Autumn Budget countdown: four rumoured reforms

Chancellor Rachel Reeves leaving 11 Downing Street last week. Photo: Dan Kitwood/Getty Images.

The weekend before the government’s annual Budget is typically fertile ground for fresh speculation, but this year things were a bit thin on the ground.

For many this will bring welcome relief. Over the past few months, the rumour mill has spun into a frenzy, spanning the breadth and depth of the UK tax regime. Earlier today, the UK business secretary, Peter Kyle, was interviewed on Times Radio and apologised for the sheer weight of reports, describing them as a “distraction”.

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One aspect that has settled down is tax hikes appear inevitable. Rachel Reeves is falling short of her self-imposed fiscal rules, with the chancellor offering strong hints over the past few weeks that higher taxes are on the agenda.

The chancellor will deliver her raft of tax and spending plans on Wednesday at around 12:30pm, in what’s been described as a “make or break” Budget. In good news for retirees, the Treasury confirmed today that the triple lock will be honoured, meaning the state pension will rise 4.8% from April 2026.

So, with roughly 48 hours to go, let’s examine four key rumours that are swirling. Note, these are purely speculation – we’ll have to wait until Budget Day to learn exactly which reforms will be announced.

Mansion tax

An option for the chancellor that’s started to gather pace is a mansion tax. This isn’t a new rumour – the idea has knocked around the headlines for some time – and would be levied on homes worth £2 million or more, affecting around 150,000 properties. According to reports, it would raise only around £400 million to £450 million, a fraction of the fiscal deficit.

Originally, Reeves was apparently set on a 1% charge, meaning someone with a £2 million home would be hit with an annual tax bill of £20,000. But newer speculation suggests Reeves may opt for a £5,000 ceiling. Meanwhile, a shake up to the council tax regime has been suggested, affecting around 2.4 million properties in council tax bands F, G and H.

While the government could argue that such policies fits its brief of targeting those with the “broadest shoulders”, it could hurt homeowners who are asset rich but cash poor, and there are concerns about negative implications for the housing market.

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Jack Fletcher-Price, equity analyst at Morningstar, said both policies would disproportionally hit London and the South East and added: “The mansion tax has the potential to slow down transactions above the threshold, as logically owners would defer moving in the hope that it will be repealed by a later government. The changes to council tax bands is probably overdue, but it will further undermine trust in this government given they promised not to do this in the run-up to the election.”

Salary sacrifice cap?

In the retirement space, speculation has pivoted from cuts to pension tax-free cash to a cap on salary sacrifice, in a move forecast to raise around £2 billion. Salary sacrifice is an agreement between employers and employees to trade a portion of the worker’s earnings for some kind of benefit, commonly pension contributions. The upshot here is that the employee saves national insurance (NI) as well as income tax, and businesses swerve NI too.

Reports suggest that Reeves might apply a £2,000 ceiling on salary sacrifice contributions, a policy that would raise around £2 billion. This would mean workplaces pay 15% NI on contributions above this figure while employees will pay either 8% or 2%, depending on whether they earn below or above £50,270 – the higher-rate tax threshold.

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Needless to say, the prospect has not been well received. Chipping away at the tax perks of pensions at a time when millions of people are struggling to save for retirement seemingly runs counter to the government’s broad push to improve our retirement fortunes. Furthermore, it would prove a further blow to businesses which are already facing steeper NI bills after measures announced at last year’s Budget.

Cash ISA limit under threat?

A rumour that has bubbled away for most of 2025 is mooted cuts to the cash ISA limit. Reeves was expected to cut the amount you can pay into the cash version of the tax wrapper at her Mansion House speech but backed away from the idea amid fierce opposition from building societies and consumer champions. At the time, Reeves was apparently seeking to reduce the cash ISA limit to just £4,000, while retaining the overall £20,000 ISA allowance. The aim here is to shift more money into the stock market, boosting savers’ potential returns and supporting the domestic economy.

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Such an aggressive haircut now appears off the table, with the chancellor believed to be eyeing up a reduction to either £10,000 or £12,000, akin to the pre-2014 ISA landscape when the cash limit was never more than half the overall allowance.

Talk of lowering the cash ISA allowance is a divisive matter. Proponents claim the cash limit is too generous and those who have the financial muscle to use up their £20,000 allowance should invest rather than save the money; provided they have five years on their side. However, critics claim that it will have little sway with savers, who are more likely to pay any excess into either Premium Bonds or tax-paying accounts, as security and certainty is a bigger priority than tax-free income and growth.

Fiscal drag extension

At one point the government seemed odds-on to break its election manifesto pledge and increase taxes on working people, in the shape of income tax hikes. Reports here, however, have faded, although Reeves may still raid the income tax system by prolonging the deep freeze on tax thresholds for a further two years.

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Income tax thresholds haven’t budged since 2021 and will remain at current levels until 2028. This is stealthy way to claw in extra tax receipts without jacking up the headline rates, a tactic known as fiscal drag. As incomes rise naturally over time, millions of people will either pay tax for the first time or be pulled into higher tax bands.

At last year’s Autumn Budget, Reeves pledged to bring fiscal drag to an end in 2028-29 but could renege on this commitment as extending the deep freeze until 2030 could gather an extra £10.4 billion a year, according to the Institute for Fiscal Studies (IFS).