Autumn Budget 2025 predictions

I spent much of my final year at university studying the human aspects of budgeting – the motivational impact of financial forecasts. Accounting psychology might be a niche subject but it shouldn’t be overlooked. Nor should the psychological impact of taxation changes – which might be termed the human aspects of Budgets.

When thinking about the forthcoming Budget, my thoughts are on the tone that it sets and the fiscal strategy adopted. As far as the tone is concerned, I’m expecting it to be very negative with lots of blaming in the Budget speech. That’s probably not very motivational.

The future fiscal strategy is important for helping businesses to plan for the future. Certainty is crucial as taxpayers need to understand the ground rules. Investment and enterprise is disincentivised if entrepreneurs, investors and workers can’t predict the future tax take on their efforts.

Uncertainty ahead of the autumn Budget

Of the government’s fiscal strategy, I doubt we will be much the wiser after the Budget than we are now. I’m reminded of taxation under the ancien regime – taxing the population for as much as you can get away with. The famous quote of “the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing” dates to that regime but it wasn’t very successful as the French Revolution and the guillotine followed soon after.

A number of commentators have suggested that this year uncertainty for businesses ahead of the Budget has been particularly acute, as anything seems possible – even departing from the few principles on tax set out in the Labour manifesto.

Big tax rise or multiple smaller measures?

The core choice in this Budget appears to be whether Rachel Reeves goes for a big tax rise or many little tax rises. The options for a big rise are either income tax or VAT, both of which were ruled out ahead of the 2024 election. A VAT rise is likely to be inflationary, so that leaves income tax. A rise of 2p across all income tax rates has been widely trailed.

For 2026/27, an increase in each rate by 2p could raise £17.3 billion, according to the HM Revenue & Customs (HMRC) figures on gov.uk from June 2025 (Direct effects of illustrative tax changes bulletin (June 2025) – GOV.UK). It has been suggested that the main rate of national insurance (for those earning below £50,000 per year) for class 1 and class 4 could be cut by 2p alongside an increase in income tax. That would cost the Exchequer £11.6 billion, reducing the revenue raised to less than £6 billion overall, and that doesn’t feel like enough to be worth breaking the manifesto pledge for.

Smaller tax measures in the autumn Budget

Of the smaller tax raising options that could still raise billions, the following are doing the rounds:

• An increase in national insurance for LLP members
• Extending the freeze in income tax allowances and thresholds for longer
• A new tax on electric vehicles (EVs) could be announced
• A restriction on salary sacrifice could be introduced to limit its use in pension planning
• An increase in council tax on higher value properties (well, higher value in 1991)
• A capital gains tax (CGT) exit charge could be introduced to stop business owners leaving the UK
• The VAT threshold could be reduced to remove a barrier to small business growth, but there are EU complications on that for Northern Ireland
• Gambling taxes and excise duties could increase

How much could these measures raise? There are not HMRC figures on gov.uk for these measures, although there are various estimates bandied about in the press. Remember also that council tax is not even an HMRC tax. One also needs to bear in mind that the Chancellor and the government will want to have some tax concessions or benefit increases to announce to try to alleviate the gloom.

So possibly it is not an either/or strategy. Very possibly an income tax rise with a number of the other measures as well which largely target higher rate and additional rate taxpayers. That includes members of LLPs, those making salary sacrifice pension contributions, those driving EVs and those living in higher value houses. Very possibly the same people. I might even call them clients.

Electric vehicle taxation and business impact

On the taxation of EVs, my suspicion is that the EV policy as announced will not be the one finally implemented. It feels like the rumoured policy is one that is good enough for the Office for Budget Responsibility (OBR) to ‘score’ and so becomes a window-dressing exercise for the fiscal forecast. Economists coming up with a tax policy to satisfy other economists marking their homework. Meanwhile, the real world impact will be the human reaction to the policy and probably fewer sales of EVs. How does that help car dealerships and others run their businesses?

Hopefully the Chancellor can find some money to alleviate the business rates policy she announced in the Budget last autumn. The policy as announced alleviated the business rates burden on lower value business premises but required the tax raised to remain the same, so the tax burden has to fall on larger properties such as high street retail chains. It feels like that goose is completely plucked!

Capital taxes and inheritance tax changes

What of capital taxes? The HMRC figures on gov.uk suggest that a 1% increase in the main CGT rate raises a minimal amount. A 10% increase might raise £2 billion, but there are many assumptions in that figure about behavioural responses.

For inheritance tax (IHT), the ideas circulating in the press about making it harder to make gifts in lifetime are not costed in the HMRC figures but probably raise a modest amount of money. Any such changes are likely to be ideologically driven and be politically motivated to show that wealth is being targeted as well as income.

The difficulty on taxing wealth is that it is much easier to tax income and spending. Certainly clients expect further IHT anti-avoidance provisions and a more restrictive gifting regime, and that is prompting large gifts of business interests and other assets ahead of the Budget.

Possible reforms to agricultural and business relief

On the IHT agricultural and business reliefs, I think it is possible we could see further changes that might be politically welcome. I think the proposed £1m 100% relief allowance could be increased but also restricted to fewer qualifying individuals, and a cap introduced on the total relief claimable. These could be net revenue raising. Possibly at the same time, the implementation date could be pushed back to April 2027.

What else might feature in the autumn Budget 2025 speech?

Be prepared for lots of international comparisons with the aim that we should be like other countries. That may be very reasonable and realistic but it’s not particularly motivational. It comes across as a desire to avoid relegation rather than win the league. It doesn’t feel to me that it will give the public much new hope.

Rachel Reeves will want some good news – from Labour’s political perspective – to announce. This may focus on reducing the two-child benefit limit, but I think it could include something on the withdrawal of the personal allowance at £100,000. Fixing that financial issue looks too difficult a challenge for this Budget, but maybe the withdrawal rate could be slowed from £1 in every £2 of allowance to perhaps £1 in every £4. Something like that might be affordable and might feel like progress.

Business uncertainty and the autumn Budget

To return to my core theme about uncertainty for business owners, considerable damage has been done by last autumn’s Budget and the uncertainty leading up to this one. We can advise how best to manage and adapt to any tax changes introduced but it does rely on making forecasts about the future and client perspectives on that differ.

There isn’t much faith and trust in this government at present and there seems to be a realistic possibility that either the Chancellor and/or the Prime Minister will not be in office this time next year. Not an easy backdrop to plan against and all the more need for good advice. We’re here to help your business navigate this difficult environment.