UK
Ireland
With the 2025 Autumn Budget nigh, are we about to see the same severity of announcements as in 2024?
Last year, the Chancellor told the BBC that the tax-raising 2024 Budget was “not a Budget we would want to repeat”.
Yet, over a year later, meaningful economic growth has not materialised, the fiscal deficit remains significant and any relaxation of borrowing rules risks market backlash. Attempts to cut spending have proved politically unworkable, while demands for public investment in defence, health, education, technology and the environment continue to grow.
Public debate is no longer about whether taxes will rise at the 2025 Budget on 26 November, but about which taxes and by how much. The Chancellor still faces a critical choice:
- Continue a decades long trend of temporary measures to meet short-term borrowing rules; or
- Use this Budget to implement meaningful reform and lay the foundation for sustained growth and fiscal headroom – a Budget that truly would not need to be repeated
The 2024 Budget: What went wrong?
Looking at how taxpayers have reacted and the feedback we have received, we suggest that the Chancellor’s first Budget leaned too heavily on short-term, redistributive taxes on wealth, rather than measures aligned with sound taxation principles that promote business confidence and long-term economic growth:
- We have heard from business owners how the increase in the rate of employers’ national insurance contributions (NIC) to 15%, coupled with reductions to the threshold that employers start paying it, caused them to rethink plans to expand and hire more workers
- The £1 million cap on business and agricultural property reliefs prompted many business owners to shift focus from growth to restructuring ownership and setting aside funds to cover potential future inheritance tax (IHT) liabilities
- The reform to the taxation of non-domiciled individuals, carried interest and pensions, planned before the 2024 Budget, has made the UK a less attractive destination for internationally mobile employees and entrepreneurs
Even if these measures raised enough to address the fiscal deficit, which remains uncertain, they did little to support the economic growth needed to avoid further tax increases in the future.
Lessons learned
To avoid repeating the mistakes of 2024, the Chancellor’s Autumn Budget 2025 should steer clear of measures that:
- Are complex and costly to implement
- Target a narrow base of taxpayers
- Distort individual behaviour and deter investment
Take the idea of a wealth tax, which some seem to be viewed as a silver bullet. In reality, it would require HMRC to build entirely new infrastructure, likely taking years as has been the case for Making Tax Digital. If applied only to a small number of taxpayers, many of whom are internationally mobile, the yield could be far lower than anticipated.
Similarly, further increases to capital gains tax and inheritance tax rarely deliver meaningful additional revenue. These measures encourage taxpayers to delay disposals or gifting decisions, increase demand for complex tax planning and, in some cases, leave the UK altogether. The same doubts apply to so-called “exit taxes”, which may look attractive on paper but would be costly to implement and enforce.
Such measures also send a damaging signal about the UK’s openness to and ability to attract and retain global talent and capital, undermining the government’s future tax-raising capacity.
Five measures worth considering
If the Chancellor wanted to make changes that would be simple and easy to implement, target a broad base of taxpayers and do not distort behaviour, Martin Rankin, director at S&W, discusses some of the more difficult decisions she could be considering:
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1. Reducing tax allowances and thresholds
Freezing tax allowances and thresholds has already raised revenue, but the Chancellor could go further by reducing them. A 10% reduction could generate an estimated £55 billion over the course of parliament. But this approach would hit lower earners hardest, making it politically and economically difficult at a time when household finances are already under strain.
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2. The elephant in the room: Increasing income tax rates
Despite reports that the Chancellor has finally decided against raising income tax, it would, while politically challenging, be highly effective in addressing the fiscal gap. Straightforward to implement, a 1% increase in income tax rates could raise nearly £30 billion over the remainder of this parliament. While politically challenging, this measure would be straightforward to implement and highly effective in addressing the fiscal gap.
Framing it as a response to structural imbalances, where some studies have shown that the average taxpayer is a net recipient of state funds, could help build public understanding. Placing the current rate in its historical context could also help, as it is not widely appreciated that the basic rate ranged from 22%-25% for almost two decades from the late 1980s until the late 2000s.
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3. Narrowing the gap between taxation of employment income and passive income
Currently, the average salaried employee pays a marginal rate of 28% on income tax and NIC, compared to 20% on investment income, pensions and rental profits. This disparity can incentivise individuals to disguise employment as self-employment or operate through corporate structures.
Reducing NIC rates, while increasing the basic rate of income tax, could therefore raise revenue, simplify compliance and remove distortions that burden businesses.
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4. Lowering the VAT registration threshold
The UK’s VAT threshold is among the highest globally, which research suggests discourages some medium-sized businesses from expanding. Halving the threshold to £45,000 could raise over £1 billion annually and remove this barrier to growth. While politically sensitive for small businesses, this change would broaden the tax base and align the UK more closely with international norms.
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5. Reform property taxation
This is reportedly under active consideration and, if done well, could raise significant revenue and support economic growth by improving labour mobility and encouraging more productive use of land and property.
Council tax bands are based on 1991 valuations and fail to reflect today’s property market. Updating valuations and introducing higher bands would create a fairer distribution of the local tax burden and raise significant revenue. Additional measures, such as surcharges for second homes not being let or owned by non-residents, could also be considered.
Stamp duty land tax, meanwhile, imposes a heavy cost on property buyers and discourages mobility. Shifting the burden to sellers would merit consideration but seems likely to distort decisions to sell and downsize, particularly if no credit is available for the tax homeowners would have paid at the time of acquisition.
The 2025 Budget: Another missed opportunity
With the Chancellor now apparently resolved not to increase income tax rates, the 2025 Budget risks becoming a repeat of 2024: a patchwork of tax rises targeting a narrow base of taxpayers. Worse, it could do little to prevent another round of similar measures in 2026, if low growth and rising public spending continue to strain the fiscal position.
There is still time, however, for the Chancellor to pivot towards meaningful reform. That means moving beyond decisions driven by the need to meet government borrowing rules and the OBR’s assessments of them. These rules, while well-intentioned, have led to a decade of short-termism. Decisions that should be grounded in long-term strategy are instead made in response to short-term fiscal snapshots. The freeze in fuel duty, introduced as a “temporary one-year measure” but repeated in every Budget since 2011, is perhaps one of the most egregious examples of this short-termism.
In conclusion, to ensure fiscal sustainability, the Chancellor must embrace a tax system that is growth-oriented and supported by a broad base of taxpayers. A more strategic and inclusive approach to tax policy is not just desirable; it is essential. Otherwise, we will be back here again next year, if not sooner.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. You should always seek appropriate tax advice before making decisions. HMRC Tax Year 2025/26.