Autumn Budget 2025

The manifesto capped the rate of corporation tax at 25% for the period of this parliament. The later corporate tax roadmap promised that the main incentives and reliefs would also remain as generous as they had been under the Conservative government, which rules out opportunities to significantly broaden the base.

Likelihood of an increase to corporation tax or significant broadening of the base – low

When the corporate tax roadmap was issued after the last Budget bank taxes were excluded from the promise of on-going stability. The two main taxes are the bank levy and the bank surcharge. Increasing the bank surcharge was a favourite policy in the leaked tax memo from the then deputy prime minister Angela Rayner in May of this year.

In August the Institute for Public Policy Research (IPPR) proposed the introduction of a Quantitative Easing Reserves income levy to tax the returns paid by the Bank of England on commercial bank reserves.

The financial services sector will have been relieved to hear warm words from the Chancellor at a recent IMF conference, where she emphasised the importance of ensuring the sector remained internationally competitive. There may be some tinkering around the edges but we think she will stop short of significantly increasing the levy, surcharge or imposing a windfall tax.

Likelihood of increasing Banking Taxes – low

Speculation has been growing around introducing a form of employer’s NI on LLP profits. The profits of partnerships flow through to be taxed in the hands of individual partners. Self-employed NI is paid but no equivalent to employer’s NI is levied.  The think tank, CenTax, has proposed charging an additional NIC charge at a reduced rate recognising that there is generally a tax deduction for employer’s NI which (if applied to all partnerships and not just LLPs) it estimates could raise approximately £1.9bn in 2026-27. It is widely assumed that if it went ahead a fix would be needed to ensure the measure didn’t extend to GPs although most GPs adopt a general partnership model rather than an LLP.

Likelihood of applying form of employer’s NI to limited liability partnerships – fifty-fifty

The pensions system includes a lot of tax breaks for pension savers and their employers. There are good reasons for this - whilst auto-enrolment has improved the number of people saving for retirement, they are generally still not saving enough.

Nonetheless, it's understandable that the government might look to the pensions system to tighten the reliefs and raise some revenues. One proposal is to apply Employer’s NI to employer contributions. 

Just ahead of the last Budget the IFS estimated that such a measure could raise £17bn (at the old employer’s NI rate of 13.8%). The Resolution Foundation said it would raise £12bn after reimbursing public sector employers for the additional costs.

It is politically the easist way to recoup some tax from the pension system. The pain could be reduced by only applying employers NI to salary sacrifice contributions which it is estimated will cost £4bn a year by 2029/30. But it would hit businesses hard, fast on the heels of the employer's NI rise last year. A tricky decision but due to the impact on business we think this is unlikely.

Likelihood of applying employer’s NI to pension contributions – low

With evidence that many small businesses cluster just below the VAT registration threshold, the registration limit is seen as an obstacle to growth. 

The real problem is one of competitiveness. Registering for VAT leads to an increase in prices which can make a business uncompetitive. The answer is not to increase the threshold (which shifts the problem) but to reduce the threshold so that almost everybody has to register. But it would be politically unpalatable because it looks like a tax increase on working people.

Likelihood of reducing the VAT threshold – low

One key plank of the government’s manifesto was to reduce the tax gap.The manifesto promised investment in HMRC to improve compliance and tackle the gap. Extra investment was announced at Spring Statement. Narrowing the tax gap is a good ambition, but it is difficult to do in practice.

Having said that the latest Tax Gap data shows a worrying up-tick in the corporation tax gap relating to small and medium-sized businesses (SME) since 2017. If the SME corporation tax gap could be brought down to 2017 levels this would yield some £10bn. 

Likelihood of measures to close the tax gap, particularly in relation to SME corporation tax - high

We expect to see most tax rises focussed on personal taxes, particularly for asset holders. But before we go through the options, there is one easy win.

Widening the tax base through freezing tax thresholds has become a regular feature of Budgets. Freezing the personal tax and NI thresholds for a further two years could raise £10bn a year. 

Likelihood that personal tax and NI thresholds are frozen for 2 further years – high

We were thinking about this at tax policy HQ a while ago and it has also been suggested by some think tanks: Employee NI is cut by 2% and income tax is increased by 2%. Supporters say this is within the spirit of the manifesto because it doesn’t raise the tax burden for working people. But it increases tax for landlords and working pensioners who would not benefit from the NI cut. It takes advantage of the broader base that applies to Income tax. The Resolution Foundation suggested this could raise £6bn a year.

Likelihood of income tax/ NI swap – fifty-fifty

Another way to widen the base would be to extend NI to income that is not currently in scope - working pensioners and landlords. It is difficult to argue against applying NI to working pensioners, but landlords may well pass the cost on through higher rents. 

Likelihood of extending national insurance to rental income and working pensioners – high

Inheritance tax (IHT)

Suggestions to increase IHT are focussed on capping the amount of tax-free lifetime gifts that can be made, extending the 7-year window for potentially exempt transfers to fall outside of an estate (or shortening it to 5 years but removing taper relief), or removing the residence nil-rate band. Mention has also been made of increasing the rate of inheritance tax.

We think increasing the rate of inheritance tax is unlikely. The rate is already relatively high at 40% and increasing it would encourage planning. The other suggestions are possible but will not be popular with voters. Despite very few estates actually paying inheritance tax, it is one of the most unfair taxes in focus groups. It has a relatively punitive rate and is perceived to tax wealth that has already been taxed (through income tax etc).

Capital gains tax (CGT)

CGT rates were increased in the Autumn Budget last year and are now at a level where, by HMRC’s own calculations, to increase them further would reduce tax revenues. 

Two CGT changes considered at fringe events at the recent Labour party conference were exit taxes for non-residents and the removal of the CGT uplift on death. 

The UK already has exit taxes for companies and trusts so it would not be a significant policy leap to apply something similar to individuals leaving the country. Many of our international peers already have them (e.g., Australia, Canada, US etc). However it would be complicated to do as there would also need to be a system of rebasing on immigration to the UK. The probability of this happening would depend on how concerned the government is about people leaving the country, but if such a tax is introduced it would need to be integrated with the Foreign Income and Gains regime which could be complex.

The rebasing of assets on death is often discussed. Some think that CGT should be paid on death (as well as IHT). We have already seen a lot of concern about last year’s announcement to tax pension pots on death even though beneficiaries have to pay income tax when they draw the amounts. But rebasing for CGT is perceived by some to be generous, particularly if the asset concerned falls within an IHT relief.

Dividend tax

The rates of dividend tax for higher and additional rate taxpayers are already not too far adrift from income tax rates.

Changes to any of these three tax areas is not going to significantly change tax revenues, but in a Budget where every extra pound matters it may be tempting to fiddle around the edges to squeeze some extra revenues. But it feels like an area of diminishing returns.

Likelihood of changes to IHT, CGT and dividend tax – fifty-fifty

If the obvious tax rises aren’t enough to fill the black hole and restore headroom, there are two areas that are potentially at risk of tax rises. One of these is pensions, the other is property taxation which is discussed further below.

The prospect of the Chancellor applying employer’s NI to employer pension contributions is covered under the business tax section of this blog.

Other proposals that have received coverage are introducing a flat rate of relief, reducing or eliminating the tax-free lump sum or reintroducing the Lifetime Allowance (LTA). 

None of these changes are easy. Introducing a flat rate of relief would be fiendishly difficult to implement, especially for defined benefit schemes which are prevalent in the public sector. Reducing the tax-free lump sum could have life changing impacts for those approaching retirement and to phase it in over time would mean it would not raise much tax in the short term (and might trigger retirements).

The LTA was only recently removed by the last government to stop NHS consultants turning down additional hours that were triggering high tax charges on their pensions. Any reintroduction of the LTA would need to be a at a level that didn’t impact on NHS consultants, which may mean it raises very little money.

A limited change to pensions relief might be to restrict the employee NI exception on salary sacrifice arrangements. This would arguably have a smaller impact on the individual than some of the alternative options and would also avoid introducing a cost for business (which applying employer’s NI to employer contributions would do).

Likelihood of changes to pensions taxation – fifty-fifty

It is widely expected that the limit of amounts that can be saved into a Cash ISA will be severely restricted to encourage taxpayers to invest in stocks and shares ISAs (which are expected to retain their full allowance).

Likelihood of reducing the cash ISA allowance - high

As mentioned above, the second area to which the government might turn for additional tax revenues is property.

Again several suggestions have been mooted, ranging from adding a couple of bands to council tax to wholesale property tax reform.

There would be clear benefits to undertaking proper reform of property taxation. Council tax, for example, is based on old valuations whilst SDLT causes stickiness in the housing market, but this would need a detailed consultation process.

We think the Chancellor will look to smaller and more immediate revenue raisers such as an annual levy on expensive homes or adding bands to council tax. There may be some SDLT changes targeted at particular owners – first time buyers, second homeowners, landlords or investors. 

But this could also be an area where we see a rabbit out of the hat. At Conservative party conference Kemi Badenoch announced that she would abolish SDLT if she wins the next election. The Chancellor may find it too tempting not to beat the opposition leader at her own game. Removing SDLT completely is unlikely as the government would need to fix the hole left behind. But an announcement of a consultation leading to wholesale reform would take the wind out of the Conservative sails on what is currently their flagship tax policy.

Likelihood of increases to council tax or an annual levy on high value properties – high

Likelihood of tinkering to SDLT – high

Likelihood of an announcement of wholesale reform – fifty-fifty

Let’s move on quickly. Although there are still some calling for a wealth tax, the government has effectively ruled it out, pointing out that the UK already taxes wealth in various forms via IHT and CGT. We could, however, see changes to those taxes more explicitly badged as a tax on wealth.

Likelihood of a wealth tax – vanishingly low

Previous governments have avoided breaking manifesto promises on tax rises by introducing a completely new tax. We saw it with the apprenticeship levy announced by George Osborne in 2015 and again with the Health and Social Care Levy announced in 2021. It is difficult to see how introducing a new tax would not be seen as a manifesto breach.

Likelihood of another new tax - low

Think tanks have been suggesting that the Chancellor could raise consumption taxes in areas such as tobacco, alcohol duties, unhealthy food and gambling. These so-called ‘sin taxes’ are often subject to small increases and reductions, so it is perhaps not surprising they are being considered. In relation to gambling, in September the Chancellor indicated that she thought there was a case for gambling firms paying more. HMRC data indicate a 1% increase to tobacco and alcohol duties could raise £1bn. Think tanks have indicated that increasing gambling duties could raise £3bn.

Likelihood of increasing taxes on gambling – high

Likelihood of increasing taxes on alcohol, tobacco and unhealthy foods – high

Another tax that could come under scrutiny is IPT. IPT receipts have soared in recent years. Critics of any move to increase the IPT main rate from 12%, which include the IFS, cite that it would increase the cost of Motor Insurance and Private Medical Insurance (PMI) which could lead to reduced coverage (and in the case of PMI put more pressure on the NHS). But in a world where the Chancellor is increasingly looking for tax revenue she may be prepared to take the risk, especially as this tax rise may not be noticed by the general public.

Likelihood of increasing taxes on IPT – high

There are two elements of fuel duty to consider. Firstly, there is an escalator that increases the rate of fuel duty by a set percentage above inflation each year. Secondly, there is a temporary 5 pence per litre (ppl) reduction in fuel duty introduced in 2022.

OBR forecasts assume the escalator increase will take place in each year of the forecast and that the temporary 5 ppl reduction will cease at the next April. In fact, the escalator has been frozen since 2011, and the temporary 5 ppl reduction is still with us. 

Each year the relevant Chancellor has intervened to ensure the price increases don’t go ahead but this process means that OBR forecasts are misleading in this area. The policy of keeping fuel prices low cuts across any policy agenda that moves the country towards more sustainable fuel sources. 

Nevertheless, we think that the Chancellor will continue with freezing the escalator and extending the 5 ppl reduction. Not to do so would impact heavily on workers.

Likelihood of allowing the temporary reduction to end and the escalator to operate – low