital Trust Association wish list,” explained Alex Davies, CEO of Wealth Cub.
“What the Chancellor failed to mention, but was hidden in the Budget documents, was that she would also be cutting the income tax relief available on VCTs from 30% to 20% from April 2026.
“We’ve seen the effect of cutting income tax relief on VCT’s before. When VCT income tax relief was cut from 40% to 30% in 2006/07, funds raised by VCTs fell 65% year-on-year.
“2026/27 will be no different – with smaller companies facing a drought in funding in the years ahead.”
Benefits & Welfare
The two-child benefit cap has been removed – something that will please Labour backbenchers.
Those seeking disability benefits will now be subject to a face-to-face assessment.
Minimum Wage
As released yesterday, the National Living Wage for workers aged 21 and above will increase by 4.1% to £12.71 per hour. Meanwhile, the minimum wage for 18-20 year olds will rise to £10.85, whilst 16-17 year olds will see their rate climb to £8.00.
Energy
People are being helped with energy bills by ending the Eco scheme which aims to reduce household energy bills by 3150 a year.
Devolved governments
The Chancellor announced dedicated funding allocations for the devolved administrations: £370 million for Northern Ireland’s executive, £505 million for the Welsh government, and £820 million for the Scottish government.