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The Government faced a difficult job going into the Autumn Budget, as they navigate a growing national deficit, a seemingly never-ending cost-of-living crisis and political challenges.
From the outset, the Chancellor Rachel Reeves made it clear that this would be an Autumn Budget that focused on fairness, with everyone playing their part in reducing national debt and funding spending on the people in society who need help the most.
Unsurprisingly, this means an increase in taxation across a number of areas, not least the substantial decision to freeze personal tax rates for a further three years.
Against a wide backdrop of inflation above the Bank of England’s two per cent target and rising interest payments for the public purse, the Chancellor also made it clear that higher earners and those with more wealth would be expected to pay more.
At the head of these taxes on wealth is the decision to introduce a ‘mansion tax’, a higher rate of tax on income from dividends, property and savings and a new cap on tax relief to salary sacrifice pension schemes.
Whilst personal tax focused heavily within the Autumn Budget, businesses didn’t entirely escape the net, as Reeves introduced reductions to the writing down capital allowance and a cut to the Capital Gains Tax relief on Employee Ownership Trusts.
However, the biggest sting in the tail for many businesses was the additional burden of higher employment costs, as the Government increases the National Living and National Minimum Wage once again.
Having faced endless jibes from the opposition, Reeves closed her latest speech with a focus on helping those in society and delivering support that would boost growth, reduce inflation and assist with the cost of living.
Economy and deficit
A key promise in Labour’s manifesto was to bring stability to the UK economy and reduce the national debt over the course of the current parliament.
Despite a rocky start to her role as Chancellor and the discovery of a larger than expected black hole in the public finances, Reeves rose proudly to announce that her fiscal rules were working, even if it meant additional personal and business tax hikes – the “necessary choices” she announced in her pre-Budget speech.
According to the OBR, UK GDP will grow by 1.5 per cent in 2025, which is 0.5 per cent above the forecast from earlier this year.
However, in future years, the outlook is less positive. In 2026 the economy is expected to continue to grow by 1.4 per cent, but this is below the previous forecast of 1.9 per cent.
Similarly in 2027, growth will only reach 1.6 per cent, which is 0.2 per cent behind the previous estimate. This trend of slower growth continues through to the end of the current forecast period in 2029.
Despite this slowdown, the Government will reduce its deficit over the next two years and will eventually enter surplus by the 2027/28 tax year. This surplus will continue to grow to £24.6 billion by 2030/31.
The Chancellor was pleased that her decision to increase taxes has more than doubled her headroom to keep within her fiscal rule to balance the budget, from £9.9 billion to around £22 billion.
However, before the Government gets to this point, tough decisions need to be made including a variety of tax hikes in the years ahead.
Personal tax freeze
The biggest and possibly furthest reaching announcement in the Autumn Budget is the Government’s decision to freeze personal tax thresholds until April 2031 – extending the current freeze for another three years.
Whilst politically this means that Labour avoids breaking its manifesto pledge to not raise personal tax rates, the reality is that this change is a tax rise in all but name.
This change will affect income tax thresholds and the equivalent NICs thresholds for employees and self-employed individuals. Digging deeper into the Chancellor’s red book, it will also extend the freeze on Inheritance Tax (IHT) rates for a further year, April 2030 to April 2031.
Deciding to freeze the Income Tax rate is expected to bring in around £8 billion to the treasury, but it will also drag nearly one million more people into paying tax and force hundreds of thousands of taxpayers into higher tax bands due to fiscal drag.
If there was some consolation it was to those already worried about the upcoming reform to Agricultural Property Relief (APR) and Business Property Relief (BPR) from April 2026.
During her speech, the Chancellor confirmed that any unused £1 million allowance for the 100 per cent rate of APR and BPR will be transferable between spouses and civil partners. This includes if the first death was before 6 April 2026.
Acknowledging the costs that this would add to the lives of working people, Reeves did commit to driving energy bills down by axing the ECO scheme. This will cut average household bills by £150 each year.
Business tax
Following on from substantial changes in the previous Budget to business tax, the Chancellor made very few changes to the way organisations will be taxed.
However, she did confirm that from April 2026, the main rate of writing down allowance would be reduced by four percentage points to 14 per cent.
To ensure that businesses weren’t too disadvantaged, a new first-year allowance of 40 per cent for main‑rate assets will be introduced to maintain the Government’s commitment to help businesses invest.
For those looking to exit their company there was another blow, however, as the Government will restrict Capital Gains Tax relief on Employee Ownership Trusts from 100 per cent to 50 per cent.
Although not a tax per se, the biggest change for many businesses will be increases to the National Minimum and National Living Wage.
From 1 April 2026, the rates will increase as follows:
- National Living Wage – £12.71 per hour (up 4.1 per cent)
- National Minimum Wage for 18-20 year olds – £10.85 (up 8.5 per cent)
- National Minimum Wage for 16-17 year olds and apprentices – £8.00 per hour (up 6 per cent)
Tax on wealth
Many expected the Government to tax wealth heavily and whilst there were certainly a number of measures intended to do this and a lot of rhetoric from Reeves and the front benches, the reality fell short of the expectations.
One of the key changes was an increase to income tax against dividends, property and savings.
From April 2026, the ordinary and upper rates of tax on dividend income will increase by 2 percentage points. The additional rate will remain unchanged.
A year later in April 2027, new separate tax rates for property income will be introduced as follows:
- The property basic rate – 22 per cent
- The property higher rate – 42 per cent
- The property additional rate – 47 per cent
The Government will also increase the tax rate on savings across all bands by 2 percentage points in the same year.
In addition to this change, a new High Value Council Tax Surcharge – already dubbed a ‘mansion tax’ – will be introduced for homes worth more than £2 million.
This will equate to an annual charge for properties worth more than £2 million starting at £2,500, rising to £7,500 for properties worth more than £5 million.
Electric cars and transport
The number of electric vehicles on the road has risen rapidly thanks to various incentives, but the Autumn Budget contained considerable changes for this group of road users.
The Chancellor’s speech and accompanying red book sets a clearer long-term framework for electric vehicles, balancing new charges with wider financial support and incentives.
From April 2028, a new Electric Vehicle Excise Duty will introduce a per-mile charge for electric and plug-in hybrid cars, to be paid alongside existing Vehicle Excise Duty.
Electric cars will pay half the fuel duty equivalent (around 3p per mile), while plug-in hybrids will pay half of that rate again. The detailed design is now out for consultation until March 2026.
Alongside this new charge, the Government is expanding support for the sector. An extra £200 million is being invested in charging infrastructure, split between a new local authority fund for residential and workplace chargepoints and a further allocation for home and business charging.
A 10-year business rates exemption will also apply to eligible charging points and electric-only forecourts, reducing costs for operators.
In a significant move for buyers, the threshold for the Vehicle Excise Duty Expensive Car Supplement will rise to £50,000 for zero-emission vehicles.
This will apply to cars registered from April 2025 and will come into effect from April 2026.
The Electric Car Grant is also being strengthened, with an additional £1.3 billion of funding and an extension to 2029/30.
There are updates to company car taxation too. Plans to bring employee car ownership schemes into the Benefit in Kind rules have been delayed until April 2030, with transitional arrangements running until 2031. First-year capital allowances for zero-emission vehicles and charging equipment have been extended to 2027.
Plug-in hybrids will also benefit from a temporary Benefit in Kind tax easement until April 2028, preventing sharp increases as new emissions standards come into force.
For those not ready or able to make the move to zero-emission vehicles, the Government confirmed that the current 5p cut to fuel duty will remain in place up until the beginning of September 2026.
Spending and investment
The tax hikes were offset by spending elsewhere, with the Government committing to an additional £12 billion in the Chancellor’s measures.
One key commitment, as part of its mission to end child poverty, was the removal of the two-child limit in the Universal Credit Child Element from April 2026.
However, its spending focus wasn’t just on social schemes as the Government provided investment to a wide range of schemes.
The Autumn Budget outlines a broad programme of investment aimed at strengthening regional economies, improving infrastructure and accelerating growth across the UK. A series of new funds sits at the heart of this approach.
These include the £30 million Kernow Industrial Growth Fund, designed to back Cornwall’s strengths in critical minerals, renewable energy and marine innovation and a £500 million Mayoral Revolving Growth Fund
This will allow Mayors in key city regions to co-invest with central Government to unlock stalled developments and overcome finance barriers.
A new Local Growth Fund will also provide just over £900 million over four years to a wide group of Mayoral Strategic Authorities, giving each the flexibility to support local infrastructure, business investment, employment initiatives and skills programmes.
Targeted support continues through the Growth Mission Fund, which has already committed funding for projects ranging from a sports quarter in Peterborough to a STEM centre in Darlington.
Investment zones and freeports continue to form part of the wider industrial strategy.
Business cases have now been approved for the Flintshire and Wrexham Investment Zone, Anglesey Freeport and the Forth Green Freeport, with details also confirmed for the Northern Ireland Enhanced Investment Zone.
The Budget also commits record levels of local road maintenance funding, rising to more than £2 billion a year by 2029/30, enabling the Government to exceed its commitment to fix an additional one million potholes annually.
In energy and industrial development, the North Sea Future Plan sets out how the UK will continue supporting investment in domestic oil and gas, while up to £14.5 million will be channelled into industrial projects in Grangemouth to help create jobs.
Other major transport and infrastructure commitments include long-term support for the Docklands Light Railway extension to Thamesmead, funding for the next stage of the Lower Thames Crossing and brownfield remediation in Port Talbot to unlock development linked to the Celtic Freeport.
Savings and Pensions
Long awaited reforms to ISAs were finally delivered by the Chancellor in this Budget.
From 6 April 2027, the annual ISA cash limit will fall to just £12,000, but an overall annual ISA limit of £20,000 will be retained.
This means that the remaining £8,000 allowance will need to be invested in stocks and shares ISA to benefit from the tax-free amount.
In a big mix up to both pensions and tax planning, the Chancellor announced that employer and employee National Insurance contributions will be charged on pension contributions above £2,000 per annum made via salary sacrifice.
This change will take effect from 6 April 2029, closing a window that many high earners have used to minimise their Income Tax liabilities, whilst increasing their lifetime pension savings.
Final thoughts
The Autumn Budget delivered on the expected tax hikes, but the axe didn’t fall in all of the places that had been speculated about.
This was a Budget that focused more on personal taxation, rather than corporate taxation, but many of the measures will affect the employees and leadership of SMEs across the UK.
Labour’s focus is clearly on reducing its deficit, whilst increasing spending in areas that reduce the impact of the cost of living. Whether it will achieve this careful balancing act is yet to be seen, but in the meantime for many of us it will mean paying more across a wide range of taxes.
Those people whose future plans have been affected as a result of this Budget must seek professional advice as soon as they can.
To read the full Autumn Budget document, please click here.
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