Autumn 2025 Budget: Tax Rise Prospects Continue To Grow Despite Pledges
UK chancellor Rachel Reeves is preparing the Autumn 2025 Budget amid mounting expectations of tax increases, as the Treasury seeks to address an estimated £40bn shortfall in public finances.
Reeves is reportedly reviewing a list of potential revenue-raising measures while aiming to frame any tax rises around a broader economic agenda focused on fairness and improved living standards. “The budget is a moment, but she wants to make sure there’s a bigger economic agenda pushing through,” said one person close to the chancellor.
While Labour’s manifesto rules out increases to income tax, employee National Insurance and VAT, other taxes remain under consideration. Options include prolonging the freeze on income tax thresholds, increasing duties on unhealthy foods and gambling, and potentially raising fuel duty. Economists note that broadening the VAT base, rather than raising the rate, could technically uphold the manifesto pledge.
James Smith, research director at the Resolution Foundation, said: “If the black hole was only £20-£25bn, this would allow the Treasury to make some pretty sensible changes … But if it exceeded £40bn … the government would need to look at more drastic measures. The big political call is whether to break one of the manifesto pledges.”
Taxes on the gambling industry appear almost certain to rise, with former prime minister Gordon Brown backing a £3bn increase in online betting duties to fund the removal of the two-child benefit cap. Fuel duty, frozen for more than a decade, is also under discussion, aligning with Labour’s net-zero objectives.
Shadow chancellor Sir Mel Stride warned Labour was “gearing up to punish the British public with more tax rises.” Mujtaba Rahman of Eurasia Group questioned whether Reeves’ fairness narrative would be enough to offset public opposition: “At times this feels like a government in search of a narrative.”
Downing Street maintains there will be no formal “reset,” emphasising that the Budget will support long-term economic growth through measures such as planning reform and infrastructure investment.
Tax Rises Loom as Government Runs Out of Options
The UK government is under mounting pressure to announce tax increases in the Autumn 2025 Budget, as economists warn that significant measures may be unavoidable to close a growing fiscal gap.
The National Institute of Economic and Social Research (NIESR) forecasts a £41.2bn deficit in 2029–30, breaching the government’s “stability rule” that day-to-day spending must be funded by tax revenues rather than borrowing. “Substantial adjustments in the Autumn Budget will be needed if the Chancellor is to remain compliant with her fiscal rules,” NIESR said.
With most spending plans locked in, NIESR believes “the only lever available is to raise taxation in a moderate but sustained way.” However, this creates what it calls a “trilemma” — pitting Rachel Reeves’ fiscal rules against her spending commitments and Labour’s pledge not to raise taxes on “working people.” At least one of these, the think tank warns, may have to be sacrificed.
Possible options floated by NIESR include raising VAT, increasing income tax rates, adjusting capital gains tax, cutting the £20,000 ISA allowance, or reversing recent NIC cuts. Each carries implications for SMEs, from reduced consumer demand to higher employment costs. Corporation tax changes could also be on the table, despite Reeves’ pledge to cap the rate at 25%.
Prime Minister Keir Starmer has so far declined to rule out VAT, income tax or corporation tax increases, telling reporters: “Some of the figures that are being put out are not figures that I recognise, but the budget won’t be until later in the year.” While Labour’s manifesto explicitly rules out increases to income tax rates, employee National Insurance contributions, and VAT rates, other measures remain possible:
1. Income Tax Threshold Freeze or Rate Increases
Possibility: The government may extend the freeze on income tax thresholds, raise rates, or broaden the VAT base/increase the standard VAT rate.
Impact on SMEs: These measures could reduce consumer disposable income, dampening demand—particularly in retail, hospitality, and leisure sectors. VAT changes may also raise input costs for VAT-registered businesses. Additionally, employers could face higher PAYE obligations if wage growth pushes staff into higher tax bands.
2. Reversal of NIC Cuts
Possibility: Restoring higher employee or employer NIC rates.
Impact on SMEs: Would raise employment costs, potentially delaying recruitment or prompting workforce reductions.
3. Capital Gains Tax (CGT) Increases
Possibility: Higher rates or reduced reliefs.
Impact on SMEs: Increases the tax burden when selling a business or shares, reducing the funds available for retirement or reinvestment.
4. ISA Allowance Reductions
Possibility: Lowering the £20,000 annual allowance.
Impact on SMEs: Could reduce investment returns for business owners and impact cash reserves earmarked for reinvestment.
5. Corporation Tax Adjustments
Possibility: Altering rates or allowances, despite the 25% cap pledge.
Impact on SMEs: Directly cuts into profits, limiting capacity for expansion, hiring, or debt repayment.
What Business Owners Should Do Now
• Stress-test budgets for 2025/26 against potential increases in tax costs.
• Review dividend timing if CGT or dividend tax changes are expected.
• Model recruitment plans in case of higher NICs.
• Assess investment and asset sales before potential rule changes.
With fiscal pressures mounting, the Autumn 2025 Budget could deliver a mix of direct and indirect tax increases. SMEs that prepare early — modelling different scenarios and building flexibility into their cashflow — will be better placed to absorb the impact without sudden disruption.
UK Hiring Plans Sink as SMEs Brace for Higher Costs and Autumn Tax Changes
UK private sector hiring intentions have fallen to their lowest level since the pandemic, as rising payroll taxes and uncertainty over potential Autumn Budget measures weigh heavily on business confidence.
New KPMG and Recruitment & Employment Confederation (REC) data shows permanent staff appointments in July at a reading of 40.0 — well below the 50 mark that signals growth. Only one in four companies expect to add staff in the next three months.
Jon Holt, group chief executive and UK senior partner at KPMG, said: "The labour market cooled in July as chief execs held back from increasing their recruitment budgets. Economic uncertainty, the complexities of AI adoption and global headwinds are all weighing on business planning."
The CIPD’s latest survey of 2,000 companies found just 57% of private sector firms plan to recruit in the next quarter — the lowest figure since records began in 2016 outside of lockdowns. James Cockett, senior labour market economist at the CIPD, warned confidence is "faltering further under rising employment costs," particularly in sectors offering early career roles.
Retail and hospitality have been hardest hit, with vacancies falling sharply as cost pressures rise. Kate Shoesmith, REC deputy chief executive, cautioned: "Hiring in retail and hospitality is down. Employers in these sectors are pausing due to cost pressures and uncertainty around employment law."
For SMEs, the combination of higher NICs, potential tax increases, and weaker demand could mean tighter margins, delayed investment, and a greater focus on retention over recruitment in the months ahead.
How Can Qubic Help?
To navigate these potential changes, Qubic offers tailored tax planning services. Our expertise can help mitigate the impact of higher taxes and leverage current reliefs effectively. The window of opportunity to capitalise on existing tax rates and reliefs is narrowing, making now the time to act.
We understand that uncertainty surrounding tax changes can be challenging, and we are here to help you.
For more information on our tax planning services and to discuss your options with one of our team, simply click the link below:
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