Autumn Budget 2025
Introduction
The Autumn Budget (November 26, 2025) speech was delivered against a backdrop of economic stagnation, Labour not wishing to break its self-imposed fiscal rules and uncertainty surrounding the longevity of both the Chancellor and Prime Minister‘s positions.
There has been much speculation about how the £22bn “black hole“ in the public finances can be filled without increasing government borrowing to cover day-to-day public spending, and how to get government debt falling as a share of national income.
Many believed this had to result in tax rises and there have been plenty of hints from the Treasury that this would be the case. Indeed, there were a couple announcements confirmed before speech day:
Minimum Wage and National Living Wage increase from April 2026
16 - 17-year-olds and apprentices see a rise from £7.55 to £8.00 an hour.
Workers aged 18 to 20 receive an 85p increase to £10.85 an hour.
Over 21s will get an additional 50p an hour, making their minimum wage £12.71.
“Sugar Tax” expanded to cover milk-based drinks
Pre-packaged bottles and cartons of milk-based drinks including milkshakes, lattes, flavoured milk and milk substitute drinks will be affected. The tax of 19.4p per litre on drinks containing 5g of total sugar per 100ml will now apply to drinks containing 4.5g per 100ml.
This could add a few pence to the retail prices of these drinks, or manufacturers may look to reduce the sugar content. They will need to do this by January 1, 2028, to avoid the revised tax.
This Budget followed the “tax and spend“ format. The Government wants to support ever burgeoning public services, clearing backlogs, improving schools and hospitals, but also to increase its fiscal headroom to £21.7bn. It will do this with a £26bn rise in taxes. It also believes that this budget will ease the cost-of-living crisis by encouraging growth and investment and reducing inflation.
Tax rises in summary:
- £8.0bn: Freezing income and NI thresholds until 2031
- £4.7bn: drop to relief on salary sacrifice pension contributions
- £2.2bn: tax rises on savings, dividends and property
- £1.5bn: changes to corporation tax
- £1.4bn: pay-per-mile scheme for electric vehicles
- £1.1bn: gambling tax
- £900m: capital gains on trusts
- £400m: council tax rise on homes worth more than £2m
- £2.3bn: tackling tax avoidance
- £4.4bn: other measures
Additional information emerged in the finer details contained within Treasury and HMRC papers that were released after the Chancellor‘s main speech. Of course, much of this was seen prior to the Chancellor‘s speech as the Office for Budget Responsibility accidentally released details of the Budget early.
So now we can look ahead to the 2026/27 tax year with greater certainty in key areas, allowing businesses and investors to plan accordingly. A summary of the major changes follows below.
Income Tax
Despite the continuing pressures on the public finances, Ms Reeves again resisted the temptation to break her promise on freezing income tax. This means that the rates and thresholds for 2026/27 will be as follows:
For England and Wales:
Personal allowance: 0% (first £12,570 earned)
Basic tax rate: 20% (annual earnings up to £50,270)
Higher tax rate: 40% (from £50,270 to £125,140)
Additional tax rate: 45% (Above £125,140)
For Scotland:
Starter tax rate: 19% (Up to £2,827)
Basic tax rate: 20% (from £2,828 to £14,921)
Intermediate tax rate: 21% (from £14,922 to £31,092)
Higher tax rate: 42% (from £31,093 to £62,430)
Advanced tax rate: 45% (from £62,431 to £125,140)
Top tax rate: 48% (above £125,140)
Income Tax and National Insurance thresholds
As had been expected in some quarters, the threshold freeze has been extended to 2030-31. This decision will potentially bring in up to £8bn a year despite Ms Reeves telling Parliament in October 2024 that the threshold freeze would “hurt working people“. An estimated 800,000 more people will start to pay income tax and around 900,000 will move into the higher-rate band.
VAT
Ms Reeves has stuck to the Labour manifesto commitment to avoid raising VAT. It will remain at the existing levels for 2026/27.
Corporation Tax
Corporation Tax will remain at 25%. The small profits rate and marginal relief will also stay as they are. As will R&D reliefs.
There will be a reduction to the main rate writing-down allowance from 18% to 14% from April 2026. A new 40% first year allowance will come into play from January 1, 2026.
Capital Gains Tax
CGT relief on business sales made to employee ownership trusts will fall from 100% to 50%. This comes into effect immediately.
Inheritance Tax Thresholds
The IHT nil-rate bands were already remaining unchanged until 2030. This has been extended to April 2031.
Pensions
An area of speculation for tinkering today was reducing the tax relief on employee pension contributions. Instead, an annual cap of £2,000 on contributions from salary sacrifice schemes without paying National Insurance will be introduced in April 2029. Any contributions above the cap will be subject to employee and employer NI payments.
Those in receipt of the full new state pension will see an annual increase of £575 from next April, thanks to the “triple lock“ mechanism remaining in place. Those on the basic state pension will receive an extra £440.
Income from Savings, Dividends and Property
The tax paid on interest received from savings, and income from dividends and property rentals is set to increase by two percentage points. This will affect dividends from April 2026 and savings and property income a year later.
ISAs
There has been significant speculation in the press since before the 2025 Spring Statement that rules around cash ISAs would be altered. Currently, savers can pay in £20,000 per year tax-free. This will be cut to £12,000 for the under 65s. They will still be allowed to put the remaining £8,000 into a “stocks and shares“ ISA.
This delivers on the message in the Spring Statement which stated that: “The government is looking at options for reforms to Individual Savings Accounts that get the balance right between cash and equities to earn better returns for savers, boost the culture of retail investment, and support the growth mission.“
Council Tax
A so-called “mansion tax“ will be introduced from April 2028 whereby residential properties worth over £2m will face an additional annual cost of £2,500. Properties worth over £5m will see a £7,500 increase to their annual council tax. This tax will be levied on the property owners rather than the occupiers.
Business Rates
750,000 retail, hospitality and leisure properties will see a reduction in their business rates. This will be paid for by increasing rates on premises worth more than £0.5m, with warehouses used by online giants being singled out.
Stamp Duty
There will be a three year “holiday“ for companies newly listing on the London Stock Exchange.
Fuel Duty & new pay-per-mile scheme
Fuel duty is to gradually increase after September 2026. It currently sits at 52.95p per litre.
Owners of electric vehicles will see a 3p per-mile scheme introduced from April 2028. This would amount to a journey from London to Edinburgh costing an extra £12. Plug-in hybrid vehicles will face a 1.5p per-mile charge.
Gambling Tax
It appears that the increase in online gambling has caught the attention of the Treasury as Ms Reeves announced the Remote Gaming Duty will increase in April 2026 from 21% to 40%. Online betting will see a new duty of 25%, starting in April 2027. Conversely, the bingo tax is being abolished from next April.
Alcohol and Tobacco Duty
The alcohol duty rate will increase in line with the Retail Price Index from February 1, 2026.
The tobacco duty rate will increase in line with the RPI + 2 percentage points immediately, and again by the same measure on October 1, 2026.
Two-Child Benefit Cap
As speculated, this cap is to be abolished from April 2026. This has strong advocates on both sides of the argument. It is being done to lift 450,000 children out of poverty, but others think it incentivises those relying on benefits to remain in that position, at the expense of those only having children they can afford to raise.
Public Transport & Energy Bills
For the first time in 30 years, rail fares will be frozen for one year from March 1, 2026. But taxi journeys through ride-hailing apps such as Uber are set to be taxed.
The average energy bill will fall by £150 from next April due to cutting levies. The Energy Company Obligation scheme will be scrapped.
Summary of other announcements
Making the tax system fairer and fit for the 21st Century
The Chancellor emphasised that everyone must “do their bit“ to help pay for the welfare state. She states that she has devised this range of tax rises to spread the burden as fairly as possible.
Moves continue apace to modernise the tax system, making it fit for the future and adapting to our changing way of life and spending habits to ensure a level playing field for all those providing goods and services.
Reducing the cost of living and bringing down inflation
The Budget has looked to deliver savings to households and increases to key benefits that will help those struggling the most. It has done this by freezing rail fares and prescription charges, keeping the triple lock promise to pensioners and increasing the National Living Wage to £2.71 per hour, amongst other measures.
The Chancellor believes this Budget package will reduce inflation by 0.4 percentage points next year, further relieving the squeeze on households‘ finances.
Welfare cuts
The Government has committed to finding further efficiencies in public spending, whilst improving public services. A headline measure is to abolish Police and Crime Commissioners and councillors by 5,000. This should save £250m over five years.
Pursuing Growth
This Budget protects the increased public expenditure in infrastructure projects required to help the economy grow. This includes new transport links, housing and nuclear power capacity, to ensure energy security. Seven regional mayors will receive a share of £13bn “flexible“ funding to invest in skills, business support and infrastructure.
The Government is also backing entrepreneurs to start, scale and keep businesses in the UK. It will incentivise investment, particularly around AI development.