The Autumn Budget 2025: just how painful could it be?

Chancellor Rachel Reeves at the Global Progress Action Summit in London in September 2025. Photo: Henry Nicholls/AFP via Getty Images.

The Autumn Budget – taking place on 26 November – might not be coinciding with Halloween this year, but it’s still inducing fear among savers and investors.

Just like this time last year, the rumour mill is in overdrive, with speculation over what Rachel Reeves’ red briefcase might contain reaching fever pitch.

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Since last year, the public finances have not improved. Estimates suggest the chancellor needs to raise in the region of £30 billion or more on the back of lower growth forecasts and increased borrowing costs. Cost-cutting measures have not gone to plan either, with the government’s much-criticised reforms to welfare spending reined in, reducing the subsequent savings.

The situation puts Reeves – who has pledged not to increase taxes on working people – in a tricky position.

Here we look at some of the options she could be considering.

Pensions

“Pensions are a big talking point,” says Ian Cook, financial planner at Quilter Cheviot. One rumoured option is to get rid of higher-rate tax relief and introduce a new flat rate of 25% or 30% for all. “This would help basic-rate taxpayers but reduce benefits for higher earners, who may start looking at ISAs or other wrappers instead.”

Another option is to reduce the amount of money that savers can take out of their pensions tax free. This could see the cap fall from £268,275 to just £100,000. This was rumoured last year too, and has prompted record numbers to take tax-free cash out of their pensions early.

And it’s not just nervous investors. At the start of October, pensions commentator Tom McPhail wrote an article in The Times explaining why he was taking his tax-free cash at age 59, while he’s still working part-time. Cutting the allowance to £100,000 would cost him, he calculated, between £33,655 and £67,310 (depending on how much of his income is taxed at 40%).

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A third option could be scaling back salary sacrifice for pension contributions, a strategy that enables employees to make national insurance savings, in addition to tax relief. Earlier this year, HMRC published research exploring how employers would respond to a range of hypothetical reforms.

However, while pensions often look like an easy target for the chancellor, analysis from pension consultancy LCP is warning that adopting any of these measures could leave a bitter economic and political aftertaste.

Its report highlighted five potential problems:

• Breaches the manifesto promise not to raise taxes for working people
• Significant impact on public sector workers (when industrial relations are already fragile)
• Places additional burdens on employers (after last year’s £25 billion hike to employer’s national insurance contributions)
• It wouldn’t raise much revenue, fast (it would take time to implement and transitional protections would need to be offered to those who lose out)
• Discourages saving in private pensions.

Steve Webb, a partner at LCP and co-author of the report said: “Raiding pension tax relief may look superficially attractive for a cash-strapped chancellor. But lying beneath the surface are multiple traps for the unwary, meaning that reforms might raise far less than expected, break manifesto promises to workers or put additional burdens on employers who are already under pressure. 

“The political backlash against such reforms could easily echo previous ‘Omnishambles’ Budgets where a U-turn was made within a matter of weeks.”

Inheritance tax

Last year, the chancellor announced plans to make pensions subject to inheritance tax (IHT) and scaled back allowances for business and agricultural property, but that doesn’t necessarily mean it will get left alone this year.

Options for increasing revenues include:

• Extending the freeze on the nil rate band (it’s currently frozen at £325,000 until 2028)
• Reducing the residential nil rate band
• Removing taper relief on gifts made shortly before death
• Extending the seven-year rule to 10 years, meaning it would take a decade for lifetime gifts to leave your estate and become tax-free
• Imposing a cap on lifetime gifting.

IHT has long been referred to as the UK’s most hated tax, even though it currently only affects less than 5% of estates.

A recent poll by YouGov found that 54% of the public want the tax to be scrapped and 67% want the nil rate band to be increased from its current level of £325,000.

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Cook adds: “These changes would make early gifting and trust planning more important, but they are politically sensitive, so any reform may be phased. The IHT landscape is already intricate to say the least, so moves to make the system simpler should be top of Reeves’ list.”

Capital gains tax

Another wealth tax that’s likely to be in Reeves’ line of vision is capital gains tax (CGT), in spite of last year’s rate increases (the lower rate rose from 10% to 18%, the higher from 20% to 24%).

There isn’t much scope to tinker with the annual exempt amount – it’s already been cut from £12,300 in 2022-23 to a current level of £3,000 today.

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Instead, the government could make further changes to CGT rates, but Cook warns that it’s a strategy that could backfire.

“Aligning rates with income tax is a recurring rumour. That would significantly increase liabilities for higher-rate taxpayers and could deter investment. Given Labour's desire to increase investment, this could be akin to shooting yourself in the foot.”  

ISAs

Savers are still bracing themselves for a possible reduction to the individual savings account (ISA) allowance for cash saving from £20,000 to just £4,000, as part of attempts to encourage investing and boost economic growth.

However, critics point out that reducing tax breaks for cash savers won’t necessarily encourage them to invest.

Income tax

The chancellor could increase income tax revenues without increasing rates. By extending the freeze on tax thresholds beyond April 2028, more workers will start paying higher rates of tax as their earnings grow.

This is an easy – read stealthy – way to boost government coffers without breaching its self-imposed rule to not increase taxes for working people.

However, some economists have suggested that the time has come for Reeves to fully break her rule.

The National Institute of Economic and Social Research (NIESR), recently suggested that the least damaging way to raise the required revenue was simply to increase income tax rates.

Its analysis claimed that adding 3p to the rate of basic and higher-rate tax would be more beneficial long term than increasing VAT, corporation tax or making tweaks to other taxes.

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The Resolution Foundation, meanwhile, suggested that the chancellor could raise £6 billion a year by cutting 2p off the rate of employee national insurance (NI) and adding a further 2p to each rate of income tax.

The think tank has said the measure would make the tax system fairer, spreading the tax burden across a broader range of taxpayers (including landlords, the self-employed and pensioners).

It also wants employer NI to be rolled out to limited liability partnerships, such as big law firms.

Adam Corlett, principal economist at the Resolution Foundation said: “Any tax rises are likely to be painful but given the fallout from the recent employer NI rise, the chancellor should do all she can to avoid loading further pain on to workers’ pay packets.”

“She can do this by switching our tax base away from employee NI and on to income tax, which is paid by a far broader group in society. This should form part of wider efforts to level the playing field on tax, such as ensuring that lawyers and landlords face the same tax rates as their clients and tenants.

“These sensible reforms would raise revenue while doing the least possible harm to workers and the wider economy.”

The current pensions minister, Torsten Bell, was previously chief executive at the Resolution Foundation and is now playing a key role in the upcoming Budget preparations.

Staying calm

We won’t find out, for sure, what the Budget will contain until 26 November. Everything at this stage is purely speculation.

As such, financial advisers are warning savers and investors to stay calm and not make knee-jerk decisions that could have negative consequences, if their fears don’t come to fruition.