Insight

Autumn Budget 2025

With Rachel Reeves having now delivered her second Budget as Chancellor, there will be a certain amount of relief amongst Labour backbenchers that the period of speculation is finally over. The run-up to today’s speech has been unusually fraught and febrile, with numerous potential policies floated, only to then be withdrawn, and the OBR’s unprecedented though inadvertent leaking of key details only adding to the general air of a lack of control and coordination.

Any relief felt though, will have quickly turned to trepidation as to how the measures outlined will be received by the many and disparate audiences they need to satisfy. The MPs’ own constituents, whose dissatisfaction is clear from the polls; the markets who increasingly drive so much of the overall reaction to fiscal statements; and the businesses whose own frustrations with the uncertainty caused by the lengthy lead-in to the Budget have been made abundantly clear. And, of course, the reaction of those MPs themselves, whose own restlessness grows stronger by the day. All needed to see something in there that spoke to their concerns and their priorities.

The challenge for the Chancellor is that those priorities are often contradictory and conflicting. The lifting of the two-child benefit cap is, at one and the same time, a signal to Labour MPs of a commitment to the party’s ‘traditional values’, and a worrying sign of fiscal laxness to the markets. Those same markets may be reassured by Reeves’ focus on reinforcing her fiscal headroom through revenue raising measures, but those measures will also add to the overall tax burden falling on voters already losing faith in this government. These competing demands, and the desire to please – or, at least, not displease – so many differing groups, inevitably gave the Budget something of a bits and pieces feel, with lots of small ideas and policies, rather than one or two big, eye-catching moves.

But, despite this backdrop, the Chancellor, who can appear nervy at times, gave a buoyant and robust performance in the House, emphasising “her choices” of stability and security, and returning to the key Labour narrative of growth fuelled by significant investment in transport, energy, and housing. With the moves on welfare and the cost of living, increased spending on the NHS, and an attempt – through measures such as the ‘mansion tax’ on homes worth more than £2m – to ensure the greatest burden falls on those best able to bear it, there was much there for Labour backbenchers to cheer. Reeves will hope the mansion tax in particular is successful in placating the backbenches, as it risk burning political capital elsewhere, giving detractors a ready-made attack line in return for a comparatively tiny financial gain of £400m.

And the Labour benches duly gave Reeves a rowdy and relatively upbeat reception, encouraged, perhaps, by the large-scale political operation across the Westminster tearooms and corridors over recent days to bolster the mood and resilience of the Government’s own troops. In this sense then, it was a job well done on a day that had not started auspiciously. For its part, the response from the Opposition (the Conservatives that is, rather than Reform) homed in on a “Budget for Benefits Street paid for by working people” and the Chancellor’s many small-scale “distractions while she steals your wallet;” predictable attack lines, but which is not to say that they may not prove to be effective ones over time.

However, to trot out a tried and tested truism, the real reaction to the Budget, and its resulting success or otherwise, will only be known over the next few days, as the markets respond and the small print is combed through. Early signs from the City are inconclusive – a dip in housebuilders’ shares, for example, but a tentatively solid-to-positive position on bonds – and some patience will be required to see how it all settles out. Whether the Budget has also earned the government renewed patience and support amongst all those they’ve sought to target today – both within their own party and without – will similarly take time to become clear.

Key Announcements

OBR Assessment

• Borrowing forecast to fall from 4.5% of GDP in 2025–26 to 1.9% by 2030–31.
• Public debt expected to reach 96% of GDP by 2030–31, up from 95% currently.
• Treasury debt interest projected at £136.6bn in 2029–30, compared with previous estimate of £131.6bn.
• OBR reduces long-term productivity growth forecast by 0.3 percentage points to 1%, with overall growth cut to 1.5% annually, down from 1.8%.
• Fiscal headroom increased to £22bn in 2029–30, more than doubling previous estimates.

Personal Taxation & Welfare

• Personal tax thresholds will be frozen until 2031, raising approx. £8bn.
• National Insurance to apply on salary-sacrificed pension contributions above £2,000 from 2029, raising £4.7bn.
• Increase in income tax rates on dividend, property and savings income by 2 percentage points, raising £2.1bn.
• No increase to NI, income tax or VAT.
• Cash ISA limit cut from £20,000 to £12,000, but investment ISA allowance remains at £20,000; change to take effect from 2027, with £8,000 reserved for investment. Over 65s will retain the full cash allowance of £20,000.
• Two-child benefit cap scrapped from April, including removal of the “rape clause”; changes expected to cost £9bn a year by the end of the decade.
• Minimum wage increased by 4.1%, with 6–8.5% rises for younger workers (18–20 year-olds rising from £10 to £10.85 per hour, living wage from £12.21 to £12.71).
• Basic and new state pensions increased by 4.8%, maintaining triple lock commitment.
• Inheritance tax rules amended to allow 100% transfer of relief allowance between spouses.
• Return to face-to-face benefit assessments, with review into rising youth inactivity.

Corporate Taxation

• Corporate tax rate unchanged but writing down allowances reduced, costing firms £1.5bn.
• Temporary reduction in fuel duty extended until September 2026; forecourts required to publish real-time price changes.
• Permanent reductions to business rates for over 750,000 retail, hospitality and leisure properties, worth £4.3bn, paid for higher rates on properties worth more than £500,000, used by “warehouse giants”. There will be £4.3bn of support for properties that receive a large increase in their bill.
• Remote gaming duty raised from 21% to 40%, and online betting duty increased from 15% to 25%, raising £1.1bn.

Public Services

• Call for evidence launched on how the UK can become more attractive for business growth.
• Council tax surcharge on properties over £2m from April 2028, raising £0.4bn annually; higher rate of £7,500 for properties over £5m.
• £4.9bn allocated to NHS efficiency improvements and increased community services.
• The removal of luxury vehicles from the Motability Scheme.

Energy

• EV supplement increased, and £1.3bn provided for electric car grants, with £200m allocated to charging infrastructure.
• Mileage-based tax on electric and hybrid vehicles from April 2028 at approx. half current petrol duty rates, 3p per mile for battery electric cars and 1.5p per mile for plug-in hybrid cars, raising £1.4bn.
• Development of the UK’s first small modular reactors with Rolls-Royce at Wylfa.
• Energy Company Obligation (ECO) scheme scrapped costing the Treasury £3bn next year, and then £2bn a year until 2028/29, but potentially lowering household bills by up to £150.
• 100% business rates relief for EV charge points for the next decade.

Other Key Announcements

• New national licensing framework to support late-night venues with fewer restrictions.
• Funding increased to support under-25 apprenticeships, with training made free for SMEs.
• Additional financial support for devolved administrations: £370m for Northern Ireland, £505m for Wales, and £820m for Scotland.
• £13bn devolved to seven mayors for skills, business support and infrastructure.
• Additional £5m for secondary school libraries and £18m to improve playgrounds in England.